### 1999 D e c i sion s O p inion s of the U nit e d

S t a t e s C our t of Appe al s for the Thir d C ir c uit

5-24-1999 

# C a r t e r v . E x xon C omp a n

y U S A

P r e c e de n t i al or N on-P r e c e de n t i al :

D ock e t 97-5248,97-5272

F o l lo w thi s a nd a dd it ion al w ork s a t : h tt p://d i g it alc ommon s .l a w

. v i l l a no v a

. e du/thir dc ir c uit_1999

Thi s de c i sion i s br ou gh t t o y ou for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit a t V i l l a no v a

U niv e r sit y S choo l of L a

w Di g it al R e posit or y

. I t h as be e n a c c e pt e d for inclusion in 1999 D e c i sion s b y a n a uthor i z e d a dmini s tr a t or of V i l l a no v a

U niv e r sit y S choo l of L a

w Di g it al R e posit or y

. F or mor e infor m a t ion, p le as e c on t a ct Be n j a min

. C a rl s on@l a

w

. v i l l a no v a

. e du

. 

### R e c omme nde d C it a t ion

" C a r t e r v . E x xon C omp a n

y U SA" (1999). 1999 D e cisio n s

. P a pe r 140.
h tt p://d i g it alc ommon s .l a

w

. v i l l a no v a

. e du/thir dc ir c uit_1999/140Filed May 24, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 97-5248

RICHARD CARTER; CAROL CARTER, husband and wife, d/b/a Forsum, Inc.;
FORSUM, INC., Appellants

v.

EXXON COMPANY USA, a division of
EXXON CORPORATION,

EXXON CORPORATION, Defendants/Third-Party Plaintiffs

v.

PETROLEUM TECHNOLOGIES, INC. Third-Party Defendant

No. 97-5272

RICHARD CARTER; CAROL CARTER, husband and wife, d/b/a Forsum, Inc.;

FORSUM, INC.,

v.

EXXON COMPANY USA, a division of
EXXON CORPORATION; EXXON CORPORATION, Defendants/Third-Party Plaintiffs

v.PETROLEUM TECHNOLOGIES, INC.

Third-Party Defendant

EXXON CORPORATION, Appellant

On Appeal from the United States District Court for the District of New Jersey (D. C. Civil No. 93-0238) District Judge: Hon. Mary L. Cooper

Argued: May 21, 1998

Before: SLOVITER, GREENBERG, Circuit Judges, and GIBSON, Senior Circuit Judge.*

(Filed: May 24, 1999)

Andrew J. Stern (ARGUED)

David A. Yanoff Beasley, Casey & Erbstein Philadelphia, PA 19107

Attorneys for Appellants in

No. 97-5248

Steven J. Fram (ARGUED)

Archer & Greiner Haddonfield, New Jersey 08033

Attorney for Appellant in

No. 97-5272

OPINION OF THE COURT

JOHN R. GIBSON, Senior Circuit Judge.

Richard Carter and his wife, Carol, appeal and argu e that

___________________________________________________ ______________

*The Honorable John R. Gibson, Senior United States Circuit Judge for the Eighth Circuit Court of Appeals, sitting by des ignation.

2the district court erred in granting summary judgme nt in

favor of Exxon Company USA on their Petroleum Marke ting

Practices Act1 claim and on Exxon's state law count erclaim. They also contend, with respect to their state law contract claims, that the district court erred in instructin g the jury, in interpreting and analyzing for unconscionability disclaimers in their franchise agreement with Exxon , in barring recovery of any damages that accrued after their franchise agreement was not renewed, and in holding that a jury finding was not against the clear weight of the evidence. Exxon cross appeals, contending that the district court erred by applying the disclaimers to only one of the

Carters' contract claims and abused its discretion by granting the Carters leave to amend their complaint . We reverse the grant of summary judgment on the Carter s' Petroleum Marketing Practices Act claim and on Exxo n's counterclaim. We conclude the district judge erred in instructing the jury on waiver and reverse the judg ment on
the Carters' state law contract claims. We affirm t he district judge's holding that the contract disclaimers do no t bar the Carters from recovering business loss on one of the ir contract claims and affirm the district judge's hol ding that the Carters may not recover, on their contract clai m, business loss occurring after their franchise agree ment was not renewed. We remand for further proceedings in accordance with this opinion.

In 1986, the Carters began operating an Exxon servi ce station in Wrightstown, New Jersey. Carter had prev iously been in the trucking business, but planned to make the service station his only business. The Carters form ed a corporation, Forsum, Inc., for the purpose of opera ting the station. Because Exxon did not own the real propert y where the station was located, Carter entered into a leas e with Thomas and Alma Davis, the owners of the real prope rty. From the inception of the franchise, the Carters an d Exxon discussed the possibility of upgrading the station or rebuilding the station (the "hi-grade" plan), but t his never

materialized.

___________________________________________________ ______________

1. The relevant provisions of the Act are codified at 15 U.S.C. SS 2801- 2806 (1994).

3Carter renewed the franchise on July 20, 1989, effe ctive

through August 1, 1992. The renewal was memorialize d in a "Sales Agreement" and a "Rental Agreement." The S ales Agreement had a provision disclaiming consequential damages, and the Rental Agreement had a provision disclaiming damages, including loss of business res ulting from repairs performed on the loaned equipment.

