Van Zeeland Oil Co. Inc v. Lawrence Agency Inc

704 F.Supp.2d 711

VAN ZEELAND OIL CO., INC., a Wisconsin Corporation, Plaintiff,v.LAWRENCE AGENCY, INC., a Michigan Corporation, d/b/a Cenex Pit Stop, and Peoples State Bancorp, Inc., a Michigan Corporation, d/b/a Peoples State Bank of Munising, Defendants.

Case No. 2:09-cv-150.

United States District Court,

W.D. Michigan,

Northern Division.

March 30, 2010.

Clifford A. Knaggs, Knaggs Harter Brake & Schneider PC, Lansing, MI, for Plaintiff.

MEMORANDUM

R. ALLAN EDGAR, District Judge.

Plaintiff Van Zeeland Oil Company, Inc. (“Van Zeeland”) brings this action for breach of contract, unjust enrichment, and reformation against defendants Lawrence Agency, Inc. d/b/a Cenex Pit Stop (“Lawrence Agency”) and Peoples State Bancorp, Inc. d/b/a Peoples State Bank of Munising (the “Bank”). The court previously entered a default judgment in favor of Van Zeeland against the Lawrence Agency. [Court Doc. No. 15]. The remaining parties in this action have filed cross motions for summary judgment. [Court Doc. Nos. 11, 16]. Both remaining parties oppose the motions for summary judgment filed against them, and these motions are now ripe for this court's review.

This court has jurisdiction over this action due to the complete diversity of the parties pursuant to 28 U.S.C. § 1332. The court has reviewed the record, the applicable law, and the arguments of the parties. It concludes that the motion for summary judgment filed by Defendant Bank will be GRANTED and that Plaintiff Van Zeeland's motion for summary judgment will be DENIED.

I. Background

The central issue in this action is whether Plaintiff Van Zeeland complied with the strict terms of a letter of credit implicating the Bank's duty to honor the letter by submitting to Van Zeeland the amount of fifty thousand dollars ($50,000). The parties agree on the material facts. According to the complaint [Court Doc. No. 1 (“Complaint”) ], Plaintiff operates a business that sells and distributes petroleum products. Complaint, ¶ 9. Defendant Lawrence Agency operated a gas station in Manistique, Michigan. Id. at ¶ 10. The Lawrence Agency and Plaintiff entered into a ten-year agreement entitled the Detailed Dealer Motor Fuel Agreement (“Agreement”) that operated from June 27, 2008 until June 27, 2018. Id. at ¶ 11. Although the specific terms of the Agreement are not legally relevant to this matter, the Agreement's provisions contained Lawrence's commitment to purchase from Plaintiff 100% of the gasoline it sold during the ten-year term of the Agreement. See Complaint, ¶ 12; [Court Doc. No. 1-2, Agreement]. The Agreement further required the Lawrence Agency to provide Plaintiff with a letter of credit in the amount of $50,000. Agreement, ¶ 4.01. Todd Van Zeeland and Gary Grams signed the Agreement on behalf of Van Zeeland. Rudolph Lawrence signed the Agreement without indicating for which entity he signed, but the parties appear to agree that he signed on behalf of the Lawrence Agency. He also indicated the word “Pres.” after his name apparently indicating his status as President of Defendant Lawrence Agency.

On June 30, 2008 the Bank issued “Irrevocable Standby Letter of Credit No. 691.” [Court Doc. No. 1-3 (“Letter of Credit”) ]. The Letter of Credit states that Van Zeeland is the “Beneficiary” and that the “Applicant” is “Van Zeeland Oil Customer Daryl E. and Michele A. Lawrence.” Id. The parties agree that Daryl Lawrence is the son of Rudolph Lawrence. The Letter of Credit states in its entirety:

We hereby establish our Irrevocable Standby Letter of Credit No. 691 in your favor at the request and for the account of Van Zeeland Oil Company, Inc. (the “Applicant”) in the amount of $50,000.00 U.S. dollars effective June 30, 2008.

This Letter of Credit is available with the People State Bank of Munising by payment against presentation of your sight draft(s) drawn on the Peoples State Bank of Munising of Credit No. 691 dated June 30, 2008, and accompanied by your signed and dated statement stating:

“Van Zeeland Oil Company, Inc. hereby represents, certifies, and warrants that the amount of the accompanying draft represents funds due and owing to Van Zeeland Oil Company, Inc. by the Applicant for purchases of products and services by Applicant from Van Zeeland Oil Company, Inc. according to such terms as are established by Van Zeeland Oil Company, Inc. from time to time or pursuant to a Retail Supply Agreement and/or Image Rebate Reimbursement Agreement executed by Van Zeeland Oil Company, Inc. and the Applicant.[”]

Partial drawings under this Letter of Credit are allowed and each such partial drawing will reduce the amount thereafter available hereunder for drawings under this Letter of Credit.

