Omtvedt Oil Company, Respondent, vs. Como Gas Sales, Inc., Appellant.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2002).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A03-1889

 

Omtvedt Oil Company,

Respondent,

 

vs.

 

Como Gas Sales, Inc.,

Appellant.

 

Filed July 13, 2004

Affirmed

Halbrooks, Judge

 

 

Lake County District Court

File No. CX-02-130

 

Timothy A. Costley, The Costley Law Firm, 609 First Avenue, P.O. Box 340, Two Harbors, MN 55616 (for respondent)

 

R. Thomas Torgerson, Hanft Fride, P.A., 1000 U.S. Bank Place, 130 West Superior Street, Duluth, MN 55802 (for appellant)

 

 

            Considered and decided by Halbrooks, Presiding Judge, Toussaint, Chief Judge, and Minge, Judge.

U N P U B L I S H E D   O P I N I O N

HALBROOKS, Judge

            In this contract dispute, appellant Como Gas Sales, Inc. challenges the district court's order granting summary judgment to respondent Omtvedt Oil Company, arguing that (1) the district court erred in interpreting the contract; (2) there are material issues of fact precluding a grant of summary judgment; and (3) the district court abused its discretion in awarding respondent attorney fees.  We affirm.

FACTS

            The material facts in this matter are undisputed.  In December 1997, the parties entered into an asset purchase agreement whereby respondent sold its heating oil and gasoline delivery business including equipment and customer lists to appellant for approximately $232,000.  In February 1998, Donald Omtvedt, president and majority shareholder of respondent, signed a noncompete, confidentiality, and consulting agreement in favor of appellant in exchange for five annual payments of $10,000. 

            The December 1997 asset purchase agreement provided for appellant to pay respondent an initial sum and annual payments on the balance due for a period of ten years.  Paragraph three of the agreement contains a "guaranteed volume" provision authorizing appellant to reduce the purchase price should certain sales projections not be met within the 12 months following the closing of the sale:

[Respondent] guarantee[s] that the volume of gallons sold of [specified fuel oils and gasoline] to [specified customers] on the customer list purchased herein, will be at least 90% of [a specified amount] during the one year period from the date of closing.  In the event that the gallonage for that period is less than [the specified amount], the purchase price of the assets herein shall be reduced by Gross Margin amounts in each category for all gallons less than [the specified amount]. 

 

If a shortage occurs, the determination of the adjustment to the purchase price shall be made twelve (12) months after the date of closing, and at that time, the parties hereto agree to enter into an addendum to this agreement to reflect the final purchase price.  At the same time, [respondent] shall refund to [appellant], in cash, the difference between the purchase price as stated in this agreement and the final purchase price as adjusted.  This guarantee shall survive the closing.

 

In the event [respondent] fails to refund to [appellant] any sums pursuant to this paragraph, [appellant] shall have the right to off-set and/or withhold said amounts from any monies owing [respondent] under any other agreement between the parties, all without notice.

 

            The parties closed on the sale in February 1998.  In February 2001, 36 months later, representatives of appellant met with Donald Omtvedt.  At the meeting, appellant's representatives told Omtvedt that the discrepancy between the sales projections in the asset purchase agreement and appellant's actual 1998 sales justified reducing the asset purchase price by approximately $58,000.  Omtvedt neither conceded nor disputed the proposed reduction. 

In March 2001, appellant presented Omtvedt with a revised amortization schedule, reducing the balance due on the note by approximately $58,000 in the year 2000.  In December 2001, Omtvedt rejected the revised amortization schedule and proposed purchase-price adjustment, whereupon appellant attempted to effect the adjustment and assert its right to an offset by unilaterally withholding the February 2002 annual payment due on the note.

In April 2002, respondent brought suit against appellant, alleging, among other things, that appellant had breached the asset purchase agreement by (1) refusing to make the February 2002 payment and (2) attempting to claim a reduction to the purchase price more than two years after the contractual deadline for asserting such a claim had expired.  Respondent also requested attorney fees.  Appellant filed a counterclaim, alleging that because the contractual sales projections were not met in the 12 months following closing, the asset purchase agreement's set-off provision authorized it to accomplish the downward purchase-price adjustment by withholding payment following respondent's rejection of the proposed re-amortization. 