In late September 1990, the Carters reported a leak in the "plus" tank, one of three underground gasoline storage tanks. Exxon, which owned and was responsible for t he tanks, confirmed the leak and sent out a work crew to perform the repairs. On October 15, 1990, the work crew emptied the "plus" tank to test the repair. On Octo ber 18, 1990, the buoyant force of ground water forced the tank to emerge from the ground, which in turn caused the "supreme" tank to take on water.2 During the repai r of the "supreme" tank, it too emerged from the ground caus ing damage to the "regular" tank. After two weeks in wh ich the Carters were left with no operational tanks, Exxon repaired the "regular" tank, but the Carters were left with only one working tank for nine months, allowing them to sell only one type of gasoline.

After the tanks surged, the Carters had several mee tings with various Exxon employees including David O'Conn or, business counselor for the Carters' account, Anthon y Luciano, district manager for southern New Jersey, and Richard Biedrzycki, Exxon's outside counsel. In the meetings, the parties discussed several issues. Car ter expressed his desire that Exxon immediately replace his tanks, keeping them at their old site, while Exxon expressed renewed interest in the "hi-grade" plan, which would involve replacing the tanks in a new site to suit the larger facility. Exxon, unable to convince Carter t o agree to

___________________________________________________ ______________

2. Exxon engineers recognized the risk of the tanks emerging. Two methods of combating this risk are securing the tan k with straps and filling it with liquid. Carter claimed that some st raps were missing while others were broken. Also, failed communications bet ween the work crew and the fire department resulted in the "plus" tank not being filled with water from October 16, 1990 to October 18, 1990. Ca rter used these occurrences as part of the basis for his state law claims, and the jury

resolved these claims in favor of Carter.

4the "hi-grade" plan, eventually decided in mid-May to

replace the tanks in their old site, and the work w as completed in July 1991. In bringing all three tanks to working order, Exxon filled them with hold-down loa ds of gasoline.

After the tanks were replaced, the parties continue d to discuss variations of the "hi-grade" plan, but also discussed a franchise renewal, a covenant not to sue for dama ges arising out of the tank repair, and monies Exxon cl aimed were due for various items, one of which was a char ge for the gasoline used to refill the tanks during the re pairs. The

discussions took a turn for the worse after a storm y meeting on June 3, 1992, abruptly terminated by the Carters' attorney, Gerald Haughey. After meetings o n June 18 and July 8, 1992, the parties still could not re solve their differences. A critical point of dispute between th e parties is whether Exxon, in the course of these meetings, eve r offered the Carters a franchise renewal without con ditioning it on their assent to other agreements including th e covenant not to sue and investment and amortization agreements related to the "hi-grade" plan.

The parties ultimately did not agree on a renewal o f the franchise, and Exxon sent the Carters a termination notice in late July 1992. The Carters vacated the premises by the end of September. Exxon entered a franchise agreeme nt for the same premises with the Davises' son-in-law, Way ne Bird. The Carters filed this lawsuit.

The Carters and Forsum asserted a violation of the Petroleum Marketing Practices Act ("Petroleum Act") , breach of contract, negligence, tortious interference with business relationship, and tortious interference with prospe ctive economic advantage. Exxon filed a counterclaim alle ging that Carter had failed to pay Exxon monies due unde r their franchise agreement.

The district court dismissed the Carters' Petroleum Act claims on the grounds that only Forsum had standing to sue under the Petroleum Act, and dismissed Carol Ca rter
and Forsum's tortious interference claims. The dist rict court granted summary judgment in favor of Exxon on the claims of violation of the Petroleum Act, negligenc e,

5interference with business relationship, and interf erence

with prospective economic advantage. The district c ourt also granted summary judgment, as to liability only , in

favor of Exxon on its counterclaim.

The trial was bifurcated, and the case was submitte d to the jury to resolve the Carters' breach of contract claim and the appropriate amount of damages on Exxon's

counterclaim. The Carters' contract claim was two-f old. They alleged Exxon had breached its contractual dut ies by failing to make the tank repairs in a good and work manlike manner and to make the repairs in a reasonable time . The jury returned a verdict on liability in favor of th e Carters on both theories; however, the liability verdict was m itigated by the jury's finding that the Carters had waived Exxo n's contractual duty to repair in a reasonable time for the period of October 18, 1990, to December 30, 1990. A fter the district judge made post-verdict rulings on dam age issues based upon the disclaimers in the franchise agreement and accrual of damages after termination of the franchise agreement, the parties stipulated that th e Carters' damages for breach of contract were $40,000 and Exx on's damages on its counterclaim were $40,000. This appe al and cross-appeal followed.

The Carters argue the district court erred in grant ing summary judgment on the Petroleum Act claim and in granting summary judgment on Exxon's counterclaim. They further contend that the district court's jury inst ruction on waiver was erroneous, that the district court erred in applying the disclaimers to bar their claim for consequential damages for breach of duty to repair in a good and workmanlike manner, that the district cour t erred by barring the recovery of any damages for the time period after the franchise agreement was not renewed, and that the jury's finding that ninety days was a reasonabl e repair period was against the clear weight of the evidence . Exxon contends that the district court erred by applying the disclaimers to only one of the Carters' contract cl aims. It contends the disclaimers should also bar recovery o f consequential damages on the Carters' claim for bre ach of duty to repair in a reasonable time. It also conten ds the district court abused its discretion by granting th e Carters leave to amend their complaint.

