ExxonMobil Oil Corp. v. Black Stone Petroleum Inc., Case No. 1:16–cv–148

221 F.Supp.3d 755

EXXONMOBIL OIL CORPORATION, Plaintiff,

v.BLACK STONE PETROLEUM INC., et al., Defendants.

Case No. 1:16–cv–148

United States District Court, E.D. Virginia, Alexandria Division .

Signed November 9, 2016

Joseph J. Aronica, Duane Morris LLP, Washington, DC, for Plaintiff.

MEMORANDUM OPINION

T.S. Ellis, III, United States District Judge

This diversity breach of contract action arises from a dispute concerning two contracts regarding the sale of a New Jersey service station. The two named defendants did not file an answer to the complaint or otherwise respond or appear in this action, and thus the matter was referred to the Magistrate Judge for a Report and Recommendation ("R&R") pursuant to 28 U.S.C. § 636(b). The Magistrate Judge's R&R concluded:

(i) that default judgment should be entered for plaintiff against only one of the named defendants;

(ii) that plaintiff was not the intended beneficiary of the contract between the co-defendants, and thus could not sue for breach of that contract's provisions; and

(iii) that plaintiff was entitled neither to pre-judgment interest, nor post-judgment interest.

Plaintiff filed timely objections to these recommendations, which are now ripe for disposition. For the reasons that follow,

(i) the objection to the Magistrate Judge's conclusion that plaintiff is not an intended third party beneficiary of the co-defendants' contract is sustained;

(ii) the objection to the recommendation against the award of pre-judgment interest is overruled; and(iii) the objection to the recommendation against the award of post-judgment interest is sustained.

Accordingly, the record warrants the entry of judgment against both defendants, jointly and severally, for the amount of contractually-required liquidated damages, plus post-judgment interest at the statutory rate.

I.

Plaintiff ExxonMobil Oil Corporation ("Exxon") is a New York corporation with its principal place of business in Texas. Exxon is in the business of, inter alia , owning and leasing roadside service stations in the United States. Defendant Black Stone Petroleum, Inc. ("Black Stone") is both incorporated and headquartered in New Jersey, and was lessee on one of Exxon's New Jersey service station properties. Defendant FDD Realty, LLC ("FDD Realty") is a New Jersey limited liability company operating in New Jersey.

On January 27, 2012, Exxon and Black Stone executed a contract (the "Exxon Agreement") in which Black Stone exercised its right of first refusal to purchase the New Jersey station that Black Stone had previously leased from Exxon. The Exxon Agreement includes the following pertinent provisions:

• Black Stone would pay Exxon a purchase price of $1,274,831 for the service station.

• Exxon would pay $350,000 toward the cost of replacing the underground fuel storage tanks at the station.

• Black Stone would sell Exxon-branded fuel exclusively from the service station's gas pumps for a period of 15 years following the closing date of the Exxon Agreement.

• In the event Black Stone would fail to sell only Exxon-branded fuel during the 15–year period, Black Stone would be liable to Exxon for liquidated damages as calculated by a formula listed in the Exxon Agreement.

• The liquidated damages formula provides that Black Stone would pay two cents per gallon of fuel multiplied by (i) Black Stone's base volume of fuel sales,¹ and (ii) the amount of time left in the 15–year window. Specifically, the formula is: "($0.02 per gallon) x ( [Black Stone]'s Base Volume) x (15 [minus] the number of years (including any partial year) since the Closing Date)." Am. Compl. Ex. 1 § 4.1.2.

• The Exxon Agreement also includes a choice of law clause, providing that the Exxon Agreement is to be "governed by and construed in accordance with the laws of the Commonwealth of Virginia." Id. Ex. 1 § 21.11.

• The Exxon Agreement further provides that the exclusive forum for resolving disputes arising from the Exxon Agreement is the Eastern District of Virginia, Alexandria Division or, if federal jurisdiction is unavailable, the Fairfax County, Virginia circuit court.

• Related to the choice of law provision, the Exxon Agreement also requires Exxon and Black Stone "irrevocably [to] submit...to the personal jurisdiction of the federal court for the Eastern District of Virginia in Alexandria, Virginia, or, if federal jurisdiction is not available, to the jurisdiction of the Fairfax County Circuit Courts," and "not [to] attempt to deny or defeat such personal jurisdiction." Id.

Two days before entering the Exxon Agreement, Black Stone, unbeknownst to Exxon, executed a separate agreement with FDD Realty (the "FDD Agreement") in which Black Stone contracted to convey its interest in the New Jersey service station to FDD Realty. The FDD Agreement includes the following pertinent terms:

• FDD Realty would advance to Black Stone $1,274,831, which was the purchase price for the station as specified in the Exxon Agreement.

