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Howard v. Ferrellgas

United States District Court, D. Kansas

March 16, 2015

RANDY HOWARD, Individually and on Behalf of All Others Similarly Situated, Plaintiff,

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[Copyrighted Material Omitted]

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For Randy Howard, Individually and on behalf of all others similarly situated, Plaintiff: Helen I. Zeldes, LEAD ATTORNEY, Zeldes Haeggquist & Eck, LLP, San Diego, CA USA; Peggy J. Wedgworth, LEAD ATTORNEY, Milberg LLP -- New York, New York, N.Y. USA; Andrei V. Rado, Charles Slidders, Elizabeth S. Metcalf, PRO HAC VICE, Milberg LLP -- New York, New York, N.Y. USA; Aaron M. Olsen, PRO HAC VICE, Zeldes & Haeggquist, LLP, San Diego, CA USA; R. Frederick Walters, Walters Bender Strohbehn & Vaughan, P.C., Kansas City, MO USA.

For Ferrellgas Partners, LP, Ferrellgas, Inc., Ferrellgas LP, Defendants: Kathryn R. DeBord, Robert M. Thompson, LEAD ATTORNEYS, Craig S. O'Dear, Bryan Cave LLP - Denver, Denver, CO USA; Rick E. Frawley, LEAD ATTORNEY, Ferrellgas, LP, Liberty, MO USA.

For Does 1 Through 25, Defendant: Craig S. O'Dear, LEAD ATTORNEY, Bryan Cave LLP - KC, Kansas City, MO USA.

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J. Thomas Marten, Chief United States District Judge.

Plaintiff Randy Howard, on behalf of himself and all others similarly situated, seeks damages against defendants Ferrellgas Partners, L.P.; Ferrellgas, L.P.; and Ferrellgas, Inc. (collectively " defendant" ) for allegedly engaging in unfair, unconscionable, deceptive, misleading, and unlawful conduct in connection with the marketing and sale of propane and related equipment and services. Pursuant to the Federal Arbitration Act (" FAA" ), and at the direction of the Tenth Circuit, on November 12, 2014, this court conducted a summary trial to determine one basic, preliminary question: are the parties bound by an arbitration agreement, and therefore required to arbitrate, not litigate, the above-listed claims? Based on the evidence presented at trial and the applicable law, the court answers this question in the affirmative, as described below.

I. Facts and Procedural History

The parties' story is nothing new: customer needs a good, customer locates a supplier of said good, customer offers to buy the good from the supplier, and the supplier agrees to sell consumer the good. In fact, the parties agree that this is exactly what happened. Plaintiff, a resident of California, needed propane for his residential use. Dkt. 114, at 1-2. Having never been a consumer of residential propane before, plaintiff shopped around and ultimately decided on service from defendant, a nationwide provider of propane, propane services, and equipment. Dkt. 115, at 3. [1] On August 21, 2008, plaintiff called defendant

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and reached one of its representatives, Adrienne Williams, in Vancouver, Washington. Dkt. 114, at 2; Dkt. 115, at 3. The agreed-upon facts of the content of this telephone call are as simple as those generic ones stated above: plaintiff needed propane, plaintiff determined that defendant was a supplier of propane, plaintiff requested propane from defendant, and defendant agreed to sell plaintiff propane. Dkt. 114, at 2; Dkt. 115, at 4. The contents of this August 2008 telephone call shall hereinafter be referred to as the " Oral Contract." On September 5, 2008, defendant installed a 250-gallon propane tank on plaintiff's property and filled it with 217.60 gallons of propane, for which it charged plaintiff an introductory rate of $2.11 per gallon. Dkt. 115, at 4. This September 5, 2008, fill of propane shall hereinafter be referred to as the " First Fill."

This, however, is where the simplicity ends. What appears, at least on the surface, to be a simple consumer transaction, is currently embroiled in a game of " he said, they said" that has now spanned nearly five years. At the heart of this quagmire, at least for this court's purposes, is one significant question: does this case even belong in litigation? The parties clearly disagree as to the answer to this crucial question, as set forth below.

A. Plaintiff's Allegations

According to plaintiff, on that fateful day in August 2008, he entered into an oral contract with defendant not only for the tank rental and the First Fill, but also for all subsequent fills of propane thereafter. Plaintiff claims that he became a " keep full" customer, meaning that defendant promised to monitor the propane level in his tank from afar and refill as necessary, without any further request from plaintiff. Dkt. 114, at 2. Plaintiff alleges that he was not bound by any terms and conditions and never saw, let alone signed, any written document memorializing his relationship with defendant. Plaintiff claims that defendant's representative told him that, after the First Fill, which was assessed at a special introductory per-gallon rate, plaintiff would be charged at propane's current " market price."