6I. Summary Judgment on Petroleum Act

The Carters3 argue that the non-renewal of their franchise agreement violated the Petroleum Act. Con gress enacted the statute for the purpose of protecting franchisees, who generally have inferior bargaining power when dealing with franchisors, from unfair terminat ion or nonrenewal of their franchises. See S. Rep. No. 95- 731, at 17-19, (1978), reprinted in 1978 U.S.C.C.A.N. 873, 875-77. However, Congress also provided franchisors with so me flexibility to terminate franchise relationships by delineating specific provisions which indicate when a franchiso r may permissibly terminate a franchise agreement. See 15 U.S.C. S 2802(b)(3). The district court granted summary ju dgment against the Carters based upon such a provision. Specifically, the district court relied upon sectio n 2802(b)(3)

of the Petroleum Act which states:

[T]he following are grounds for nonrenewal o f a franchise relationship:

(A) The failure of the franchisor and the fr anchisee to agree to changes or additions to the provisi ons of the franchise, if --

(i) such changes or additions are the result of determinations made by the franchisor in goo d faith

and in the normal course of business . . . .

15 U.S.C. S 2802(b)(3).

When the franchisor terminates or does not renew a franchisee's contract, the burden falls upon the fr anchisor to prove that it declined to renew for one of the p ermissible reasons set forth in the Petroleum Act. See Lugar v . Texaco, Inc., 755 F.2d 53, 56 (3d Cir. 1985); Sun Refining and Marketing Co. v. Rago, 741 F.2d 670, 672 (3d Cir. 1 984); 15 U.S.C. S 2805(c).

Summary judgment may only be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, i f any, show

___________________________________________________ ______________

3. The district court held that Forsum, the Carters ' corporation, was the party with standing to bring the Petroleum Act clai m; we refer to the Carters for simplicity.

7that there is no genuine issue as to any material f act and

that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party ha s the burden of demonstrating that the standards of Rule 56(c) have been satisfied. See Boyle v. County of Alleghe ny Pennsylvania, 139 F.3d 386, 393 (3d Cir. 1998). Whe n a court is deciding a motion for summary judgment, "inferences should be drawn in the light most favor able to the non-moving party, and where the non-moving part y's evidence contradicts the movant's, then the non-mov ant's must be taken as true." Big Apple BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358, 1363 (3d Cir. 1 992), cert. denied, 507 U.S. 912 (1993). The judge's func tion is not to weigh the evidence and determine the truth o f the matter, but to determine whether there is a genuine issue for trial. See id. (quotations omitted). If the non -movant has offered more than a "scintilla" of evidence, the ju dge may

not discredit the non-movant's evidence even if the movant's evidence far outweighs that of the non-mov ant.
See id. Our review of the district court's decision is plenary,

and we use the same standard the district court sho uld use in the first instance. See Patel v. Sun Co., 141 F. 3d 447, 451 (3d Cir. 1998).

The parties dispute whether there is a genuine issu e of

material fact as to whether Exxon offered the Carte rs an unconditional renewal of their franchise agreement. The Carters claim that the renewal of the franchise agr eement was conditioned upon their assent to other agreemen ts, including the covenant not to sue and investment an d amortization agreements related to the "hi-grade" p lan.

Exxon claims that it offered the Carters a franchis e agreement without any strings attached. If Exxon conditioned the renewal offer upon Carter's assent to these agreements, then the non-renewal did not comply wit h the Petroleum Act. See 15 U.S.C. SS 2802(b)(3) and 2805 (f). The district court so stated the issue on the summary j udgment motion. We must review the record in the light most

favorable to the Carters and determine if there is a genuine

issue of material fact as to whether Exxon conditio ned its renewal offer upon these agreements. We are persuad ed that a genuine issue of material fact exists.

8Carter testified several times at deposition that E xxon's

offer of a franchise renewal was conditioned upon h is assent to other agreements. In Carter's words, "[A] sales agreement on its own, alone, was never offered to m e," and "[T]he way it was offered was in a package . . . if I signed a full release, if I put $30,000 in the building . .. ." Carter addressed the June 1992 time period which was cruci al to the district court's reasoning. When asked if Exxon had offered him a franchise agreement before July 2, 19 92, Carter responded "[I]n some form of package form, I believe so . . . ." Carter specifically defined the package as a general release for claims arising from the tank da mage, an agreement to upgrade the station with $30,000 of improvements, an amortization agreement, and an agreement to clear the debt Carter allegedly owed E xxon from past transactions, including the gasoline used to fill the tanks during repair.

Other evidence on the record indicates that there i s a genuine factual issue as to whether the offer was unconditional. Haughey, who was present at the meet ing of June 3, 1992, testified that Exxon was "tying" the renewal of the sales agreement to the damage of the tanks a nd had been doing so "from the beginning." Carol Carter te stified that every time Exxon made an offer, the Carters we re not free to sign only the franchise agreement. In her w ords, "You couldn't pick up one so [sic] stack and say, o kay, I'll take this and leave the other two. They were set in front of you as a whole and this is what you had to decide o n. You had to sign all three." Exxon's own employees testi fied that before June 1992, Exxon offered package deals. O'Co nnor testified that in October 1991, he communicated wit h Exxon's attorneys regarding an offer to the Carters that

contained a covenant not to sue and an amortization agreement. Further, Luciano testified that Exxon of fered

Carter a deal in which Carter would receive a new f ranchise agreement, but also would have to sign a covenant n ot to

sue.

