Yoruw v Mobil Oil Micronesia, Inc [2009] FMSC 19; 16 FSM Intrm. 360 (Yap 2009) (18 March 2009)

FSM SUPREME COURT TRIAL DIVISION

CIVIL ACTION NO. 2006-3003

MIKE YORUW d/b/a MARS SERVICE STATION,
Plaintiff,

vs.

MOBIL OIL MICRONESIA, INC.,
Defendant.

____________________________

MEMORANDUM ORDER GRANTING SUMMARY JUDGMENT

Martin G. Yinug
Associate Justice

Decided: March 18, 2009

APPEARANCES:

For the Plaintiff: Marstella Jack, Esq.
P.O. Box 2210
Kolonia, Pohnpei FM 96941

For the Defendant: Richard L. Johnson, Esq.
Blair Sterling Johnson Martinez & Leon Guerrero
Suite 1008 DNA Building
238 Archbishop F.C. Flores Street
Hagatna, Guam 96910-5205

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HEADNOTES

Civil Procedure  Summary Judgment
A mere factual allegation cannot create a genuine issue of material fact. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 364 n.1 (Yap 2009).

Contracts  Interpretation
Interpretation of contract provisions is a matter of law to be determined by the court. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 364 (Yap 2009).

Contracts  Indemnification
A hold-harmless agreement is a contract in which one party agrees to indemnify the other. "Indemnify" means to reimburse another for a loss suffered because of a third party's act or default; or to promise to reimburse another for such a loss; or to give another security against such a loss. Thus in a hold-harmless agreement, one of the two parties assumes any liability to third parties. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 364 (Yap 2009).

Contracts  Indemnification
Logically indemnification cannot be applied to cases involving claims for losses that do not arise from liability to a third party. Where a party does not seek to be held harmless from a third party claim, but rather from the other party's own claim for damage to the other party's property and business, a contract's hold-harmless or indemnification provision does not apply. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 364-65 (Yap 2009).

Contracts  Interpretation
A contract must be read as a whole in the light of the circumstances under which it was made and with the apparent purpose that the parties are trying to accomplish. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 365 (Yap 2009).

Contracts  Interpretation
A court may not simply assume that reasonably intelligent Micronesians will perceive the same meaning as would reasonably intelligent Americans because the court will not blind itself to the pertinent aspects of Micronesian society, such as less facility in the English language, less exposure to business concepts, and paucity of legal resources, which might cause a reasonably intelligent Micronesian to perceive meaning differently than would a person from some other nation. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 365 n.2 (Yap 2009).

Contracts  Indemnification
Courts require crystal clarity in a contract's indemnification language before holding that a non-negligent indemnitor must bear the burden of the indemnitee's negligence. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 365 (Yap 2009).

Contracts  Damages  Mitigation of
A court will not compensate an injured party for a loss that he could have avoided by making efforts appropriate, in the eyes of the court, to the circumstances. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 365 (Yap 2009).

Contracts  Damages  Mitigation of
When a buyer converted the remaining gasoline and diesel to his own personal use, he, in effect, sold himself the gasoline and diesel and thus mitigated his damages. When more stored kerosene remains available for the buyer to sell or convert to his own personal use, the seller is entitled to summary judgment that it will not be liable for the fuel the buyer converted to his own personal use or for the fuel he still retains since that would be a double recovery. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 365 (Yap 2009).

Contracts  Damages
When a contract provides that in no event shall one party be liable for prospective profits or special, indirect, or consequential damages of the other and that that provision will survive any contract termination however arising, the parties have agreed that, regardless of the cause, one party would never be liable to the other for any claim for lost profits or other consequential damages. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 365-66 (Yap 2009).

Contracts
When a fuel retailer seeks to be reimbursed for the value of gasoline from a leaky tank and to have its supplier perform or to bear the cost for all the environmental remediation work required by the Yap EPA before his service station can reopen and when these are claims that, under the supply contract's terms, the retailer waived by his admitted failure to perform the duties  to inspect the tanks daily for water accumulation, to record the volume of fuel in each tank, to keep a daily log of fuel inventory, and to reconcile daily the measured inventory with the meter readings  contractually required of him, the supplier is entitled to summary judgment on the claims for environmental remediation and for lost product. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 366 (Yap 2009).

