The Private Salesman

The real culprit? 
Foti Fuels, Inc. v. Kurrle Corp., 2013 VT 111

By Nicole Killoran

Today’s oldie but goodie fills in an important gap in Vermont’s Consumer Fraud Act (CFA) case bank. As civil plaintiff’s lawyers know, the CFA is a bit of a reliable “kitchen sink” option. It’s fun to throw into just about every complaint in which there’s some scintilla of a promise that went awry. If it sticks, it might get you attorney’s fees and, in heinous cases, exemplary damages. But just how arms-length does a transaction have to be before it’s “in commerce” and thus consumer fraud?

Back in the ‘70s, plaintiff’s owner set himself up as a gasoline mogul in the bustling burg of Montpelier. He had one corporation running a gas station and convenience store, and storing and distributing fuel, and another corporation delivering fuel to gas stations. After 25 years, plaintiff seller announced he was retiring to sunny Arizona, and offered to sell his gassy empire to defendant buyer, who didn’t have much experience in the fuel industry. Seller agreed to train his novice successor, and employ him as a manager, before they finalized everything in writing.

When the parties sealed the deal four years later, they signed a couple of documents, including an asset-purchase agreement. Seller sold everything but the distributorship to buyer. They agreed that buyer would continue buying fuel from seller for five years, before having the first shot at buying the distributorship. Seller also agreed in the asset-purchase agreement, in exchange for $30k, to not compete directly or indirectly with buyer during those five years. The parties later signed a separate, more-specific noncompete agreement that also gave buyer a pretty big grace period to make his first payment.

Things can change in five years, and the circumstances surrounding this business deal were no exception. Seller’s retirement plans changed a few years in, and for a while he worked for a competitor fuel delivery company which, conveniently, bought gas from seller’s distributorship. Around the end of the five-year period, Exxon decided it was done with the New England market. Buyer signed up with Shell, which required him to buy gas from a competitor, and seller lost his last two customers to the same competitor. Left in the cold without any customers, seller broke up with buyer and sued. Buyer sued back.

Most of the parties’ claims were figured out before the case got to trial, leaving buyer’s breach of contract and consumer fraud counterclaims left over. After the evidence was in at trial, seller asked for judgment as a matter of law. The trial court agreed on the breach of contract and good faith claims because it didn’t think buyer proved damages. It also, as sometimes happens, bemoaned a lack of time to research the CFA claim, then punted the decision to the jury, who gave buyer a cool $2.5 million. Seller renewed his motion for judgment. The court quickly took the CFA award back, having concluded that the CFA didn’t actually cover these transactions because they weren’t “in commerce.”

Buyer appeals, arguing that the court shouldn’t have granted the motion because seller raised the CFA issue too late, and that the court was wrong on the “in commerce” and contract issues.

SCOV picks up the procedural timing question first. It gets a fresh “de novo” look at the question because that’s its job when the law is unclear. Reversing a motion for judgment as a matter of law (formerly known as a JNOV motion, now known as a JMOL motion) is a pretty tough sell on appeal. And in this case, the SCOV isn’t buying.

The procedural issue is pretty easily disposed of. Buyer says seller wasn’t clear what he was arguing in the first motion, and that he was surprised when seller suddenly brought up the CFA “in commerce” issue in the second motion. A renewed JMOL motion like seller made here can’t bring up something new. To avoid the unfair element of surprise, it has to be limited to what was “specifically raised in the prior motion.”

Here, seller argued before the evidence closed that this was not “a consumer transaction.” The parties then argued about whether it fell under the CFA, and why. The court said it needed some research to work with and suggested buyer do that. The next day, buyer gave the court a brief, and everyone, including the court, argued again about the nature of the transaction and their respective roles as “seller” and “consumer” before the court threw up its hands and let the jury decide.

Unsurprisingly, SCOV says it’s obvious that buyer knew seller was arguing about the sale being “in commerce.” The renewed JNOV motion was just “a fuller explanation” of seller’s original motion. SCOV won’t reverse on this point.