Moreover, the evidence cited by the district court and Exxon does not persuade us that there is no genuine issue

of material fact. Both the district court and Exxon rely heavily on O'Connor's testimony that there were no

9conditions placed on the June 18, 1992, offer of a new

franchise agreement. However, that testimony is in direct conflict with Carter's testimony that he was never offered a franchise renewal with no strings attached. When th e nonmovant's evidence contradicts the movant's, the non movant's must be taken as true. See Big Apple BMW, Inc., 974 F.2d at 1363. Instead, the district court accep ted Exxon's, the movant's, evidence as true. The distri ct court
and Exxon also make much of Carter's admission that on June 3, 1992, Exxon never explicitly stated that th e offer was conditioned upon his assent to other agreements

. However, as Carter's testimony shows, Exxon certain ly did not explicitly tell him that the offer was not cond itioned upon other agreements, as Exxon had indicated in th e past. Carter's statement at most represents an ambiguity in his testimony. Ambiguities in deposition testimony are for the jury to resolve. See Meinhardt v. Unisys Corp., 74 F.3d 420, 433 n.10 (3d Cir.), cert. denied, 519 U.S. 810 (199 6).4 The district court also relied on a letter Haughey wrot e on January 2, 1992, requesting that Exxon handle the r enewal of the franchise agreement and the damage to the ta nks as two distinct issues and a letter Biedrzycki wrote i n July of 1992, indicating that Exxon was treating the matter s separately. In the district court's opinion, the le tters showed that both parties understood that the franch ise renewal was distinct from discussions relating to t he damaged tanks. However, the inference the district court drew from the correspondence is too broad and certa inly not in the Carters' favor. The letter only directly shows that Haughey was asking for the issues to be treated sep arately, and at one point in July, Exxon indicated that they were. It does not directly show that Exxon made an uncond itional offer, and inferring that it does is inappropriate on summary judgment.

___________________________________________________ ______________

4. Exxon also relies upon on a statement that Carte r made in a meeting in July 1992 indicating that he had no choice but t o cease operations. Exxon claims that this amounts to a rejection of a franchise agreement. Carter's statement, however, does not show that Exx on made an unconditional offer. Read in a light most favorable to Carter, the statement only shows that Carter could not continue his operations if he was forced to agree to Exxon's package offer--inclu ding his waiver of claims arising out of the tank replacement.

10In short, the district court failed to place the ev ents of

June and July in context with the previous relation s between the parties and only accepted Exxon's versi on of the events. The record, when viewed in the light mo st favorable to the Carters, reveals that a genuine is sue of

material fact exists as to whether the renewal offe r was conditional. We therefore reverse the grant of summ ary judgment for Exxon.

II. Summary Judgment on Counterclaim

The district court entered summary judgment for Exx on on its counterclaim, which alleged that Carter owed Exxon for purchases of gasoline under the agreement.5 The district

court held that Carter had not contested his liabil ity as to the items in question. While the court lacked documentation as to amounts, it found it appropriat e to grant Exxon's motion for summary judgment on the is sue of liability. The parties later stipulated the amou nt of this debt as $40,000.

The Carters argue the debt arose almost entirely fr om the loads of gasoline used to hold the tanks down durin g repair. Luciano, Exxon's employee, testified that t he indebtedness arose from the hold-down gasoline used for the three tanks. The Carters further argue that the y did not expressly or impliedly promise to pay for the hold- down loads as they did not order the gasoline; thus, Exx on could only recover in quasi-contract, a theory of recover y Exxon did not allege. The franchise agreement states that "[Gasoline] shall be delivered by Seller to Buyer a t the premises in the quantities ordered by Buyer." Carte r testified that he did not order the hold-down loads . Luciano testified that the Carters disputed the amount of t he debt. O'Connor testified that there was a dispute regardi ng monies allegedly due for fuel used in the tank repl acement. Applying the standards stated above, we conclude th is

___________________________________________________ ______________

5. Exxon also asserts that the Carters' alleged fai lure to pay the debt is a basis for granting summary judgment in its favor on the Carters'

Petroleum Act claim. The district court did not bas e its grant of summary judgment on the Petroleum Act claim upon th is debt; thus, we

do not address it in relation to the Petroleum Act claim.

11evidence compels the rejection of summary judgment on

Exxon's counterclaim.

III. Jury Instruction on Waiver

The case went to the jury on the Carters' breach of contract claims, and the jury found that the Carter s waived performance of Exxon's contractual duty to repair t he tanks from October 18, 1990, to December 30, 1990. The Ca rters argue that the court erred in instructing the jury that waiver could be found based upon "inaction or silen ce." The Carters timely objected to the instruction. We must determine whether the jury instructions as a whole stated the correct legal standard. See Ryder v. Westinghou se Elec. Corp., 128 F.3d 128, 135 (3d Cir. 1997), cert. deni ed, 118 S.Ct. 1052 (1998). "If, looking at the charge as a whole, the instructions were capable of confusing and thereby misleading the jury, we must reverse." Mosley v. Wi lson, 102 F.3d 85, 94 (3d Cir. 1996) (quotations omitted)

.

