ROBERT A. RICHARDSON, Magistrate Judge.
The plaintiff, SEI Fuel Services, filed this breach of contract action against the defendants, A&J Gas and Convenience, LLC, Anis Ahmed M. Shaikh, Jabin A. Shaikh, Naeem Uddin, Faisal Khalid and Sana Adel, LLC.
The Court held a PJR hearing on August 6, 2019. During the hearing, the defendants noted that the agreement requires the Court to apply Massachusetts law. The defendants argued that the plaintiff cannot recover lost profits under Massachusetts law. On August 22, 2019, the parties submitted briefs on the damages issue and, on August 28, 2019, the defendants submitted a reply brief. After considering the evidence, arguments and briefs, the plaintiff's application for a prejudgment remedy is GRANTED.
In addition to the evidence that was introduced during the PJR hearing, both parties included detailed facts in their briefs. The Court summarizes the facts below.
On or about October 30, 2002, A&J Gas and Convenience, LLC ("A&J Gas") entered into a Branded Sales and Security Agreement with Mutual Oil Co., Inc. (Plaintiff's Exh. 1). The agreement had an effective date of November 1, 2002 and related to the sale of petroleum products at the gas station located at 202 Main Street in Southington, Connecticut. (Plaintiff's Exh. 1). The agreement required A&J Gas to purchase petroleum products from Mutual Oil Co., Inc. ("Mutual Oil") and operate a branded gas station using the Citgo trademark. (Plaintiff's Exh. 1, at p. 3). A&J Gas' obligations under the agreement were secured by a mortgage on the premises. (Plaintiff's Exh. 2, p. 2 at ¶ 12).
On the same day that the parties entered into the Branded Sales and Security Agreement, the parties signed an Addendum to the agreement. (Plaintiff's Exh. 2). The Addendum provides that the term of the agreement is for ten years or 9,000,000 gallons whichever comes later. (Plaintiff's Exh. 2, at ¶ 2).
In August of 2006, defendants Naeem Uddin and Faisal Khalid signed an Assumption Agreement and assumed the obligations of A&J Gas under the Branded Sales and Security Agreement. (Plaintiff's Exh. 4). The Assumption Agreement provides that
(Plaintiff's Exh. 4, at ¶ 1). The Assumption Agreement does not release Anis Ahmed M. Shaikh or Jabin A. Shaikh. (Plaintiff's Exh. 4, at ¶ 6).
In August 2018, the defendants attempted to de-brand the gas station of all Citgo trademarks and stopped purchasing petroleum products from the plaintiff. "The concept of `debranding' essentially means taking down the logos, names and other reference to the supplier and starting up with a new supplier." (Dkt. #55 at 2).
In September 2018, the plaintiff filed the current lawsuit alleging breach of contract, violations of the Lanham Act, 15 U.S.C. § 1114, et. Seq. and violations of the Trademark Dilution Revision Act of 2006, 15 U.S.C. § 11051, et seq. Plaintiff's application for a prejudgment remedy ("PJR") is predicated on the breach of contract claims raised in Counts Four through Seven.
Rule 64(a) of the Federal Rules of Civil Procedure provides that in a federal civil action "every remedy is available that, under the law of the state where the court is located, provides for seizing a person or property to secure satisfaction of the potential judgment." Fed. R. Civ. P. 64(a); see also
At this stage, the "trial court's function is to determine whether there is probable cause to believe that a judgment will be rendered in favor of the plaintiff in a trial on the merits."
The probable cause standard is modest, and "not as demanding as proof by a fair preponderance of the evidence."
A probable cause determination requires the court to determine "the validity of the plaintiff's claim and the amount of the remedy sought."
The plaintiff argues that the defendants breached the Branded Sales and Security Agreement in multiple ways and that the plaintiff is entitled to recover four different categories of damages: (1) lost profits in the amount of $103,106.40; (2) the cost of petroleum that was delivered to the defendants but never paid for, in the amount of $11,732.05; (3) reasonable attorney's fees in the amount of $45,809.44; and (4) the unamortized cost of the installed equipment in the amount of $7,787.15. (Dkt. #48-1 at 4-5).
The Sales and Security Agreement provides that "the interpretation and legal effect of [the] Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts." (Plaintiff's Exh. 1, at ¶ 21). Therefore, the Court will apply Massachusetts law to the substantive arguments of the parties.