Contracts
Attorney's fees and costs are not recoverable when the plaintiff has not prevailed on any of his other claims since recovery of fees and costs is dependent upon the plaintiff successfully prevailing on some other claim. Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 367 (Yap 2009).

Contracts  Interpretation
Disclaimers of the warranties of merchantability and fitness for a particular purpose for certain equipment, translated into plain English, mean that the equipment is not warrantied or guaranteed to be in the condition to be used for the purpose it is being supplied, that is, the equipment is supplied "as is." Yoruw v. Mobil Oil Micronesia, Inc., [2009] FMSC 19; 16 FSM Intrm. 360, 367 (Yap 2009).

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COURT'S OPINION

MARTIN G. YINUG, Associate Justice:

This comes before the court on defendant Mobil Oil Micronesia, Incorporated's Motion for Summary Judgment, filed August 6, 2008; the Plaintiff's Opposition to Defendant's Motion for Summary Judgment, filed October 23, 2008; and Defendant's Reply Memorandum in Support of Motion for Summary Judgment, filed October 16, 2008. The summary judgment motion is granted. The court's reasons follow.

I. BACKGROUND

In 1995 and thereafter, plaintiff Mike Yoruw had a business license for and was running Mars Service Station. On August 19, 1998, Defendant Mobil Oil Micronesia, Incorporated ("Mobil") and Yoruw's father, who was retired at the time, entered into a supply contract for the Mars Service Station. Yoruw did not object because he did not intend to sign a contract with a competitor company. Under the supply contract, Yoruw agreed to obtain the required permits, licenses, and insurance; comply with the applicable government regulations and laws; buy certain minimum quantities of gasoline, diesel, kerosene, and other products over a period of ten years to end August 18, 2008; and to lease, at no extra charge, two gasoline pumps and two 2,000-gallon tanks from Mobil. Mars Service Station had four storage tanks. Two are owned by Yoruw.

On August 18, 1998, the day before the contract was executed, Mobil sent Yoruw a letter, stating that it was a confirmation of the items discussed that day and that:

Mobil will provide the necessary maintenance of the pump and tanks listed in Exhibit A of the Supply Contract between Mobil and Mars Service Station. In the event any of said equipment is in need of replacement, Mobil will make the necessary replacement at its own cost provided that the supply contract is still in effect.

On June 7, 2004, Mobil unilaterally amended the supply contract. (Neither party relies on any provision in the amendment to support its position.)

On October 28, 2005, Mobil's agent in Yap instructed Yoruw to close down the service station after the discovery that one of the two tanks owned by Mobil had developed a leak and a substantial amount of gasoline (alleged in the complaint to be about 1,120 gallons) had leaked into the ground. At Yoruw's request, the Yap Environmental Protection Agency inspected the site on January 9, 2006, and determined that the leaking tank should be replaced and stated that Yoruw could use the other storage tanks but certain upgrades had to be adhered to first: install a concrete ground floor connected to the concrete retaining wall and reinforced by rebars; install a water drainage valve in the retaining wall; cap off the leaky storage tank from the other tanks unless it is replaced; in compliance with Yap state law, report future oil spills promptly; file an oil spill incident report with Yap EPA for any future oil spills; and have an oil spill response plan in place for the Mars Service Station. Since the service station's closure, Yoruw has used the gasoline and diesel remaining in the tanks for his own purposes, but the kerosene still remains. Mobil did not heed Yoruw's pleas that it perform the remedial work required by the Yap EPA and then let him reopen the service station.

II. PROCEDURAL POSTURE

On October 26, 2006, Yoruw filed suit against Mobil, alleging that Mobil had breached its duty to inspect and maintain the fuel tanks and prayed for $16,445.85 in actual damages for the fuel that leaked and the unsold fuel remaining in the other tanks; for lost profits, to be proven at trial, from October 28, 2005 to August 18, 2008; for attorney's fees and costs; and for an order requiring Mobil to perform all of the EPA's corrective measures and to permit the service station to reopen.

Mobil's Amended Answer raised as affirmative defenses: failure to state a claim upon which relief may be granted; Yoruw's alleged failure, as required under the contract, to inspect his fuel tanks and advise Mobil of the need for maintenance and repair; the doctrine of contributory negligence; comparative negligence; and Yoruw's alleged failure to mitigate his damages.