The breach of contract claim was asserted under New Jersey law, and we look to New Jersey law to determ ine the applicable definition of waiver. The Supreme Court of New Jersey in West Jersey Title & Guaranty Co. v. Indus trial Trust Co., 141 A.2d 782 (N.J. 1958), held that waiv er requires "a clear, unequivocal, and decisive act of the party showing such a purpose or acts amounting to an esto ppel on his part . . . ." Id. at 787. See also Petrillo v. Bachenberg, 623 A.2d 272, 276 (N.J. Super. Ct. App. Div. 1993), aff 'd, 655 A.2d 1354 (N.J. 1995); Country Chevrolet, Inc. v. Township of North Brunswick Planning Bd., 463 A.2d 960, 962 (N.J. Super. Ct. App. Div. 1983). New Jersey la w thus requires a decisive act, rather than mere inaction, as a basis for waiver, and we conclude the district cour t's instruction was contrary to New Jersey law.

Moreover, during closing argument, Exxon's counsel argued that the Carters' silence in the face of the destruction of the tanks and Exxon's corresponding "higrade" proposal made it reasonable for Exxon to pro ceed on the proposals, rather than to start replacing the t anks. The district court instructed the jury that it mustfind a waiver if the Carters expressly agreed to or clearly acqui esced in a

12delay of performance under the contract which reaso nably

led Exxon to believe that the Carters would not ins ist the tanks be repaired or replaced. Introducing the issu e of Exxon's reasonable belief is also contrary to New J ersey law, and further compounded the error. See Petrillo , 623 A.2d at 272, 276 (holding that it is erroneous to d efine waiver as conduct causing an objective observer to believe party had relinquished her rights). Including inact ion, silence, and reasonable belief in the definition of waiver creates an incorrect statement of the legal standar d and could confuse the jury as to the basis for waiver. The

district court's instruction is reversible error.

IV. Damages

A.

The franchise relationship between Carter and Exxon was memorialized in the Sales Agreement and the Rental Agreement. Each had a provision disclaiming damages

.

Paragraph three of the Rental Agreement states:

Upon written notice from the Lessee, Lessor shall make all repairs to the equipment leased hereunde r which are not Lessee's responsibility as described in Exhibit A; provided, however, that such repairs are, in Lessor's sole judgment, necessary in consideration of the remaining term of this agreement or have not been caused by negligence or misuse of Lessee or Lessee's employees, agents, representatives or contra ctors. Lessor and its designees shall have the righ t to enter the premises at any time to inspect, repair, or replace the equipment, and Lessor shall have no obli gation to reimburse Lessee for any loss of business by Lessee or other damages resulting from these activitie s by Lessor.

Paragraph twenty-six of the Sales Agreement states:

DAMAGES: NO CLAIM SHALL BE MADE UNDER THIS CONTRACT FOR SPECIAL, OR CONSEQUENTIAL DAMAGES, EXCEPT AS PROVIDED OTHERWISE BY

LAW.

13The district court held that it did not need to loo k to

paragraph twenty-six of the Sales Agreement because paragraph three of the Rental Agreement was more applicable to tank replacement. After determining t hat paragraph three was not unconscionable, the distric t court held that it barred the Carters' recovery of conseq uential damages on their claim for breach of duty to repair in a good and workmanlike manner, but did not bar the Ca rters' recovery of consequential damages on their claim fo r breach of duty to repair in a reasonable time. Each party claims the district court's holding was erroneous. The Car ters claim that both paragraph three and paragraph twent y-six are inapplicable, and, in the alternative, they are unconscionable. Exxon disputes the Carters' claims and further contends that the district court erred by n ot applying paragraphs three and twenty-six to the Car ters' claim for breach of duty to repair in a reasonable time. Thus, we must first determine whether the proper interpretation of the contract bars the Carters' re covery of consequential damages and then determine whether th e contract, properly interpreted, is unconscionable.

Franchise agreements governed by the Petroleum Act are to be interpreted according to state contract law.6 See Lippo v. Mobil Oil Corp., 776 F.2d 706, 712 (7th Cir. 198 5). We thus look to New Jersey's law of contract interpret ation. New Jersey's fundamental rule of contract interpret ation is

___________________________________________________ ______________

6. Rental agreements are interpreted and analyzed f or unconscionability in the same way as contracts. We need not consider whether New Jersey's version of the Uniform Commercial Code app lies to this rental agreement. On the state law issues before the court today--waiver, interpretation, unconscionability, and consequentia l damages--the U.C.C. analysis and the common law contract analysi s lead to the same result. See N.J. Stat. Ann. SS 12A:2-209 (West 1962 ) (not defining waiver) and 12A:2-208 (West 1962) (New Jersey Study Comment ). Compare N.J. Stat. Ann. S 12A:2-301 (West 1962) (U.C.C. Comment) with Jacobs v. Great Pacific Century Corp., 518 A.2d 223, 224, 227 (N.J. 1986) (interpretation). Compare Chatlos Systems, Inc. v. National Cash Register Corp., 635 F.2d 1081, 1086-87 (3d Cir. 1980) with H oward v. Diolosa, 574 A.2d 995, 999 (N.J. Super. Ct. App. Div. 1990) (unconscionability), certification denied, 585 A.2d 409 (N.J. 1990). Com pare N.J. Stat. Ann. S 12A:2-715 (West 1962) (New Jersey Study Comment) with Donovan v. Bachstadt, 453 A.2d 160, 165-66 (N.J. 1982) (conseq uential damages).