Next, SCOV gets to the real meat of this case, the entrĂ©e of the four-course meal if you will: whether the trial court got it right when it concluded that this transaction did not occur “in commerce” under the CFA. Spoiler alert: this private deal wasn’t “in commerce.”

In order to get around to its ultimate ruling, SCOV does some basic set-up and some more in-depth historical delving. The CFA prohibits unfair acts or deceptive practices in commerce. Either consumers or the Attorney General can use it. If you’re not the Attorney General (and who is, really), then you have to prove you’re a consumer.

The CFA, like its model federal forefather, the FTCA (Federal Trade Commissions Act), is supposed to “promote honest competition and . . . protect the public.” The Vermont Legislature was pretty clear that it expected the courts to use the FTCA as a guide when looking at CFA claims.

The bloody center of the CFA steak is what is at issue in this case. What is “in commerce?” SCOV has been shy about deciding this question in the past. It’s gone so far as to say that the CFA has been somewhat fattened over time in bringing first consumers, and then “other violators,” under its belt. But, that line of thinking hasn’t yet touched the basic “in commerce” requirement or helped anyone understand what the heck that is. Well, this is the case, says SCOV.

For inspiration, the SCOV looks to our sister states of Massachusetts and New Hampshire, which in turn echo Georgia and Nebraska. Those states think that “in commerce” narrows their CFA equivalents and cuts out transactions that are “strictly private in nature,” with an eye toward balancing out the equity between consumers and business folk.

SCOV sums this all up with its “new” rule born of all this pontificating: “in commerce” means something happened “in the consumer marketplace” where the defendant was engaged in an “ongoing business” and held himself “out to the public.” The bad thing that the defendant did must be potentially harmful to the public. Just to be clear, the SCOV says “private negotiations” between two roughly equal individuals who can lean on contract, tort, and property law for remedies are outside of the CFA.

SCOV goes on to justify itself, and notes that its new interpretation meets the original needs of the CFA: it protects consumers and mirrors the FTCA. Consumers frequently get screwed in the marketplace, and the CFA needs to be a stand-alone option for them in circumstances where common law remedies would be too expensive to litigate. This narrower interpretation also prevents common law remedies from becoming obsolete.

You can probably see where this is going.

The business deal gone epically awry here was between seller and buyer, not the general public. It involved not something that consumers generally consume, but an entire business being sold between individual parties. There were no boilerplate agreements; this was a customized deal that you can’t pick up at Walmart. Buyer had common-law remedies to pursue, and he did, albeit unsuccessfully. This was not a transaction “in commerce,” says SCOV.

Having dashed buyer’s hopes on the rocks of private commerce, SCOV turns to buyer’s breach-of-contract claims that came out of the noncompetition agreement. It quickly determines first that the latter agreement, the one that came after the sale, is the one that matters here—parties can change their agreements if they want. The second agreement modified the original terms, defined the scope, and gave buyer a big break on making his installment payments (e.g., that’s consideration folks).

With that out of the way, SCOV digs into whether buyer actually proved that seller violated the agreement. Remember seller’s flirt with another fuel delivery company? Before the jury even got to it, the trial court rejected buyer’s breach-of-contract counterclaims because his damages (lost profits due to seller’s infidelity) were “too speculative.” In the same stroke, the trial court also spurned buyer’s alternative damages—the $30k that he paid for the noncompetition agreement.

To get lost profits, SCOV notes, you have to be pretty darn specific with your proof. Buyer here threw some numbers at the jury amounting to some $140k/year in lost revenue. But apparently he didn’t give the jury an idea of what part of the lost revenue was lost profits. The trial court said the jury had “nothing at all to go on,” and SCOV agrees.

There’s a silver lining here, though. SCOV thinks buyer should have had a shot at his alternative damages—restitution for the $30k in consideration he paid seller. You get a shot at multiple damages theories in this game, and especially when lost profits are kind of out there as it appears they were in this case, restitution might be a better fit. So, SCOV kicks the case back down to the trial court for the jury to decide whether seller breached the noncompetition agreement, and thus whether he gets his restitution damages.

Let this be a lesson to all those trying to work out a private business succession plan—when it goes south because the seller didn’t, don’t cry consumer fraud.

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