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Bar J Sand & Gravel, Inc. v. Fisher Sand & Gravel Co.

United States District Court, D. New Mexico

April 23, 2018

BAR J SAND & GRAVEL, INC., a New Mexico corporation, Plaintiff,
v.
FISHER SAND & GRAVEL CO., a North Dakota corporation, doing business in New Mexico through its division SOUTHWEST ASPHALT & PAVING, Defendant.

          AMENDED[1] MEMORANDUM OPINION AND ORDER

         THIS MATTER is before the Court on Plaintiff Bar J Sand & Gravel, Inc.'s (“Bar J”) Motion for Partial Declaratory Summary Judgment. Doc. 103. In this motion, Bar J asks the Court to find as a matter of law that the Exclusive Supply Agreement (“ESA”) entered into between Bar J and Defendant Fisher Sand & Gravel Co. (“Fisher”) on June 28, 2007 was renewed for a second five-year term in 2012. Having considered the motion, the briefing, accompanying evidence, and the relevant law, the Court concludes that the ESA was not renewed and therefore expired on June 28, 2012. Accordingly, Bar J's Motion (Doc. 103) is denied.

         I. BACKGROUND

         1. The Exclusive Supply Agreement (ESA)

         In 1996, Plaintiff Bar J acquired an exclusive right to excavate, remove and sell aggregate earth products, remove asphalt, and to process material on land located within the Pueblo of San Felipe. See ESA at 1 (Doc. 6-1). In 2007, Bar J entered into the ESA with Defendant Fisher that forms the basis of this lawsuit. Id. Under the ESA, Bar J agreed to sell materials removed from the Pueblo to Fisher on an exclusive basis and Fisher in turn agreed to purchase a minimum quantity of material from Bar J each year. ESA ¶ 1. The ESA further provided Fisher with the right “to use the [p]remises for the purpose of excavating, processing . . . and removing the specified minimums.” ESA ¶ 5.

         The initial term of the ESA was a period of five years commencing on June 28, 2007, the effective date of the ESA. ESA ¶ 4. As set forth in Section 1 of the ESA, the amount of material Fisher was required to purchase from Bar J incrementally increased each year, with the annual minimum tonnage requirement reaching 400, 000 tons in 2012. ESA ¶ 1. Section 6 of the ESA, entitled “Payments”, detailed the “rate” (i.e., the amount per ton of material) that Fisher was obligated to pay Bar J throughout the course of the ESA. See ESA ¶ 6.

         The ESA further provided Fisher with the option to renew the ESA for an additional five years after the completion of the initial five-year term. ESA ¶ 4. As set forth in Section 4 of the ESA, this provision stated that in order to exercise the renewal option,

on or before one hundred twenty (120) days before the expiration of the Term, [Fisher] shall deliver written notice of its intention to exercise the renewal option to [Bar J]. If [Fisher] does not exercise its renewal option within the prescribed time, this Agreement will terminate at the expiration of the Term. In all matters relating to renewal [Fisher] shall contact and negotiate exclusively with [Bar J], and not the Pueblo or governmental agencies. The terms and conditions of this Agreement for the Renewal Term shall remain the same except that all payments shall be subject to renegotiation.

See ESA ¶ 4. In the event Fisher exercised the renewal option, the ESA stated that minimum tonnage requirements during the renewal term would be as follows: 400, 000 tons of material annually from January 1, 2012 until December 31, 2013, and 500, 000 tons of material annually from January 1, 2014 until expiration of the renewal term. ESA ¶ 1. With regard to payments during the renewal term, the ESA provided that the “[p]ayments to be applicable during the [r]enewal [t]erm shall be subject to renegotiation by the parties, provided that in no event shall the payments be lower during the [r]enewal [p]eriod than it is on the date the renewal period begins.” ESA ¶ 6.

         Because the ESA provides that it shall be governed by and construed in accordance with New Mexico law (ESA ¶ 29), the Court will apply New Mexico law.

         2. Relevant Facts[2]

         The events that led to the filing of this federal suit began in 2012, the final year of the ESA's initial term, and bear on whether Fisher exercised the ESA's renewal option. Since the initial term of the ESA was set to expire on June 28, 2012, Fisher was required under the ESA to “deliver written notice of its intention to exercise the renewal option” to Bar J by February 28, 2012, which was 120 days prior to expiration of the initial term.[3] See ESA ¶ 4.

