FSM SUPREME COURT TRIAL DIVISION

Cite as Yoruw v. Mobil Oil Micronesia, Inc., 16 FSM Intrm. 360 (Yap. 2009)

CIVIL ACTION NO. 2006-3003

Decided: March 18, 2009

APPEARANCES:

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HEADNOTES

    A mere factual allegation cannot create a genuine issue of material fact. Yoruw v. Mobil Oil Micronesia, Inc., 16 FSM Intrm. 360, 364 n.1 (Yap 2009).

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

    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., 16 FSM Intrm. 360, 364 (Yap 2009).

    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., 16 FSM Intrm. 360, 364-65 (Yap 2009).

    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., 16 FSM Intrm. 360, 365 (Yap 2009).

    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., 16 FSM Intrm. 360, 365 n.2 (Yap 2009).

    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., 16 FSM Intrm. 360, 365 (Yap 2009).

    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., 16 FSM Intrm. 360, 365 (Yap 2009).

    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., 16 FSM Intrm. 360, 365 (Yap 2009).

    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., 16 FSM Intrm. 360, 365-66 (Yap 2009).

[16 FSM Intrm 362]

    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., 16 FSM Intrm. 360, 367 (Yap 2009).

    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., 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:

    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, 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., 7 FSM Intrm. 613, 621 (App. 1996); Nanpei v. Kihara, 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

Supply Contract § 12.

    This is a hold-harmless clause or agreement. A hold-harmless agreement is "[a] contract in which one party agrees to indemnify the other." Black’s Law Dictionary 737 (7th ed. 1999). "Indemnify" means "[t]o reimburse (another) for 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 typically interpreted 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

[16 FSM Intrm 365]

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., 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., 2 FSM Intrm. 131, 149 (Pon. 1985), the court applied the Constitution’s Judicial Guidance Clause 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., 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

[16 FSM Intrm 366]

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, 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.

E. Relief Precluded

    Thus, supply contract paragraphs 7 and 10 preclude Yoruw’s recovery of lost profits, lost

[16 FSM Intrm 367]

F. Paragraph 5 Disclaimer of Warranties

    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

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