Under Massachusetts law, "[t]o succeed in a breach of contract action, a [plaintiff] must demonstrate (1) that the parties reached a valid and binding agreement, (2) that one party breached the terms of the agreement, and (3) that the other party suffered damages from the breach."
The plaintiff argues that the Branded Sales and Security Agreement requires the defendants to purchase nine million gallons of gasoline. In support of this conclusion, the plaintiff relies on paragraph two of the Addendum, which states that "[t]he term of the contract will be for ten (10) years or 9,000,000 gallons, whichever comes later." (Plaintiff's Exh. 2). The defendants disagree with this interpretation.
In their initial brief, the defendants argued that the "[p]laintiff's entire claim is predicated upon the theory that the required minimum purchase is 900,000 gallons per year." (Dkt. #55 at 4-5). Based on this assumption, the defendants argued that plaintiff's theory is inconsistent with the plain language of the agreement. (Dkt. #55 at 5). The agreement provides that the maximum quantity to be delivered to the defendants each month is 75,000 gallons of gasoline and the monthly minimum that the defendants are required to purchase is "90% of the maximum." The defendants argued that these monthly requirements contradict plaintiff's theory that the defendants were required to buy a minimum of 900,000 gallons of gasoline per year. (Dkt. #55 at 4; Plaintiff's Exh. 1, at p. 1).
In response, the plaintiff alerted the Court that the defendants had misstated the plaintiff's theory. (Dkt. #56 at 2). The plaintiff contends that the agreement requires the defendants to purchase 9,000,000 gallons of gasoline but it does not require the defendants to purchase 75,000 gallons each month or 900,000 gallons each year. (Dkt. #56 at 2). Instead, the plaintiff contends that the defendants were required to purchase
As the plaintiff notes, although page one of the Branded Sales and Security Agreement provides that the term will run from November 1, 2002 until October 31, 2012, page one of the Sales Agreement annexed thereto states that the agreement "shall automatically renew itself on a month to month basis and continue in full force and effect. . . ." (Plaintiff's Exh. 1, at 3). The Addendum, which was signed on the very same day as the Branded Sales and Security Agreement, further provides that "the term of the contract will be for ten (10) years or 9,000,000 gallons, whichever comes later." (Plaintiff's Exh. 2, at ¶ 2). The plaintiff argues that these provisions required the defendants to purchase 9,000,000 gallons of gasoline but they were not required to purchase it within ten years. (Dkt. #56 at 3). Instead, under the plaintiff's theory, the defendants had the option of purchasing the 9,000,000 gallons during the ten year term or during any monthly renewals that followed the ten year term. (Dkt. #56 at 3). Plaintiff's theory is supported by paragraph 2 of the Addendum as well as the language in the Assumption Agreement which states that the agreements, including the Branded Sales and Security Agreement, "have an expiration date of October 31, 2012, or upon the purchase of 9,000,000 gallons of gasoline,
Upon realizing that they had misstated plaintiff's theory, the defendants filed a sur-reply brief, arguing against the plaintiff's actual theory. (Dkt. #63). In the sur-reply brief, the defendants argue that the Addendum to the agreement contains terms or provisions that are not addressed in the Branded Sales and Security Agreement. (Dkt. #63 at 3). Thus, the defendants argue that the Addendum should be construed as adding new provisions and clarifying critical terms that are not explicitly addressed in the Branded Sales and Security Agreement. (Dkt. #63 at 3). In this respect, the defendants note that the Branded Sales and Security Agreement makes no specific reference to 9,000,000 gallons of gasoline. In contrast, the Addendum refers to 9,000,000 gallons. More specifically, when discussing the costs of the dispensing equipment, paragraph 13 of the Addendum states that the costs and installation of that equipment will be amortized over 9,000,000 gallons. Thus, the defendants argue that the Court should conclude that paragraph 2 of the Addendum, which provides for a term of ten years or 9,000,000 gallons, is meant to apply to paragraph 13 of the Addendum. (Dkt. 63 at 3). In other words, the defendants argue that the correct way to interpret paragraph 2 of the Addendum is for it to mean that the "defendants will have ten years or 9,000,000 gallons to pay off the costs for the dispensing equipment and installation, whichever is later." (Dkt. #63 at 3).
When interpreting a contract under Massachusetts law,
Applying these principles to the facts, there is probable cause to believe that the trial court will adopt the plaintiff's construction of the agreement. Plaintiff's construction is consistent with the plain language of the agreement and the objects that the parties sought to accomplish. A person of ordinary caution, prudence and judgment, under the circumstances would entertain the plaintiff's interpretation.