         Fisher alleges that in late 2011 and early 2012, it began experiencing reduced sales volumes in part due to a downturn in the market. See Tommy Fisher Depo., January 21, 2016, 49:21-52:25 (Doc. 138-1). Fisher alleges that its president, Tommy Fisher, met with Ted Martinez, vice president of Bar J, in early 2012 to discuss these issues. Id. at 51:22-54:8. Mr. Fisher testified that he told Mr. Martinez during this meeting that Fisher was “going to be way off in 2012” with regard to the minimum tonnage requirement, that Fisher expected to purchase “around 150, 000 [tons]” in 2012, and that Mr. Martinez told him to “do the best you can.” Id. at 52:19-22, 53:13, 53:24-54:1, 160:25-161:2. Mr. Fisher testified that Mr. Martinez informed him that reducing the minimum tonnage requirement going forward would “not [be] an issue . . . because [Bar J] was not paying minimums” to the Pueblo, but that Bar J was unable to “do anything” with regard to royalty rate payments. Id. at 154:20-25; 202:24-203:1 (Doc. 136-1). Mr. Fisher testified that he believed Mr. Martinez had agreed to a reduction in the minimum tonnage requirements going forward. Id.

         Although Mr. Martinez denies telling Mr. Fisher in 2012 that it would be okay to reduce the tonnage requirement to 150, 000 tons annually going forward (Martinez Depo. 112:10-18), he testified in his deposition that he did not remember having any conversations regarding the minimums in 2012 (Id. 113:16-18), that he did not remember if Mr. Fisher told him in 2012 that Fisher would only continue its relationship with Bar J if the royalty or the mandatory minimums were reduced (Id. 110:8-15), did not remember if he told Mr. Fisher that Bar J would reduce the mandatory minimums going forward (Id. 110:21-111:23), and did not remember if he told Mr. Fisher that Bar J was not able to renegotiate the mandatory minimums (Id. 112:21-24). See Ted Martinez Depo., January 19, 2016, (Doc. 136-4).

         On March 27, 2012, Michael Moehn, a vice president of Fisher, sent an email regarding renewal of the ESA to Tommy Fisher, Tim Priebe (Fisher's general counsel), and David Olson (vice president of Fisher's New Mexico operations). Doc. 103-3. He stated in the email:

Per the attached lease we are to send written notice to Bar J at least 120 days prior to expiration. Dave talked to Louie[4] a little bit ago and he said to get with Frank (Ted's CFO) on what to put in the notice. Dave just talked to Frank and he said he had to get with Louie and Ted to see if they wanted to renegotiate anything to do with Minimums and Royalty (those are both too high). Technically, both of those are still spelled out through 2015 in the lease. Should we just send a notice over that we intend to renew anyway? They have never screwed with us before, so I don't think they will now, but technically we are only 90 days out from expiration.

Doc. 103-3 (emphasis added); see also Louis Jacques Aff., Doc. 103-11 at ¶ 4 (stating that he “spoke to someone from Fisher in late March 2012 who told [him] Fisher had questions about having missed the technical 120 day renewal option deadline and whether Bar J [] was going to enforce that provision.”); see also Louis Jacques Depo., Jan. 18, 2016, 87:1-89:12 (Doc. 136-5) (testifying that although he did not recall when this conversation occurred, Dave Olson spoke with him about sending Bar J a letter “stating that they were going to continue.”).

         On Bar J's end - although it is not clear when this occurred - Louis Jacques, Bar J's president, and Ted Martinez asked Frank Duran, Bar J's CFO, to “find out if Fisher intended to renew the ESA for the renewal term and, if so, to ask Fisher to send Bar J [] the formal notice required by the ESA.” See Jacques Aff., Doc. 103-11 at ¶ 4; Ted Martinez Aff., Doc. 103-10 at ¶ 4. It appears that Frank Duran reached out to Fisher on April 12, 2012 based on an email sent from Mr. Moehn to Tommy Fisher and Tim Priebe, which stated:

Frank Duran (CFO for Ted Martinez) called today and asked us if we could go ahead and send over the formal notice that we want to extend our agreement as required in the original document. Technically it is late. He did mention to state that we will continue to work on the particulars surrounding royalty and volumes. Tommy [Fisher] has been discussing those with Ted. So, I tried to write a notice that said “yes, we would like to extend” and also mention that we are both in agreement that we will work on the other two issues.

