WOLVERINE PIPE LINE CO V MARATHON ASHLAND PETROLEUM LLC
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STATE OF MICHIGAN
COURT OF APPEALS
WOLVERINE PIPE LINE COMPANY,
UNPUBLISHED
November 25, 2008
Plaintiff-Appellant/Cross-Appellee,
v
MARATHON ASHLAND PETROLEUM, L.L.C.,
o. 277462
N
Washtenaw Circuit Court
LC No. 05-000906-CZ
Defendant-Appellee/Cross-
Appellant.
Before: Hoekstra, P.J., and Cavanagh and Zahra, JJ.
PER CURIAM.
In this breach of contract action, plaintiff appeals as of right from the trial court’s order
granting in part defendant’s motion for summary disposition. We affirm. Defendant cross
appeals the same order, which granted in part plaintiff’s cross-motion for summary disposition.
We reverse. The matter is remanded for entry of an order granting defendant’s motion for
summary disposition.
I. Background
In 1999, defendant and Ultramar Diamond Shamrock Corporation entered into a contract
under which defendant acquired certain pipeline assets. Because defendant was not interested in
owning the pipeline assets, it assigned the assets to plaintiff. Concomitantly, plaintiff and
defendant entered into a 20-year Throughput and Deficiency Agreement (T&D Agreement)
under which defendant agreed to ship certain amounts of product through the pipelines to ensure
a minimum annual revenue for plaintiff. The contract was to begin on the Definitive Start-Up
Date. A Definitive Start-Up Date of January 1, 2003, was agreed to after the contract was
executed.
Under the contract, defendant guaranteed plaintiff a minimum annual revenue of $14
million during the first four contract years and $12 million thereafter, referred to as the
Incremental Revenue Obligation (IRO). The IRO was to partially offset the financial risks
incurred by plaintiff. Defendant also agreed to an annual inflation adjustment of the IRO.
Section 3.03 of the T&D Agreement provided:
The Incremental Revenue Obligation shall be adjusted as of September 1
of each Year, beginning with the second Year, based on the change in the
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Escalator, the components of which are as published in the immediately preceding
June of that calendar year. For purposes of this Section 3.03, the components of
the base Escalator shall be as published in June, 1999. An example of the
application of the Escalator is shown on Exhibit D.
The term “Year” was defined in the contract as “a period commencing on the Definitive Start-Up
Date and any subsequent anniversary thereof and running for 365 days thereafter (except when
there is a February 29 in any period, in which even such Year shall have 366 days).”
The T&D Agreement also provided that, in addition to the IRO, defendant would pay a
Base Revenue Obligation (BRO) of $3.2 million. The BRO represented the revenues historically
enjoyed by plaintiff as a result of the product volume defendant shipped through its pipelines.
The BRO was also subject to an annual adjustment. Section 5.01 of the T&D Agreement
provided, in part:
The Base Revenue Obligation shall be adjusted effective as of September
1 of each Year based on a factor equal to the percentage change in the simple
average of the full non-incentive Tariff Rates to the Obligation Destinations
between July 31 of that Year and July 31 of the last most recent Year.
In August 2005, plaintiff filed the instant complaint for declaratory relief and breach of
contract. Plaintiff alleged that defendant failed to pay it certain amounts due under the T&D
Agreement because of a dispute regarding when the adjustments to the IRO and BRO were to
occur. The dispute regarding the IRO adjustment concerned whether the effective date of the
adjustment was January 1 or September 1. The parties agreed that 2004 was the first year the
adjustment was effective. The dispute regarding the BRO adjustment concerned the first year it
was to be effective, either 2003 or 2004. The parties filed cross-motions for summary
disposition. Plaintiff argued that the annual effective date of the adjustment to the IRO was
January 1, while defendant argued that it was September 1. Plaintiff also argued that the first
adjustment to the BRO was to have been made on September 1, 2003, while defendant argued
that it was to have been made on September 1, 2004.
The trial court found that § 3.03 was unambiguous. It stated that there was no language
in the provision to support plaintiff’s interpretation that the effective date of the IRO adjustment
was January 1. Rather, the provision clearly stated that the IRO was to be adjusted “as of
September 1 of each Year,” “Year” being a defined term. The trial court stated that the phrase
“as of” served to denote the date the adjustment was to be made. Therefore, it held that the IRO
adjustment was effective each September 1, beginning in 2004.
The trial court found that some ambiguity existed in § 5.01. It stated that the contract
definition of “Year” did not create any confusion if it was only applied to the beginning of the
sentence. However, “Year” was also used at the end of the sentence. If the contract definition
was applied there as well, 2002 could not be a “Year” because the contract did not begin until
2003. Thus, the first two years that could be averaged to calculate the escalator were 2003 and
2004. Because of the ambiguity, the trial court looked to the intent of the parties by comparing
§§ 3.03 and 5.01. It found that the absence of the phrase “beginning in the second Year” in
§ 5.01, which was present in § 3.03, was purposeful. It also found significant that the word
“each” immediately preceded the word “Year” in the phrase “effective as of September 1 of each
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Year” in § 5.01, which clearly suggested an intent to adjust the BRO each year. Therefore, the
trial court held that the first BRO adjustment was effective September 1, 2003. Accordingly, the
trial court denied in part and granted in part both parties’ summary disposition motions.
In a final order, the trial court awarded plaintiff damages on its breach of contract claim
regarding the BRO adjustment. Both parties appeal.