The court's role at a PJR hearing "is to determine probable success by weighing probabilities" and the "weighing process applies to both legal and factual issues."
The evidence shows that the defendants stopped purchasing fuel from the plaintiff in 2018. During the hearing, the plaintiff produced evidence that when the defendants stopped purchasing fuel from the plaintiff, the defendants had purchased less than 9,000,000 gallons of gasoline. Plaintiff's witness, Neil Duffy, testified that the plaintiff has an internal invoice system, which includes certified data from Mutual Oil, that shows that the defendants only purchased 7,625,248 gallons, resulting in a shortfall of 1,374,752 gallons. Thus, there is probable cause that the plaintiff will be able to prove that the defendants have breached the agreement.
The plaintiff must establish probable cause for the amount of the prejudgment remedy sought. Conn. Gen. Stat. §52-278(d). As stated above, the plaintiff has shown probable cause that the agreement required the defendants to purchase 9,000,000 gallons of gasoline but fell short of the obligation by 1,374,752 gallons.
Mr. Duffy testified as to how the plaintiff calculated its damages for the shortfall.
When selling fuel to its customers, plaintiff calculates its margin on the sale by calculating the difference between the
Plaintiff's Exhibit 25 is a lengthy and detailed document which is regularly maintained in the plaintiff's computer system. Page 4 of Exhibit 25 contains the components of the formula. Pages 1 through 3 of Exhibit 25 itemize the fuel shipments that were made to the defendants between February 10, 2015 and August 3, 2018. Each line item on pages 1 through 3 identifies the delivery date, invoice number, the number of gallons, the fuel price, the fuel cost, the margin, cents per gallon margin ("CPG Margin") and taxes. During the PJR hearing, Mr. Duffy testified at great length about the contents of Exhibit 25 and, while using specific examples on Exhibit 25, he explained how the formula operates.
The defendants argue that the plaintiff should only be able to recover 2 cents per gallon, because the Addendum "provides for a purchase price markup of 2 cents per gallon over the price paid by the plaintiff at the Citgo terminal in New Haven, Connecticut." (Dkt. #55 at 7). However, Mr. Duffy explained that the rack price is not what 7/11 pays Citgo. In other words, two cents per gallon is not plaintiff's profit. Instead, the rack price is set by Citgo at the terminal every day, while 7/11's costs are based on the formula above. Mr. Duffy testified that the average CPG margin between the fuel price and the
At the PJR hearing, the defendants argued that the plaintiff cannot recover such damages at all. The defendants noted that paragraph 32 of the agreement states that "[n]o claim shall be made under this agreement for special or consequential damages except as otherwise provided by law." (Plaintiff's Exh. 1 at ¶ 32).
In their briefs, the parties agree that the sale of gasoline is governed by the UCC. The parties also agree that §2-708 of the Massachusetts UCC controls the measure of damages when a seller claims that the buyer has wrongfully rejected or revoked acceptance of goods or fails to make a payment due on or before delivery or repudiates the contract. (Dkt. #73 at 3; #74 at 5). Section 2-708 provides:
The defendants assert that "[t]he few reported Massachusetts cases that have had occasion to apply UCC §2-708(2) do not directly address the issue of whether lost profits are viewed as consequential damages." (Dkt. #74 at 6). Therefore, the defendants suggest that "[i]n the absence of controlling case law construing a seller's remedies under UCC §2-708(2), the Court should look to the analogous buyer's remedies under UCC §2-711, et seq." (Dkt. #74 at 6). The defendants' assert that cases construing the buyers' remedies section of the UCC have consistently held that lost profits are consequential damages. The defendants argue that "[t]here is simply no logical basis for concluding that lost profits fall into the category of consequential damages for buyers, while adopting a different standard or definition for seller remedies under UCC §2-708(2)." (Dkt. #74 at 7).
The defendants' argument suffers from a number of flaws. First, it ignores the fact that there are reasons why the UCC drafters created separate sections for buyer's remedies and seller's remedies. See
Samuel Wiliston & Richard A. Lord,
Second, the defendants' attempt to characterize all "lost profits" as consequential damages, ignores the distinction between direct damages and consequential damages. "Direct damages are those that arise naturally from the breach of the contract itself, while consequential damages are those which arise because of the intervention of special circumstances."
In this case, the disputed damages are the profits that the plaintiff would have earned from selling gasoline directly to the defendants. Plaintiff's lost profits arise naturally and directly from the defendants' breach. In other words, they are direct damages, not consequential damages.