14that the court is to ascertain the parties' intent from what

was written and the surrounding circumstances. See Jacobs v. Great Pacific Century Corp., 518 A.2d 223 , 224, 227 (N.J. 1986); Tessmar v. Grosner, 128 A.2d 467, 471 (N.J. 1957). Our review of the district court's int erpretation of the contract is plenary. See Smithkline Beecham Corp. v. Rohm and Hass Co., 89 F.3d 154, 159 (3d Cir. 1996); Jumara v. State Farm Ins. Co., 55 F.3d 873, 880-81 (3d Cir. 1995).

The parties make much of whether the Sales Agreemen t and the Rental Agreement are one agreement or two. Exxon argues that they are one agreement; therefore, para graph twenty-six of the Sales Agreement applies to losses resulting from the repair of the tanks, and paragra ph twenty-six is so broad that it does not leave room for the

district court's distinction between manner and tim e of repair. The Sales Agreement refers to attachments, and its language makes evident that the Rental Agreement wa s an attachment to it. The Rental Agreement is not only entitled a "Rider to the Sales Agreement," but commences wit h reference to the buyer's purchase of products as de fined in the Sales Agreement. However, whether the parties h ave one or two agreements is not determinative of the i ssue before us.

Contract provisions are to be interpreted so as to give each provision meaning, rather than rendering some provisions superfluous. See, e.g., Ehnes v. Hronis, 23 A.2d 592, 593 (N.J. 1942); United States v. Johnson Cont rols, Inc., 713 F.2d 1541, 1555 (Fed. Cir. 1983); Embassy Moving & Storage Co. v. United States, 424 F.2d 602 , 606 (Ct. Cl. 1970). Exxon's reading of paragraph twenty -six of the Sales Agreement renders superfluous the disclai mer language in paragraph three of the Rental Agreement
, which specifically addresses the parties' respectiv e duties for the upkeep of the equipment and which disclaims business loss resulting from repair of the equipmen t. The reading of the two agreements which gives independe nt meaning to paragraph three of the Rental Agreement is that paragraph twenty-six of the Sales Agreement does no t apply to losses stemming from tank repair. The disclaimer s in paragraph twenty-six of the Sales Agreement and

15paragraph three of the Rental Agreement apply to di fferent

aspects of the contractual relationship between the parties.

The critical phrase of paragraph three of the Renta l Agreement is: "[Lessor] shall have the right to ent er the premises at any time to inspect, repair, or replace the equipment, and Lessor shall have no obligation to reimburse Lessee for any loss of business by Lessee or other damages resulting from these activities . . . ." The business loss on the breach of duty to repair in a good and workmanlike manner claim results from Exxon's repai r of the equipment and is barred by the disclaimer.

We believe, however, that New Jersey's contract interpretation principles lead to the conclusion th at the Carters may recover business loss for breach of dut y to repair in a reasonable time.

"An agreement . . . must be accorded a rational mea ning in keeping with the express general purpose." Tessm ar v. Grosner, 128 A.2d 467, 471 (N. J. 1957). "[T]he mos t fair and reasonable construction, imputing the least har dship on either of the contracting parties should be adop ted . . .

so that neither will have an unfair or unreasonable advantage over the other." Id. (citations omitted).

Paragraph three only bars damages "resulting from" repair and does not refer to failure to commence re pairs or the timeliness of repairs. An interpretation of thi s language that allows Exxon to delay commencement of tank replacement and not make the replacement in a reaso nable

time is not the most reasonable or fair because it substantially undermines the right to repairs that Exxon gave Carter.7 Further, allowing Exxon an unlimited time to make the repairs gives it an unfair advantage in th is case

___________________________________________________ ______________

7. Exxon claims that it did not commence tank repla cement because after the tanks surged, the Carters negotiated with them about making the "hi-grade" improvement. However, Carter testifi ed that he told Exxon that he was not interested in the "hi-grade" improv ement and wanted his tanks replaced in their old site. This factual disp ute goes to the merits of Exxon's waiver defense, which the jury resolved by finding that Carter waived his right to have the tanks timely replaced from October 18, 1991 to December 30, 1991. The waiver issue must be retr ied with the proper jury instruction.

16where the delay could have compelled Carter into as senting

to the "hi-grade" improvement. It is also not in ac cord with the general purpose of the agreement, the sale of g asoline. If Exxon truly was bargaining for exculpation from damages regardless of the length of time it took them to ma ke repairs, it should have drafted the contract explic itly excluding damages for untimely repair.

While the exculpatory clause in a commercial lease was held not to exculpate a landlord from his own negli gence unless the clause expressly so stated, see Carbone v. Cortlandt Realty Corp., 277 A.2d 542, 543 (N.J. 197 1), the principle is also applicable in this case. Exxon's delay, like Cortlandt's negligence, was a subject that required an explicit disclaimer.