This Letter of Credit sets forth in full the terms of our undertaking and such undertaking shall not in any way be modified, amended, or amplified by reference to any document, instrument, or agreement referred to herein or in which this Letter of Credit is referred to our [sic] to which this Letter of Credit relates, and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement.

We hereby engage with you that draft(s) drawn under an [sic] in compliance with the terms of this Letter of Credit will be duly honored by us when presented to our office at 100 E. Superior Street, P.O. Box 158, Munising, Michigan 49862. It is a condition of this Letter of Credit that it shall be automatically extended without amendment for a period of one year from the present or any future expiration date, unless ninety days prior to the expiration we shall notify you in writing via registered or certified mail courier or by messenger that we elect not to extend the validity. Failure to give such notice will cause this Letter of Credit to automatically renew and remain in full force and effect.

Letter of Credit. Richard Nebel signed the Letter of Credit on behalf of the Bank as its chief executive officer (“CEO”).

Plaintiff asserts that Defendant Lawrence Agency accepted a final delivery of gasoline on December 8, 2008, only six months into the contract. Complaint, ¶ 15. According to the Complaint, the Lawrence Agency breached the terms of the Agreement by failing to continue to purchase gasoline from Plaintiff for a remaining 114 months under the terms of the Agreement. Id. at ¶¶ 16-18.

On January 8, 2009 Todd Van Zeeland wrote Richard Nebel at the Bank requesting that the Bank honor the Letter of Credit and quoted the specified language required under paragraph 3 of the Letter of Credit. [Court Doc. No. 1-4]. The letter attached a draft and summary of alleged debt owed to Plaintiff, including amounts totaling $113,712.28 for such items as uniforms, materials, services, Cenex image elements, freight, installation, and labor. Id. The Complaint asserts that the Bank verbally refused to honor the submitted Letter of Credit because the applicant for the Letter of Credit differed from the company that signed the Agreement. Complaint, ¶ 33.

On May 29, 2009 Mr. Van Zeeland again wrote Mr. Nebel at the Bank and quoted the requested language from the Letter of Credit asking the Bank to honor the Letter of Credit by paying Plaintiff $50,000. [Court Doc. No. 1-5]. The request pursuant to the Letter of Credit was accompanied by a document entitled “Sight Draft” in the amount of $50,000.

On June 10, 2009 Mr. Nebel responded to Plaintiff's request by writing a letter to Plaintiff's attorney, Clifford Knaggs. [Court Doc. No. 1-6]. The letter states:

Thank you for your letter dated June 2, 2009. Unfortunately, the bank cannot honor the most current sight-draft dated May 29, 2009 for the same reason that existed back in January, 2009.

It is the position of the bank and our customer that the letter of credit you reference required the “Applicant” of the letter of credit owe money to Van Zeeland Oil Company. Our applicant that sought the letter of credit was Daryl Lawrence and his wife, Michele Lawrence. The letter of credit states as follows: “Van Zeeland Oil Company, Inc. hereby represents, certifies, and warrants that the amount of the accompanying draft represents funds due and owing to Van Zeeland Oil Company, Inc., by the Applicant for purchases of products and services by Applicant from Van Zeeland Oil Company, Inc. according to such terms as are established by Van Zeeland Oil Company, Inc. from time to time or pursuant to a Retail Supply Agreement and/or Image Rebate Reimbursement Agreement executed by Van Zeeland Oil Company, Inc. and the Applicant.”

Our applicants (customers) in this situation were Daryl Lawrence and Michele Lawrence, not Lawrence Agency, Inc., d.b.a. Centex [sic] Pit Stop. The letter of credit is void of any reference to Lawrence Agency, Inc., d.b.a. Centex [sic] Pit Stop as the “applicant”. Do our customers (applicants) of the letter of credit, Daryl Lawrence and Michele Lawrence currently owe Van Zeeland Oil Company for any product and/or service?

We agree that the beneficiary in the letter of credit is Van Zeeland Oil Company and the Peoples State Bank of Munising is the referenced bank, however, we disagree that our “applicant” for the letter of credit owes any money for product or services to Van Zeeland Oil Company....

[Court Doc. No. 1-6].

Following the Bank's second refusal to honor the Letter of Credit, Plaintiff brought this suit against the Lawrence Agency and the Bank. Plaintiff claims that the Bank breached its obligation under the Letter of Credit and seeks $50,000 from the Bank. The CEO of the Bank, Richard Nebel, filed an affidavit in support of the Bank's position. [Court Doc. No. 19-2, Affidavit of Richard W. Nebel (“Nebel Aff.”) ]. In his affidavit he stated in part:

At the time that the letter of credit was requested by Daryl Lawrence, Lawrence Agency, Inc. was unable to secure any credit from the Peoples State Bank.

At the time that the letter of credit was requested by Daryl Lawrence I was aware of the family relationship between Daryl Lawrence an

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