In this case, under UCC §2-708(1), the difference between the market price and the unpaid contract price would be the difference between the market price for fuel and the rack price plus 2 cents, which is the price that the defendants were charged. Mr. Duffy testified that the rack price plus 2 cents stated in the agreement is negotiated between the plaintiff and the defendants. The evidence shows that, unlike a seller of widgets who may sell to another buyer at market price, the plaintiff negotiates agreements with each of its gas stations and the fuel price for each station is undetermined until that time. Thus, under §2-708(1), the difference between the market price, if one is even calculable given the circumstances, and the unpaid contract price would be inadequate to place the plaintiff in as good a position as performance would have done. Therefore, UCC §2-708(2) allows the plaintiff to recover the lost profits which it would have earned from full performance of the agreement, together with incidental damages.
Applying UCC §2-708(2), the plaintiff has established probable cause that it will recover the difference between the
Although the defendants argue that the lost profits are speculative in this instance, the Court disagrees. Mr. Duffy's explanation of the profit calculation, along with the very detailed information contained in Exhibit 25, including a history of the defendants' purchases and plaintiff's profit, and the testimony regarding defendants' shortfall, are sufficient to establish a fair and reasonable estimate of plaintiff's damages. Therefore, the Court finds probable cause for the amount of $103,106.40.
The plaintiff also seeks an attachment for damages related to fuel that was delivered to the defendants' gas station but for which no payment was made. The plaintiff claims that in or about August of 2018, plaintiff delivered fuel which was sold to the defendants' customers. The plaintiff claims that the defendants never paid for the delivery. (Dkt. #48-1 at 8). The defendants argue that the plaintiff has not produced any invoices or delivery tickets to support the claim. The Court finds that Mr. Sousa's testimony regarding the outstanding sum, along with Plaintiff's Exhibit 7, are sufficient at this stage to establish probable cause for that item of damages.
Citing Exhibit 7, Mr. Sousa testified that the defendants have an outstanding sum due for the delivery of the fuel, in the amount of $9,765.05. Defendant Anis Ahmed M. Shaikh testified that his station continued to use Citgo fuel after the station was debranded. While this is not conclusive evidence, it shows that the station was using Citgo fuel after the alleged delivery in August of 2018. Mr. Sousa's testimony, Exhibit 7, and Anis Ahmed M. Shaikh's testimony are sufficient to establish probable cause for the amount of $9,765.05.
The plaintiff also asks for an additional $1,967 for "costs associated with a Citgo equipment upgrade and a nonsufficient funds fee." (Dkt. #48-1 at 8). The plaintiff produced evidence of these amounts in the form of a repair invoice for $1,665.52, and a network service charge invoice for $102.00, both attached to the reply memorandum.
The plaintiff also requests an attachment for reasonable attorney's fees in the amount of $45,809.44. (Dkt. #48-1 at 9).
Under Massachusetts law, courts may award attorney fees "pursuant to a valid contractual provision or stipulation."
Mr. Duffy testified that he reviewed the latest invoice from plaintiff's counsel and the current attorney fees and costs are over $80,000. This is also the figure that appears in Plaintiff's Exhibit 26, which was admitted into evidence over the defendants' objection. Despite this amount, the plaintiff has only requested $45,809.44 in attorney's fees, which the Court finds to be a reasonable number in relation to the fees that Mr. Duffy testified about during his direct examination.
"When attorney's fees are awarded, the amount is in the discretion of the trial judge."
Finally, the plaintiff requests an attachment for damages allegedly suffered due to the improper debranding of the gas station. The plaintiff argues that "the defendants' improper debranding of the premises resulted in monetary damages of $7,787.15 to [the plaintiff] representing the unamortized cost of the equipment installed by [the plaintiff]." (Dkt. #48-1 at 8). The plaintiff did not put on sufficient evidence to justify this figure. At the hearing, the plaintiff briefly mentioned plaintiff's Exhibit 24, which was never entered into evidence, and Mr. Sousa's affidavit. The plaintiff has not shown how the figure was calculated or how the debranding specifically caused harm in that amount. Therefore, the Court finds that the plaintiff has failed to establish probable cause for this amount. See
For the foregoing reasons, the plaintiff's motion for prejudgment remedy (Dkt. #48) is GRANTED in the amount of
This is not a recommended ruling. It is and has been the rule in this district that an application for a prejudgment remedy is considered non-dispositive. See
SO ORDERED.