Considering the stake Carter had in his franchise a nd the imprecise language of the disclaimer, we are not pe rsuaded that Carter agreed to incur the risk that Exxon wou ld delay the commencement of tank replacement and not perfor m the required repair or replacement in a reasonable time.

B.

Even if we were to interpret the disclaimer as Exxo n proposes, we would conclude the contract is

unconscionable to the extent that it shields Exxon from damages resulting from its failure to repair or rep lace the tanks in a reasonable time. Unconscionability is a question

of law for the court to decide. N.J. Stat. Ann. S 1 2A:2-302 (West 1962). In determining whether a contract is unconscionable, courts focus on the bargaining powe r of the parties, the conspicuousness of the putative un fair term, and the oppressiveness and unreasonableness o f the term. See, e.g., Chatlos Systems, Inc. v. National Cash Register Corp., 635 F.2d 1081, 1086-87 (3d Cir. 198 0); Gladden v. Cadillac Motor Car Division, 416 A.2d 39 4, 403 (N.J. 1979) (concurring opinion).

In this case, while we recognize that the Carters h ad discussions with other franchisors, there is no dou bt that their bargaining power was substantially less than Exxon's. See S.Rep. No. 95-731, at 17-18, (1978), reprinted in 1978 U.S.C.C.A.N. 873, 875-76. The Petroleum Act might p rotect

17the Carters from unfair renewal decisions, but ther e

remains a wide disparity in bargaining power with r egard to other aspects of the relationship.

Furthermore, the disclaimer is not adequately conspicuous. The paragraph is not titled, and the c ritical language limiting Exxon's liability is not capitali zed or highlighted. Thus, there is no indication that this farreaching disclaimer might be of greater importance than other provisions of the paragraph or the agreement. The lack of a title or highlighting is particularly dis turbing because the disclaimer is buried in a paragraph whi ch purports to confer the benefit of repairs made at E xxon's expense. Indeed, in a single-spaced paragraph, whic h for the first eight and one-half lines discusses only t he duty to repair, it is not until the last clause of the thir d sentence beginning on the last half of the eighth line, that the disclaimer of liability is reached. In this respect , the case is similar to Jutta's Inc. v. Fireco Equipment Co., 37 5 A.2d 687 (N.J. Super. Ct. App. Div. 1977), in which the cour t struck down a limitation on damages which appeared at the end of a paragraph conferring a guarantee. See id. at 690. While the paragraph in Jutta's was more deceiving because it was titled "Distributor's Guarantee," placing the discl aimer far down in a paragraph which otherwise seems to confer benefits, without any demarcation at all, falls sho rt of being conspicuous. See N.J. Stat. Ann. S 12A:1-201(10) (W est Cum. Supp. 1998) (describing language as conspicuou s if it is in larger or contrasting type).

Finally, the disclaimer, as Exxon would have us int erpret it, would be oppressive and unreasonable. In some respects, this case is similar to Kearney & Trecker Corp. v. Master Engraving Co., 527 A.2d 429 (N.J. 1987). The re the New Jersey Supreme Court considered whether a selle r's disclaimer of consequential damages was enforceable when the seller's repair warranty had failed of its esse ntial

purpose.

Kearney adopted our reasoning in Chatlos Systems, I nc. v. National Cash Register Corp., 635 F.2d 1081 (3d Cir. 1980), and held that the fact that the seller's rep air warranty had failed of its essential purpose does n ot alone render the disclaimer of consequential damages

18unconscionable. See Kearney, 527 A.2d at 437-38. In the

court's words:

[New Jersey Law] does not require the invali dation of an exclusion of consequential damages when l imited

contractual remedies fail of their essential purpose. It is only when the circumstances of the transa ction, including the seller's breach, cause the con sequential damage exclusion to be inconsistent with the intent and reasonable commercial expectations of th e parties that invalidation of the exclusionary clause would be appropriate . . . . For example, although a buyer may agree to the exclusion of consequential dama ges, a seller's wrongful repudiation of a repair wa rranty may expose a buyer to consequential damages not contemplated by the contract . . . .

Id. at 438.

Kearney held that the disclaimer in question was no t unconscionable as applied, considering the wide ran ge of repairs possible for the complex controlled machine at issue and the repeated service calls made by the seller. See id. at

438-39.

In this case, Exxon did not repudiate its duty to r epair. But, under Kearney, the issue is whether, consideri ng the

circumstances of the transaction and the nature of Exxon's breach, it is consistent with reasonable commercial expectations and the intent of the parties that the Carters bear the risk of loss of business stemming from Exx on's failure to repair or replace the tanks in a reasona ble time.

The disclaimer makes no reference to failure to commence repairs or the timeliness of repairs. Most important is the nature of Exxon's breach. Even if the Carters waived their right to timely tank replaceme nt through December 30, 1991, as the jury found, Exxon did not commence tank replacement until mid-May. The replacement of the tanks was not completed until mi d-July, three and one-half months longer than the jury foun d to be a reasonable time for the replacement. Absent waive r or a similar defense, we conclude that the substantial d elay in the commencement of tank replacement, with a result ing failure to replace in a reasonable time, is the kin d of

19breach, which causes unforeseen damage, such as the New

Jersey Supreme Court referred to in Kearney.