B. Defendant's Allegations

Defendant's version of events is decidedly different. While it admits that there was, in fact, an Oral Contract, defendant argues that this Oral Contract governed only plaintiff's tank set and First Fill. The rest of plaintiff's propane fills were governed by a written Master Agreement, a document that contained, generally, defendant's terms and conditions of the consumer relationship and, more relevantly, arbitration and integration clauses. Defendant alleges that it mailed this Master Agreement to plaintiff on September 26, 2008, in conjunction with an entire Customer Packet that also contained a service letter describing the services and products plaintiff had purchased and the Ferrellgas Safety Plan, which set forth the mandated requirements and procedures for inspection and maintenance of propane and propane equipment. Dkt. 115, at 4-5. Plaintiff denies receiving this packet in September 2008.

C. The Master Agreement

This brings the court to the current issue of whether plaintiff's substantive

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claims must, in fact, be arbitrated, pursuant to the terms and conditions of the Master Agreement. The relevant portions of the Master Agreement read as follows:

PLEASE READ THIS MASTER AGREEMENT FOR PROPANE SALES AND EQUIPMENT RENTAL (this " Agreement" ) CAREFULLY. The terms and conditions of this Master Agreement will be accepted by you when one of the following occurs: (1) you request or accept delivery of propane, service or equipment from us; (2) you pay for delivery of propane, service or equipment from us; or (3) you permit Propane or equipment obtained from us to remain on your property for more than thirty (30) days after your receipt of this Agreement. If you do not wish to be bound by this Agreement, please contact Ferrellgas within thirty (30) days after your receipt of this Agreement and terminate service. The terms of this Agreement also will apply to sales of refined fuel products.
8. Arbitration
a. Agreement to Arbitrate. You agree that any claim, dispute or controversy, whether in contract, tort (intentional or otherwise), including without limitation, product liability, property damage, personal injury claims or claims based on strict liability, whether pre-existing, present or future, and including constitutional, statutory, common law, regulatory and equitable claims in any way relating to (a) the Service; (b) and Rented Equipment or equipment sold to you by us; (c) the Agreement; (d) Propane delivered or sold by us; or (e) the Safety Plan, advertisements, promotions or other brochures or writings prepared by us in any way relating to the Service or this Agreement and/or the relationship between you and us, including the validity, enforceability or scope of this Section or any part thereof (collectively, a " Claim" ) shall be resolved, upon the election of either you or us, by binding arbitration.

Trial Ex. 3, at 2, 8, 18. It also contained an integration clause:

13. Miscellaneous.
c. Entire Agreement. This Agreement, together with the Service Letter and Safety Plan and any written agreements signed between us that are limited to pricing and cover the current period, constitute the entire agreement

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between us. No employee, representative or agent has any authority to vary the terms of this Agreement.

Trial Ex. 3, at 18-21 (emphasis in original).[2]

Over the course of two years, plaintiff received and accepted ten deliveries of propane from defendant:



Price Charged

Price Paid

August 27, 2008




September 5, 2008




December 3, 2008




January 27, 2009




March 12, 2009




May 20, 2009




October 14, 2009




December 17, 2009




January 22, 2010




March 9, 2010




Trial Ex. 34. On three occasions, December 3, 2008; January 27, 2009; and October 14, 2009; plaintiff called defendant to complain that the " price charged" for propane was well above the market price. Dkt 115, at 7. In response to plaintiff's complaints, defendant lowered the price charged. Plaintiff terminated service with defendant in September 2010 when he sold his house. Dkt. 115, at 7.

On October 13, 2010, plaintiff filed this putative class action lawsuit against defendant alleging breach of an oral contract to supply propane at a " market price," breach of an implied covenant of good faith and fair dealing, violations of the Kansas Consumer Protection Act, K.S.A. § 50-623 et seq. (" KCPA" ), as well as claims for promissory estoppel and unjust enrichment. Dkt. 1. Defendant moved to dismiss the Complaint on December 10, 2010. Dkt. 23. On August 1, 2011, the court sustained defendant's motion with respect to plaintiff's KCPA, promissory estoppel, and unjust enrichment claims, leaving only his claims for breach of an oral contract and breach of the implied covenant of good faith and fair dealing. Dkt. 32.