Doc. 103-4. A draft of the notice was attached to the email. Id. The next day, after having received approval to send the notice to Bar J, Mr. Moehn submitted a letter to Bar J with the subject: “Notice of intent to extend supply agreement”. Doc. 103-5. In the letter, Moehn stated:

Per earlier conversations between Fisher . . . and Bar J . . . personnel, Fisher has notified Bar J of its intent to extend the current supply agreement between Fisher and Bar J. This letter is to provide written documentation of Fisher's intent to extend the agreement as you have requested. Per earlier conversations regarding this notice, it is agreed that we will continue to try and best address the issues regarding royalty and volume as we move forward to the maximum benefit of both parties.

Doc. 103-5. Both Mr. Jacques and Mr. Martinez stated in their affidavits that Bar J “accepted” this letter from Mr. Moehn as “complying with the notice of renewal requirement although technically late.” See Jacques Aff., Doc. 103-11 at ¶ 5; Martinez Aff., Doc. 103-10 at ¶ 5.

         On May 25, 2012, Mr. Moehn sent an email to Tommy Fisher stating that “Our lease is official up at the beginning of June. We sent them [Bar J] notice a while back that we would like to extend and continue discussions regarding royalty and minimums.” Doc. 105-3.

         The parties do not dispute that Fisher continued its operations on the premises after June 28, 2012. In early 2013, Fisher received an invoice from Bar J for unpaid minimum tonnages during 2012. See Fisher Depo. 209:22-210:12 (Doc. 136-1); see also Doc. 38-4. This invoice indicated that the minimum tonnage requirement was 400, 000 tons, that Fisher removed and paid for approximately 183, 764 tons, and that Fisher owed Bar J approximately $564, 375 for the 216, 235 tons that it was below the minimum. Doc. 38-4. Upon receipt of this invoice, Tommy Fisher reached out to Mr. Martinez. See Fisher Depo. 209:22-210:12 (Doc. 136-1). Mr. Fisher testified that Mr. Martinez told him that the invoice was sent in error, that he would take care of it, and that he reconfirmed the parties had agreed to a reduced tonnage requirement of 150, 000. See Fisher Depo. 228:8-230:24 (Doc. 136-1). Mr. Fisher testified that Mr. Martinez told him to send a letter to him following up on their conversation and, on February 8, 2013, he sent such a letter. Id.; Doc. 6-2. In this letter, Mr. Fisher summarized the communications he believed Bar J and Fisher employees had the prior year regarding “adjustments to the terms” of the original ESA and expressed his “understanding that while [they] hadn't established a minimum requirement going forward, as long as [Fisher] did at least 150, 000 Tons in 2012, there wouldn't be any additional royalty amounts sought.” Doc. 6-2. Mr. Fisher also indicated in the letter that he hoped the bill for additional minimums was sent in error “as it didn't reflect our earlier conversations.” Id.

         On February 20, 2013, Mr. Martinez responded to Mr. Fisher's letter and indicated that Bar J “agree[d] we should get together for an in person meeting to create a mutually beneficial agreement going forward.” Doc. 6-3. This meeting was held on April 22, 2013. Doc. 136-3 at 9. Mr. Fisher testified that the purpose of this meeting was to “get together . . . [to] explore all possibilities if we can lower the royalty rates.” Fisher Depo. 245:14-24 (Doc. 138-1). Id. Mr. Fisher further testified that neither the minimum tonnage requirement nor the 2012 invoice came up at this meeting, and that the reason for this was because he believed those issues had already been resolved. Id. 248:25-249:1-13. Following the April 2013 meeting, Mr. Moehn sent an email to Frank Duran of Bar J regarding a “Proposed Ammendment [sic] to Supply Agreement”. Doc. 103-7. Mr. Moehn stated in the email:

I've been working with Tommy over the past two weeks to try and come up with a proposed amendment to our supply agreement. I tried to keep it simple. It spells out lower minimums and also a flat royalty rate. I didn't adjust the royalty per the provisions in our ...

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