Mobil now moves for summary judgment on the ground that Yoruw's claims are precluded by the express terms of the supply contract between the parties. In particular, Mobil relies on its explicit disclaimer in paragraph 5, which provides, in part, that: "SELLER [Mobil] EXPLICITLY DISCLAIMS ALL WARRANTIES IN REGARD TO THE EQUIPMENT, WHETHER EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Buyer [Yoruw] shall be responsible and liable to Seller for any and all damage to or destruction of the Equipment." Mobil also asserts that Yoruw's failure to comply with the provisions of paragraph 7, bars any claims Yoruw might have and that paragraph 10 bars any claims for lost profits. Additionally, Mobil contends that Yoruw's claims ought to be barred for his failure to mitigate his damages. Lastly, Mobil asserts that the general indemnification or "hold harmless" provision of paragraph 12 absolves it of any liability to Yoruw for any "property damage, environmental damage, or any other injury or claim arising directly, or indirectly from [Yoruw]'s business."

Yoruw relies on the August 18, 1998 letter that Mobil would "make the necessary replacement at its own cost provided that the supply contract is still in effect." Yoruw contends that the August 18, 1998 letter contained the entire understanding of the parties and that Mobil's local manager's practice of approving any modification to, and covering the cost of maintaining the leased equipment, set the contract terms. Yoruw asserts that Mobil was negligent and that its agents delivered fuel to a leaking tank, which, if Mobil's employees had been diligent, they should have noticed. Mobil responds that the August 19, 1998 supply contract and the August 18, 1998 letter must be read together as a whole and their provisions harmonized and interpreted consistently with each other.

III. ANALYSIS

The facts are essentially undisputed,[1] and will be viewed in the light most favorable to the non-moving party, Yoruw, that is, the court will assume that Mobil was negligent in maintaining its storage tank that developed a defect. The resolution of the pending motion depends upon interpretation of the contract between the parties. Interpretation of contract provisions is a matter of law to be determined by the court. Pohnpei v. Ponape Constr. Co., [1996] FMSC 13; 7 FSM Intrm. 613, 621 (App. 1996); Nanpei v. Kihara, [1995] FMSC 49; 7 FSM Intrm. 319, 323 (App. 1995). Mobil's summary judgment grounds will be analyzed in reverse order that they are listed above.

A. Paragraph 12 Hold Harmless Provision

Mobil contends that the supply contract's paragraph 12 absolves it of liability to Yoruw for the leak in the Mobil-owned storage tank. That paragraph provides that Yoruw

shall defend, indemnify, and hold [Mobil] harmless from and against any claims, losses, liability, suits, liens and expenses (including those of the parties . .&#160or . . . pr;. property damage, enmironmental damage, or any other injury or claim arising directly, or indirectly from [Yoruw]'s business . .&#16nd fre usentenastorageorage or condition of the Ethe Equipment whether resulting from the nthe negligegligence of [Mobil] or otherwise, and whedue to any imperfection or defect (latent or patent) of the Equipment or any part thereof .eof . . . or caused from leakage . .&. or from any cause whatswhatsoever.

Supply Contract § 12.

This isld-hold-harmless e or ment.ld-harmless agreement is "[a] contract in which one party agrees to indo indemnifemnify they the other." Black's Law Dictionary 737 (d. 1999). "Indemnify" means "[t]o reimburse (another) for afor a loss suffered because of a third party's act or default. 2. To promise to reimburse (another) for such a loss. 3. To give (another) security against such a loss." Id. at 772. Thus in a hold-harmless agreement, one of the two parties assumes any liability to third parties. See, e.g., Rand-Whitney Containerboard Ltd. P'ship v. Town of Montville, 290 Fed. Appx. 430, 433 (2d Cir. 2008) ("the words 'indemnification' and 'hold harmless' . . . are typicallerpreted to a to apply to third-party claims"). For example, in Amoco Oil Co. v. Liberty Auto & Elec. Co., 810 A.2d 259, 263 (Conn. 2002), the court held that "a claim for indemnity and a claim for one's first party losses are not one and the same" because "an action for indemnification is one in which one party seeks reimbursement from another party for losses incurred in connection with the first party's liability to a third party." The Amoco Oil court held that a claim for damage caused by a leaking underground gasoline storage tank installed by the defendant could not be a claim under the contract's indemnification clause because the plaintiff's claim for losses was "incurred as a result of damage to its own property, not as a result of third party liability, [and] is not a claim for indemnification at all, but rather, a claim for damages for its own losses arising out of [the defendant's] allegedly negligently and improper installation of the tanks." Id. at 265. This was because "logically [indemnification] cannot be applied to cases involving claims for losses that do not arise from liability to a third party." Id.