II. Standards of Review
We review de novo a trial court’s decision on a motion for summary disposition. A
motion under MCR 2.116(C)(10) tests the factual sufficiency of a claim. Klapp v United Ins
Group Agency, Inc, 468 Mich 459, 463; 663 NW2d 447 (2003). A court must consider the
pleadings, affidavits, depositions, admissions, and other documentary evidence submitted in the
light most favorable to the nonmoving party. Corley v Detroit Bd of Ed, 470 Mich 274, 278; 681
NW2d 342 (2004). Summary disposition is proper under MCR 2.116(C)(10) if “there is no
genuine issue as to any material fact, and the moving party is entitled to judgment . . . as a matter
of law.”
We also review de novo issues of contract interpretation, including whether a contract is
ambiguous. Klapp, supra.
In interpreting a contract, it is a court’s obligation to determine the intent
of the parties by examining the language of the contract according to its plain and
ordinary meaning. If the contractual language is unambiguous, courts must
interpret and enforce the contract as written because an unambiguous contract
reflects the parties’ intent as a matter of law. However, if the contractual
language is ambiguous, extrinsic evidence can be presented to determine the
intent of the parties. [In re Smith Trust, 480 Mich 19, 24; 745 NW2d 754 (2008)
(footnotes and citations omitted).]
III. The IRO Adjustment
The trial court held that the IRO adjustment provision, § 3.03, was unambiguous and
clearly stated that the adjustment was to be effective on September 1. Plaintiff argues that, if the
parties had intended for an adjustment to be effective on September 1, that is what they would
have stated—just as they did in Section 5.01. Thus, plaintiff claims, the IRO adjustment is to be
made on September 1, but it is effective on January 1. Accordingly, the first IRO adjustment
should have been calculated on September 1, 2004, but then made retroactive to January 1, 2004.
Defendant argues that, if the parties had intended for an adjustment to be effective on January 1
of the same year it was made—and thus be retroactive—that is what they would have stated.
Instead, the contract clearly provides that the annual adjustment occurs on September 1. The
trial court agreed with defendant, as do we.
Again, Section 3.03 of the T&D Agreement provided:
The Incremental Revenue Obligation shall be adjusted as of September 1
of each Year, beginning with the second Year, based on the change in the
Escalator, the components of which are as published in the immediately preceding
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June of that calendar year. For purposes of this Section 3.03, the components of
the base Escalator shall be as published in June, 1999. An example of the
application of the Escalator is shown on Exhibit D.
Contrary to plaintiff’s argument, the provision does not provide that the adjustment is to be
effective on January 1 and, thus, retroactive—those terms are not even in the provision. To
render plaintiff’s interpretation we would have to interject and read words into the provision that
were not agreed to by the parties. This we will not do. We will not rewrite an unambiguous
provision under the guise of interpretation. South Macomb Disposal Auth v American Ins Co
(On Remand), 225 Mich App 635, 653; 572 NW2d 686 (1997). A contract provision is
ambiguous only if its terms are susceptible to more than one meaning, or when two provisions
irreconcilably conflict. Coates v Bastian Brothers, Inc, 276 Mich App 498, 503; 741 NW2d 539
(2007). Here, by the plain language of the provision, the IRO adjustment occurs on September 1.
There are no terms in the provision providing that the adjustment is retroactive to January 1.
And it has not been argued that an irreconcilable conflict exists between this provision and any
other in the contract. Therefore, § 3.03 is not ambiguous and the trial court properly granted
defendant’s motion for summary disposition on this issue.
IV. The BRO Adjustment
Defendant argues that the trial court erred in finding that the first BRO adjustment was
effective as of September 1, 2003. We agree and conclude that the first BRO adjustment was to
be effective as of September 1, 2004. Based on the provision’s plain language, the first year the
adjustment was to be made depended on the first “last most recent Year” based on the method
prescribed for calculating the escalator. According to the contract’s own definition of “Year,”
2004 was the first year that the BRO was to be adjusted. We do not place the same significance
on the word “each” in the phrase “effective as of September 1 of each Year” as the trial court
did. Because the phrase “last most recent Year” indicates which contract year the BRO
adjustment is first effective, the word “each” at the beginning of the sentence simply indicates
that the BRO adjustment is to be made annually thereafter. The trial court’s interpretation
necessarily means that it found that the capitalization of “Year” in the phrase “last most recent
Year” was a typographical error. Such disregard for the contract’s express language is
unnecessary.
And we disagree that the extrinsic evidence cited by plaintiff creates a latent ambiguity.
While the BRO represents an existing revenue stream for plaintiff and, absent the contract, it
would have been entitled to the adjustment in 2003, there are a myriad of reasons plaintiff could
have been willing to forego a year’s adjustment. Simply because plaintiff would have been
entitled to the adjustment in 2003 had it not entered into the contract with defendant does not
mean that it did not intend to forego it under the executed contract.
Plaintiff also cites a PowerPoint presentation slide regarding the BRO adjustment but the
slide is shorthand. There is no testimony from its creator explaining its meaning. Additionally,
we find no merit to plaintiff’s contention that use of a non-capitalized “year” in referring to the
“last most recent Year” indicates that the word was not intended to be capitalized in the contract.
If there was to be such parity, the slide would have simply stated that the adjustment was each
“Year,” instead of “YEAR.”
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Accordingly, the trial court erred in granting summary disposition in favor of plaintiff on
this issue and awarding plaintiff damages on its breach of contract claim regarding the BRO
adjustment.
Affirmed in part, and reversed in part. The matter is remanded for entry of an order
granting defendant summary disposition. We do not retain jurisdiction.
/s/ Joel P. Hoekstra
/s/ Mark J. Cavanagh
/s/ Brian K. Zahra
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