Kearney relied on our decision in Chatlos Systems, Inc. v. National Cash Register Corp., 635 F.2d 1081 (3d Cir . 1980). In Chatlos, the buyer bought a computer system from the seller. The contract included a repair warranty and a consequential damage disclaimer. A year and a half after the sale, the system was not working properly, desp ite repeated repair efforts by the seller. The buyer su ed for consequential damages. See Chatlos, 635 F.2d at 108 4. In upholding the validity of the damage disclaimer aga inst a claim that it was unconscionable, we stated, "[I]t is worth mentioning that even though unsuccessful in correct ing the problems within an appropriate time [the seller] co ntinued

in its efforts . . . . This is not a case where the seller acted unreasonably or in bad faith." Id. at 1087. In this case, as we observed above, we do not see the kind of contin uing effort to repair present in Chatlos, and the jury s pecifically found that Exxon breached a contractual obligation to make the repair or replacement within a reasonable time.

Even assuming Exxon's interpretation of the contrac t is correct, we conclude that the application of the di sclaimer to damages resulting from Exxon's failure to repair or replace the tanks in a reasonable time is unconscio nable. We reach this decision considering the precedent of Kearney, Chatlos, and Jutta's, the disparity in bar gaining power between the parties, the inconspicuousness an d imprecision of the disclaimer, and the substantial delay in the commencement of the tank replacement, which, ab sent waiver or a similar defense, was inconsistent with the parties' intent and reasonable commercial expectati ons.8

On their breach of duty to repair in a reasonable t ime claim, the Carters may recover business loss which, at the time the parties made the contract, was a reasonabl y foreseeable result of Exxon's breach and was a reas onably certain consequence of the breach. See Donovan v.

___________________________________________________ ______________

8. The Carters' contention that it is unconscionabl e for the disclaimer to bar recovery on the breach of duty to repair in a g ood and workmanlike

manner claim is without merit. That breach does not involve the kind of unforeseen damages to which Kearney refers.

20Bachstadt, 453 A.2d 160, 165 (N.J. 1982). However, we

affirm the district court's holding that on this br each of contract claim the Carters may not recover business loss on a hypothetical franchise agreement that would have taken effect after the franchise agreement expired in Jul y 1992. We are persuaded that, as a matter of law, the nonr enewal of the franchise agreement and the lost opportunity to make profit on a new agreement was not a reasonably certain consequence of Exxon's delay in replacing t he tanks. The delay and the ultimate tank replacement occurred more than a year before the franchise was not renewed, and during that year, the parties continuo usly negotiated for a renewal of the franchise.

C.

If they succeed on their Petroleum Act claim, the C arters can recover lost profits that would have accrued ha d they been able to continue to operate the station after July 1992.9 See Thompson v. Kerr-McGee Refining Corp., 660 F.2d 1380, 1388 (10th Cir. 1981), cert. denied, 455 U.S. 1019 (1982). The disclaimers do not shield Exxon from liability for consequential damages resulting from a violation of the Petroleum Act. In the first place, the language of the disclaimers does not apply to these damages. Paragr aph three does not apply because these damages do not"r esult" from repair. Paragraph twenty-six does not apply be cause these damages are not based on a claim made "under" the contract. Alternatively, even if the damages were b ased on a claim made "under" the contract, 15 U.S.C.S 2805( d) provides for the recovery of actual damages. Thus, the damages would be "provided otherwise by law" in accordance with paragraph twenty-six's savings clau se. Most importantly, even if the disclaimers did apply , we could not allow Exxon to contract away the protecti on Congress provided franchisees. See Graham Oil v. Ar co Prod. Co., 43 F.3d 1244, 1248 (9th Cir. 1994), cert . denied, 516 U.S. 907 (1995). If the Carters succeed on thei r

___________________________________________________ ______________

9. The district court did not rule on the damages a vailable to the Carters on the Petroleum Act claim because the court had gr anted Exxon summary judgment on this claim.

21Petroleum Act claim, they are entitled to actual da mages

resulting from the violation. See 15 U.S.C.S 2805(d ).

V. Conclusion

We reverse the district court's entry of summary judgment on the Petroleum Act claim and Exxon's

counterclaim. We conclude the district court erred in defining waiver for the jury and reverse the judgme nt on
the Carters' state law contract claims. We affirm t he district court's holding that the Rental Agreement disclaime r precludes the Carters from recovering business loss on their breach of duty to repair in a good and workma nlike manner claim and its holding that neither the Renta l Agreement disclaimer nor the Sales Agreement discla imer precludes recovery on the Carters' claim for breach of duty to repair in a reasonable time to the extent that b usiness loss accrued before the franchise agreement expired in July 1992. In view of our holdings on the waiver instruc tion, the damages for breach of contract, and the counterclai m, we believe it is appropriate that the entire case be r etried, including the issue of the reasonable time to repai r or replace the tanks. See Childers v. Joseph, 842 F.2d 689, 699 (3d Cir. 1988); Heckmen v. Federal Press Co. , 587 F.2d 612, 619 (3d Cir. 1978). We affirm the district cou rt's holdings on all other issues raised. We remand for further proceedings consistent with this opinion.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

22