On September 6, 2011, defendant moved to compel arbitration of the remaining claims, alleging that plaintiff's dispute arose out of propane deliveries and charges that occurred after plaintiff allegedly received and consented to the Master Agreement. Dkt. 37. Plaintiff opposed defendant's motion to compel, arguing that he and defendant entered into a long-term oral contract for the supply of propane at market price during the August 21, 2008, telephone call. Dkt. 42. On August 27, 2012, the court deferred a final ruling on defendant's motion, determining that it did not have sufficient evidence of the scope of the alleged oral contract to sustain the

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motion. Dkt. 45. Specifically, the court found that there were still disputed facts concerning which agreement applied to the long-term relationship between the parties, the Oral Contract or the Master Agreement. Dkt. 45, at 7-8. The court therefore ordered the parties to conduct limited discovery and to file supplemental briefs regarding two issues: (1) the applicable choice of law, and (2) the scope of the purported Oral Contract. Dkt. 45, at 9.

Following discovery, the court found " the situation to be as it was before," with a genuine dispute as to the scope of the Oral Contract. Dkt. 65, at 8. The court therefore declined to compel arbitration. Dkt. 65. Defendant appealed. Dkt. 66. The appellate court summarized the issues to be decided as follows:

Did the parties form a final and complete oral contract in that initial phone call governing all their propane dealings over the next few years? Or. did their agreement cover only Mr. Howard's propane tank rental and its initial fill, in this way perhaps leaving room for Ferrellgas's later-delivered, arbitration-clause-containing form contract to govern the parties' subsequent dealings, including the later propane purchases at issue in this case?
Whether this case belongs in arbitration or litigation hinges on the answers to factual questions like these. It is possible that the parties reached an agreement requiring Ferrellgas to refill Mr. Howard's propane tank at market prices whenever it verged on empty, without a single mention of Ferrellgas's forthcoming written terms. If that's the case, then under Kansas law (which the district court applied here) Ferrellgas's arbitration clause could modify the parties' preexisting oral agreement only with Mr. Howard's express consent, something he contends he never gave. But it also remains possible that the parties agreed only to an initial fill during that phone call. And if that's the case, then under Kansas law Ferrellgas's arbitration clause and other written terms may well govern the parties' later dealings because they amounted to an offer to provide future service that Mr. Howard accepted when he chose to keep the propane Ferrellgas went on to deliver.

Howard v. Ferrellgas Partners, L.P., 748 F.3d 975, 979 (10th Cir. 2014) (emphasis in original). The appellate court therefore remanded the case to this court to conduct a summary trial as to the issue of arbitration, pursuant to § 4 of the FAA. Id. at 984.

This court conducted a summary bench trial on November 12, 2014. Dkt. 127. At the conclusion of the parties' presentation of evidence the court instructed both parties to submit written closing statements. See Dkts. 135, 136.

II. Discussion

A. Choice of Law

As a preliminary matter, this case raises choice of law issues. When deciding state law claims under diversity jurisdiction, as is the case here, a federal district court applies the choice of law rules of the state in which it sits. Koch v. Koch Indus., 2 F.Supp.2d 1416, 1420 (D. Kan. 1998) (internal citations omitted). Kansas courts generally apply the First Restatement of Conflicts of Law to choice of law issues. See Enutroff, LLC v. Epic Emergent Energy, Inc., at *26 n.74 (D. Kan. Feb. 2, 2015) (citing ARY Jewelers, LLC v. Krigel, 277 Kan. 464, 481, 85 P.3d 1151, 1161-62 (2004)). For purposes of contract claims, Kansas follows the rule of lex loci contractus, i.e., the law of the state where the contract is made governs. In re K.M.H., 285 Kan. 53, 60, 169 P.3d 1025, 1032 (Kan. 2007) (citing

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ARY Jewelers, 277 Kan. at 481).

Plaintiff placed the August 21, 2008, phone call to defendant from his home in California. The customer service representative who answered the call did so from Washington. Therefore, under the doctrine of lex loci contractus, either California or Washington law could potentially govern the formation and scope of an oral contract between the parties. The parties seem to agree that the last act to form the oral contract occurred in Washington, when defendant accepted plaintiff's offer to purchase propane. The court agrees and finds that Washington state law governs the formation and scope of any dispute stemming from that telephone call.