• FDD Realty would also pay an additional sum to Black Stone.

• Immediately after the closing date specified in the Exxon Agreement, Black Stone would execute a deed to transfer ownership of the service station to FDD Realty.

• Following transfer of title to the service station to FDD Realty, Black Stone would "vacate the [station] no later than the date the underground storage tank upgrade work [contemplated in the Exxon Agreement] was completed and the upgrade vendor was paid." Am. Compl. Ex. 2 at 4, § 5(g).

• FDD Realty would "assume each and every obligation and responsibility of [Black Stone] under the Exxon Sale Agreement and Supply Agreement and... indemnify and hold [Black Stone] harmless from and against any and all liability, damage, loss, or expenses...arising from or related to [FDD Realty's] breach of said agreement." Id. Ex. 2 at 5, § 5(o).

• New Jersey law would govern the construction and interpretation of the FDD Agreement.

• FDD Realty's attorney was authorized to "supervise and manage all work required to finalize" the Exxon Agreement. Id. Ex. 2 at 2.

The closing date of the Exxon Agreement was April 23, 2012. Thereafter, on July 22, 2013, Exxon made the agreed payment of $350,000 toward the cost of replacing the underground storage tanks at the service station. On October 18, 2013, shortly after the storage tanks were replaced, Black Stone rebranded the station as a "Raceway" service station and ceased selling Exxon-branded fuel, in violation of the Exxon Agreement.² In response, Exxon demanded that Black Stone pay liquidated damages pursuant to the Exxon Agreement. Black Stone rejected this demand, and instead directed Exxon to collect any liquidated damages due from FDD Realty, which also rejected Exxon's demand.

On February 12, 2016, Exxon filed the instant action against Black Stone, alleging breach of the Exxon Agreement arising from Black Stone's failures (i) to sell Exxon-branded fuel, and (ii) to pay the contractually-required liquidated damages. A month later, on March 14, 2016, Exxon filed an amended complaint, adding FDD Realty as a defendant and asserting damages arising from FDD Realty's breach of the FDD Agreement. Specifically, Exxon averred that FDD Realty, by signing the FDD Agreement, assumed Black Stone's obligation to pay the contractually-required liquidated damages to Exxon in the event of a breach of the Exxon Agreement. Exxon alleged that FDD Realty's assumption of that obligation created an enforceable legal right in Exxon as an intended beneficiary of the FDD Agreement. Accordingly, because neither Black Stone nor FDD Realty paid the contractually-required liquidated damages, Exxon sought compensatory damages and liquidated damages against both defendants. Notably, however, the amended complaint did not specifically seek pre-judgment interest.

Both Black Stone and FDD Realty were properly served via their registered agents, but neither defendant filed an answer or otherwise responded, nor has either defendant entered any appearance in this action. As a result, on June 21, 2016, the Clerk of Court entered a default against both defendants, pursuant to Rule 55(a), Fed. R. Civ. P. Ten days later, Exxon moved for the entry of default judgment in the amount of $299,871 in liquidated damages,³ plus pre- and post-judgment interest. A hearing on Exxon's motion for the entry of default judgment was held on July 29, 2016. In the course of this hearing, neither defendant appeared.

On August 10, 2016, the Magistrate Judge issued the R&R at issue here, recommending (i) that Exxon's motion for the entry of default judgment and an award of $299,870.76 in liquidated damages be granted against Black Stone; (ii) that Exxon's motion for the entry of default judgment against FDD Realty be denied, on the ground that Exxon is not an intended third party beneficiary of the FDD Agreement and thus lacks standing to enforce the FDD Agreement; and (iii) that Exxon's motion for pre- and post-judgment interest be denied, because Exxon's amended complaint never explicitly sought such relief.

Two weeks later, on August 23, 2016, Exxon filed objections to the Magistrate Judge's R&R, pursuant to Rule 72(b)(2), Fed. R. Civ. P. and 28 U.S.C. § 636(b)(1)(C). Specifically, Exxon claims that the Magistrate Judge erred in determining (i) that Exxon was not an intended third party beneficiary of the FDD Agreement, (ii) that Exxon was not entitled to pre-judgment interest, and (iii) that Exxon was not entitled to post-judgment interest.

II.

Before reaching the merits of Exxon's objections, it is important to address four threshold issues.

A.

A de novo standard of review applies to "any part of the magistrate judge's disposition that has been properly objected to." Fed. R. Civ. P. 72(b)(3). Here, default judgment is appropriate if the well-pled allegations of the complaint establish that Exxon is entitled to relief and defendants have failed to plead or defend. Fed. R. Civ. P. 55. Importantly, a defendant in default admits the complaint's well-pled factual...