The parties filed cross-motions for summary judgment and submitted a stipulation to the admissibility of undisputed material facts.  The district court granted summary judgment to respondent, reasoning that appellant's attempt to determine and effect a price reduction was time-barred where asserted more than two years after the contractual deadline for doing so had expired.  The court also awarded respondent limited attorney fees to defray costs incurred as a result of appellant's attempt to adjust the purchase price by unilaterally reducing payments to respondent; the court observed that such unilateral action had no support in the purchase agreement, which required the parties to first mutually agree on the amount of any reduction and then "enter into an addendum to this agreement to reflect the final purchase price."  This appeal follows.   

D E C I S I O N

            On appeal from a grant of summary judgment when there are no disputed issues of material fact, we review de novo whether the district court erred in its application of the law.  Kelly v. State Farm Mut. Auto. Ins. Co., 666 N.W.2d 328, 330 (Minn. 2003).  "Generally, construction of a written contract is a question of law for the district court and therefore summary judgment is particularly appropriate."  Knudsen v. Transp. Leasing/Contract, Inc., 672 N.W.2d 221, 223 (Minn. App. 2003), review denied (Minn. Feb. 25, 2004); see also Sterling Capital Advisors, Inc. v. Herzog, 575 N.W.2d 121, 124 (Minn. App. 1998) (stating that this court reviews de novo the district court's interpretation of a contract).  "Absent ambiguity, the terms of a contract will be given their plain and ordinary meaning and will not be considered ambiguous solely because the parties dispute the proper interpretation of the terms."  Knudsen, 672 N.W.2d at 223.

I.

            Appellant argues that the district court erroneously interpreted the guaranteed-volume provision as requiring that appellant "make a demand on [respondent] for a price reduction within a reasonable time after [respondent's] breach of guarantee or forfeit its rights to a price reduction and offset."  Appellant contends that it does not bear sole responsibility under the contract to claim a price reduction and that it should not be penalized for the parties' mutual failure to timely effectuate the guaranteed-volume provision. 

The relevant contract provision requires that "[i]f a shortage occurs, the determination of the adjustment to the purchase price shall be made twelve (12) months after the date of closing, and at that time, the parties hereto agree to enter into an addendum to this agreement to reflect the final purchase price." 

The district court concluded that appellant, by failing to present respondent with a determination of the purchase-price adjustment price until 36 months after the date of closing, waived its right to a price reduction.  The court rejected respondent's argument that the 12-month limit must be construed literally and instead interpreted the contract as requiring only that appellant's demand for a price reduction be made "in a reasonable period of time after the expiration of 12 months."  Even under this more liberal standard, the court concluded that appellant's demand for an offset was time-barred because 24 months after the expiration of the contractual deadline was not a reasonable period of time.  We find the district court's analysis compelling.

Appellant argues first that the district court erred in concluding that a two-year delay in claiming a price reduction was unreasonable when the statute of limitations applicable to breach-of-contract claims is six years.  But the contract specifically provides that "the determination of the adjustment to the purchase price shall be made twelve (12) months after the date of closing."  By its terms, the first paragraph of the guaranteed-volume provision grants appellant the right to a price reduction in the event of less-than-projected sales; the second paragraph only functions to limit the amount of time within which the reduction must be determined and agreed on by the parties.  The second paragraph's presence in the contract which was negotiated by the parties and drafted by appellant is inconsistent with appellant's arguments that "the agreement contains no limitation period for assertion of contractual rights" and that the time limit established by that paragraph should be disregarded. 

Appellant next argues, with respect to the guaranteed-volume provision, that the district court erred in interpreting the agreement as requiring that appellant and not the parties acting together make the determination of the adjustment to the purchase price as a condition precedent to a price reduction.  Appellant contends that the provision in fact creates a "mutuality of contract obligations to reduce the purchase price," whereby respondent was obligated within 12 months of closing to request that appellant determine the adjustment to the purchase price.  Appellant maintains that it should not be penalized by "the parties' mutual decision not to immediately calculate and implement the price adjustment at the time of [respondent's] breach of guarantee."

We are not convinced by appellant's contention that the contract's guaranteed-volume provision requires both parties to timely act together to determine a price reduction.  First, appellant did not raise this mutuality-of-obligation argument before the district court and has therefore likely waived it on appeal.  See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988). 