Here, Mobil does not seek to be held harmless from a third party claim, but rather from Yoruw's own claim for damage to Yoruw's property and business. The supply contract's hold-harmless or indemnification provision does not apply. Reading the contract as a whole in the light of the circumstances under which it was made and with the apparent purpose that the parties are trying to accomplish, as a court is required to do, Mailo v. Penta Ocean Inc., [1997] FMSC 28; 8 FSM Intrm. 139, 141 (Chk. 1997), the hold-harmless provision does not apply since there are other supply contract provisions, discussed in the sections below, that allocate the risk of loss between the contract parties.

Furthermore, in Semens v. Continental Air Lines, Inc., [1985] FMSC 3; 2 FSM Intrm. 131, 149 (Pon. 1985), the court applied the Constitution's Judicial Guidance Clause[2] when it interpreted a contract's indemnification clause and concluded that when there was no clear statement in the contractual indemnification clause that the indemnitee was to be protected against its own negligence, a reasonably intelligent FSM citizen aware of the parties' general circumstances would not have perceived the English words used would require that a non-negligent subcontractor must indemnify a major contractor against that major contractor's own negligence.

Here, Mobil is trying to use paragraph 12's indemnification clause to absolve itself of liability to the contract's other party for Mobil's own alleged negligence causing damages to the other party, not to a third party. For the reasons stated above, it cannot do so. Courts require crystal clarity in a contract's indemnification language before holding "that a non-negligent indemnitor must bear the burden of the indemnitee's negligence." Id. at 146.

B. Mitigation of Damages

Mobil contends that Yoruw failed to mitigate his damages. Mobil asserts that Yoruw could have mitigated his damages by selling the fuel remaining in the other tanks and by reopening his business or investing his capital elsewhere and so he failed to mitigate his lost profits and Mobil should not be liable for the fuel Yoruw retained.

A court will not compensate an injured party for a loss that he could have avoided by making efforts appropriate, in the eyes of the court, to the circumstances. Pohl v. Chuuk Public Utility Corp., [2005] FMSC 53; 13 FSM Intrm. 550, 556 (Chk. 2005). Yoruw, in effect, mitigated his damages when he converted the remaining gasoline and diesel to his own personal use. In effect, he sold himself the gasoline and diesel. The stored kerosene remains available for Yoruw to sell or convert to his own personal use. Mobil is therefore entitled to summary judgment that it will not be liable for the fuel Yoruw converted to his own personal use or for the fuel he still retains since that would be a double recovery.

C. Paragraph 10 Bar to Lost Profits and Consequential Damages

The supply contract's Paragraph 10 provides, in pertinent part, that "[i]n no event shall Seller [Mobil] be liable for prospective profits or special, indirect, or consequential damages. The provisions of this Paragraph 10 shall survive any termination of this Contract, however arising."
The meaning of this provision is clear. The parties agreed that, regardless of the cause, Mobil would never be liable to Yoruw for any claim for lost profits or other consequential damages. Mobil is therefore entitled to summary judgment on Yoruw's lost profits or consequential damages claims.

Mobil concedes that paragraph 10, read in harmony with its August 18, 1998 letter, does not bar its liability for actual (direct) damages for the maintenance or repair of its leased equipment, but contends that since Yoruw incurred no maintenance expenses (Mobil had borne them) and no replacement cost since Yoruw had not replaced the storage tank, no damages are owed. This seems correct.

D. Paragraph 7 Waiver of Lost Product and Remediation Damages

Paragraph 7 governs product quality control and environmental protection. It provides in pertinent part:

[Yoruw] shall inspect tanks daily for water accumulation and shall notify [Mobil] immediately if water exceeds the acceptable tolerance for each respective tank. . . . [Yoacknoes thes that the the Marketing Premises contain storage tanks for the storage of petroleum products and that the release oh pro into the environment can cause serious damage. In order to detect tank or pipingiping leak leaks so as to safeguard the environment and prevent loss to either [Yoruw] or [Mobil], [Yoruw] shall measure the inventory of all storage tanks daily by tank sticking or other industry accepted or [Mobil] supplied measurement techniques, and reconcile the measured inventory with meter readings daily. [Yoruw} shall keep a daily log of all storage tank inventory readings at the Marketing Premises, which shall be available for inspection by [Mobil] or by government authorities as required by applicable law. . .&# Failure to properly meay measure and reconcile inventory, maintain records and perform other environmental protection activities as required by applicable law ecified by [Mobil] shall result in waiver of any and all rill rights [Yoruw] may have against [Mobil] including any claim for environmental remediation and for value of lost product. This remedy is in addition to the remedies and indemnities provided elsewhere in this Contract.