However, " if the law of Kansas is not in conflict with any of the other jurisdictions connected to the suit, then there is no injury in applying the law of Kansas." Brenner v. Oppenheimer & Co., 273 Kan. 525, 535, 44 P.3d 364, 372 (Kan. 2002) (quoting Shutts v. Phillips Petroleum Co., 240 Kan. 764, 767, 732 P.2d 1286 (Kan. 1987)). " In other words, if the outcome of this dispute would be the same under the law of [another state] as under the laws of Kansas, the case presents a 'false conflict.'" Id. " Where there is no difference between the laws of the forum state and those of the foreign jurisdiction, there is a 'false conflict' and the court need not decide the choice of law issue." Id. (quoting Lucker Mfg. v. Home Ins. Co., 23 F.3d 808, 813 (3d Cir. 1994)). Here, it has been established, and the parties agree, that the court's findings would be the same whether it followed Kansas, Washington, or California law.[3] Therefore, the court shall apply Kansas law except in the event that Kansas law and Washington law somehow differ.

B. Scope of the Oral Contract

The first step in determining whether the parties must arbitrate or litigate their substantive claims is to determine the scope of the Oral Contract.

Under Kansas law, " [i]n an action based on contract, the plaintiff bears the burden of proving the existence of the contract alleged in the petition." Unified Sch. Dist. No. 446 v. Sandoval, 295 Kan. 278, 282, 286 P.3d 542, 546 (Kan. 2012) (citing Steele v. Harrison, 220 Kan. 422, 428, 552 P.2d 957 (1976)); see also Steel Benders, Inc. v. H.R. Braner Eng'g, Inc.,

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(D. Kan. Jan. 27, 1988). " The terms of an oral contract and the consent of the parties may be proven by the parties' acts and by the attending circumstances, as well as by the words that the parties employed." Unified Sch. Dist. No. 446, 295 Kan. at 282 (citing Quaney v. Tobyne, 236 Kan. 201, Syl. ¶ 3, 689 P.2d 844 (1984)). " Three elements create a contract: offer, acceptance, and consideration. Additionally, in order for parties to form a binding contract, the offer and acceptance must manifest a mutual assent or a 'meeting of the minds' on all the essential terms of the contract." Steel Benders, at *7-8 (citing Steele, 220 Kan. at 428, 552 P.2d at 962). " This 'meeting of the minds' requirement is proved when the evidence shows 'with reasonable definiteness that the minds of the parties met upon the same matter and agreed upon the terms of the contract.'" Id. at *8 (quoting Steele, 220 Kan. at 428, 552 P.2d at 962). " This standard relies on 'objective, observable manifestations of intent to contract,' rather than the purely subjective intent of the parties." Republic Bank, Inc. v. West Penn Allegheny Health Sys., 475 F.App'x 692, 698 (10th Cir. Apr. 12, 2012) (quoting Nat'l Envtl. Serv. Co. v. Ronan Eng'g Co., 256 F.3d 995, 1002 (10th Cir. 2001)).

1. No meeting of the minds

There is no dispute that plaintiff called defendant on August 21, 2008, and made a verbal offer to purchase propane. Or. that defendant verbally accepted plaintiff's offer on that same date. Or. that the parties orally agreed that plaintiff would lease defendant's propane tank and defendant would come out and initially fill that tank. Plaintiff would have this court believe that all of these definitive agreements somehow translate into the parties being bound, in perpetuity, not only for defendant's sale of propane to plaintiff but also by the " terms" discussed during that August 21, 2008, phone call.

This begs the question, then: what exactly were the terms discussed during that August 21st phone call? Unfortunately for plaintiff, he cannot remember. In his deposition, plaintiff stated as follows:

Q: So my question is if you're claiming there's a contract between you and Ferrellgas that has been breached, I'd like to know what promises that you're contending Ferrellgas made to you.
A: Well, that's a good question. They promised to set a tank. They promised me a tank rental rate, whatever that was. They promised to install whatever appliances I had, whatever those were, I'd have to think about that to be sure, for a specified price. They promised me an initial fill price, and they promised to deliver propane, and they promised that subsequent fills would be at the prevailing market price, whatever that happened to be.

Dkt. 60-2, at 14-15. However, in that same deposition, plaintiff also testified that he had no recollection of what occurred during that phone call:

Q: Did you -- who brought up the idea of the initial fill price?
A: I don't remember.
Q: And you don't remember whether or not you brought up the idea of the cost of refilling?
A: I don't remember.
Q: What about tank rate, who brought that up?
A: I don't remember.
. . .
Q: Okay. And I know that you've already mentioned that you don't remember

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the exact words of that telephone call, but can you tell me what you do remember in terms of the -- the exact words you can remember.
A: I don't remember any of the exact words.
. . .
Q: Okay. So you don't remember any of the exact words that you spoke on that call, and you -- and you don't remember any of the exact words that the ...

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