Second, the plain language of the provision "[i]f a shortage occurs, the determination of the adjustment to the purchase price shall be made twelve (12) months after the date of closing" does not require that respondent act affirmatively to notify appellant of a sales shortage and initiate a price reduction.  Only appellant, who was operating the fuel-distribution business during the 12 months following the sale, was in a position to know whether a shortage had occurred and determine the appropriate adjustment.  Respondent had neither the means to independently learn of the shortage nor, presumably, the incentive to give effect to the price-adjustment provision, which exclusively benefited appellant.  We observe that there is no corresponding contract language increasing the purchase price should fuel sales exceed the guaranteed-volume amount in the 12 months after closing; the only contractual protection provided to respondent with respect to the guaranteed-volume provision is the 12-month time limit.  

Contracts "must be interpreted to give effect to the intent of the parties."  Thommes v. Milwaukee Ins. Co., 641 N.W.2d 877, 879 (Minn. 2002).  Here, the plain language of the guaranteed-volume provision expressly indicates that the parties' intent was that "the determination of the adjustment to the purchase price shall be made twelve (12) months after the date of closing."  We conclude that appellant violated an express contract term by its failure to initiate a determination of the adjustment to the purchase price until 36 months after the date of closing.

We further conclude that regardless of whether appellant timely determined the price reduction, the contract did not authorize appellant to unilaterally calculate and withhold the amount of the reduction.  The guaranteed-volume provision states that "at th[e] time" a determination of a price reduction is made, "the parties hereto agree to enter into an addendum to this agreement to reflect the final purchase price."  The stipulated material facts provide that "[Donald] Omtvedt neither approved nor contested the calculation provided to him at the [February 2001] meeting" and that "[n]o agreement regarding the reduced sales was reached at this meeting."  It is undisputed that the parties did not enter into an addendum to reflect the final purchase price.  Therefore, even had appellant timely determined the necessity for a price reduction, it was not authorized by the contract to unilaterally calculate and take the reduction without entering into an addendum with respondent.

Appellant next argues that the district court erred by determining that the contract contains an ambiguity concerning when the price reduction is to be determined.  But the district court's order does not state that the guaranteed-volume provision or any other provision contains a material ambiguity.  To the extent that the order does identify a lack of clarity in the contract, it is with reference to the manner in which the parties should proceed should they fail to agree on the appropriate reduction.  The order states that "[w]hile the agreement does not specify the mechanism for resolving disputes like those presented by this litigation, it clearly contemplates that the parties will reach agreement and the evidence here is that they have not."  The court addressed the timeliness issue separately from the issue of how the reduction was calculated and taken.  There is no record support for appellant's argument that the district court found the contract ambiguous as it concerned the timeliness provision of the guaranteed-volume clause. 

The district court did not err in interpreting the agreement as precluding appellant's attempt to unilaterally effectuate a purchase-price reduction 24 months after the contractual deadline for doing so had expired. 

II.

            Appellant argues that "disputed issues of material fact exist to preclude the grant of summary judgment to [respondent] because the trial court erroneously construed the contract and did so in a manner requiring analysis of those disputed facts."  But the district court's grant of summary judgment on the ground that appellant's attempt to take a price reduction was time-barred was based on the stipulated and undisputed material facts submitted by the parties. 

            Appellant also argues that the district court relied on disputed evidence in granting summary judgment because it acknowledged the parties' disagreement concerning whether Donald Omtvedt suffered adverse financial consequences as a result of appellant's failure to attempt to adjust the purchase price within the period specified by the contract.  But the record does not support appellant's argument that the court relied on those disputed facts in granting summary judgment; rather, the record indicates that the court relied on the contract language and the stipulated facts.

            Finally, appellant contends that because the district court granted summary judgment in reliance on the doctrines of waiver and estoppel doctrines whose application raises fact questions summary judgment was inappropriate.  But the district court's order does not use the terms "waiver" or "estoppel," and instead concludes, as respondent argues, not that appellant waived any rights under the contract, but that it failed to comply with an express contract term.

III.

The purchase agreement provides that the prevailing party in any dispute arising out of the agreement is entitled to attorney fees.  Appellant contends that because it should have prevailed in this dispute, it is entitled to attorney fees.  Because appellant did not in fact prevail, we disagree, and hold that the district court properly awarded respondent limited attorney fees.

            Affirmed.