Yoruw, in his deposition, admitted that he did not inspect the tanks daily for water accumulation. He further admitted that even when he did inspect for water accumulation he did not record the volume of fuel in each tank, or reconcile the inventory with the meter readings, or keep a daily log of fuel inventory. He additionally stated that he understood that his failure to properly measure would result in a waiver for any claims for the lost product's value.

Yoruw seeks to have Mobil perform or to bear the cost for all the environmental remediation work required by the Yap EPA before the Mars Service Station can reopen. Yoruw also seeks to be reimbursed for the value of an estimated 1,120 gallons of gasoline (estimated at 1,900 gallons in Yoruw's opposition) lost from Mobil's leaky tank. These are claims that, under paragraph 7's terms, Yoruw waived by his admitted failure to perform the duties required of him under paragraph 7  to inspect the tanks daily for water accumulation, to record the volume of fuel in each tank, to keep a daily log of fuel inventory, and to reconcile daily the measured inventory with the meter readings. (The environmental remediation claim may also be considered a consequential damage barred under paragraph 10.) Mobil is thus entitled to summary judgment on Yoruw's claims for environmental remediation (Yoruw's claim that Mobil undertake the remedial measures needed before the service station could reopen) and for lost product.
E. Relief Precluded

Thus, supply contract paragraphs 7 and 10 preclude Yoruw's recovery of lost profits, lost product, and consequential, including environmental remediation, damages, and Yoruw cannot recover damages for the value of the fuel he used personally or still retains because that would constitute a double recovery. Yoruw's remaining claim  for attorney's fees and costs  is not recoverable since recovery of fees and costs is dependent upon Yoruw successfully prevailing on some other claim. Accordingly, Yoruw is precluded from recovering his claimed damages from Mobil on either a breach of contract or a negligence theory.

F. Paragraph 5 Disclaimer of Warranties

In paragraph 5, Mobil disclaims the warranties of merchantability and fitness for a particular purpose for the equipment (storage tanks and fuel pumps) that Mobil leased to Yoruw. Translated into plain English, Mobil is stating that it will not, or cannot, warranty or guarantee that the equipment that it is leasing to Yoruw is in the condition to be used for the purpose Mobil is supplying it  to store and pump fuel. It is supplying the equipment "as is" (but would, according to August 18, 1998 letter, maintain the equipment or replace it).

Since the court has concluded that Mobil is entitled to summary judgment on all of Yoruw's claims based on other contract provisions, it need not decide whether, under the circumstance of this contract, such a provision is enforceable or unconscionable and unenforceable.

IV. CONCLUSION

Accordingly, Mobil is entitled to summary judgment, based on the provisions of the contracts between the parties that allocated the parties' respective risks, on all of Yoruw's claims arising from the October 28, 2006 oil spill incident at the Mars Service Station owned by Yoruw. The clerk shall enter judgment herewith.

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^[1]Yoruw’s assertion that Mobil employees knowingly refilled a leaking storage tank is not supported by affidavit or other competent evidence. A mere factual allegation cannot create a genuine issue of material fact. LPP Mortgage, Ltd. v. Ladore, [2003] FMSC 15; 11 FSM Intrm. 601, 602-03 (Pon. 2003).
^[2]The court "may not simply assume that reasonably intelligent Micronesians will perceive the same meaning as would reasonably intelligent Americans," because the court would not blind itself "to the pertinent aspects of Micronesian society, such as less facility in the English language, less exposure to business concepts, and paucity of legal resources, which might cause a reasonably intelligent Micronesian to perceive meaning differently than would a person from some other nation." Semens v. Continental Air Lines, Inc., [1985] FMSC 3; 2 FSM Intrm. 131, 149 (Pon. 1985).