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Gerard Tank & Steel, Inc. v. Airgas USA, LLC

United States District Court, D. Kansas

October 26, 2017

GERARD TANK & STEEL, INC., Plaintiffs,
v.
AIRGAS USA, LLC, Defendant.

          MEMORANDUM AND ORDER

          JULIE A. ROBINSON UNITED STATES DISTRICT JUDGE

         Plaintiff filed this action seeking two declarations regarding an agreement it entered into with Defendant: 1) it is void for lack of mutuality of obligation because the Price Changes provision gave Defendant the unilateral right to escape performance under the Agreement at any time (Count I); and 2) it is terminable at will because Plaintiff never saw or knew about paragraph 2, which stated that the term of the Agreement shall be for seven years and shall be renewable for successive seven-year terms unless terminated upon not less than twelve months' written notice (Count II). Before the Court is Defendant's Motion to Dismiss (Doc. 8). The motion is fully briefed and the Court is prepared to rule. For the reasons stated below, the Court grants dismissal of Count I, but denies the motion as to Count II.

         I. Factual Background

         The following facts are alleged in the First Amended Complaint (“FAC”) and assumed to be true for purposes of deciding this motion.

         The parties entered into a Product Sales Agreement on September 19, 2003, where Plaintiff agreed to purchase its requirements of certain gases from Defendant. The Agreement signed and agreed to by Plaintiff consisted of: 1) a Bulk Gases Rider (“Rider”) specifying the estimated monthly volume of oxygen to be purchased by Plaintiff, and 2) a page that contained enumerated paragraphs 11-21 and the signature blocks (“Page Two”). According to Plaintiff, the Agreement did not contain a termination provision, making it terminable at will by either party.

         On December 8, 2016, in-house counsel for Defendant wrote a letter to Matheson Tri-Gas, Inc. (“Matheson”), another wholesale gas supplier, alleging that Plaintiff had been making certain purchases from Matheson that were in violation of the Agreement.[1] In that letter, Defendant claimed the Agreement had automatically renewed for a seven-year term on September 19, 2010, and, because notice of termination had not been provided, would renew automatically for another seven-year term on September 19, 2017, and remain in effect at least through September 18, 2024.[2] Defendant took this position by asserting that there was another page to the Agreement, which contained the first enumerated ten paragraphs (“Page One”). Paragraph 2 of Page One states:

Term: The initial term of this Agreement shall be for seven (7) years and shall commence upon the later of the date of first delivery of Product by Seller hereunder; or the date signed by Seller hereinbelow; or, in the event Buyer is contractually bound and prohibited from entering into this Agreement by any prior agreement, then upon the earliest expiration or earlier termination of such prior agreement, and thereafter shall automatically renew for successive seven (7) year terms unless terminated upon not less than twelve (12) months' written notice by either party: (a) at the end of the initial term, or; (b) any renewal term, as the case may be. If Seller relocates or provides additional Equipment to meet Buyer's gas requirements, then a new initial term shall be effective upon the date of first delivery of such Product utilizing the relocated, replacement or additional equipment.[3]

         Plaintiff alleges that it has never seen or had any knowledge of Page One or the provisions therein.

         Despite Plaintiff's attempt to terminate the Agreement on mutually agreeable terms, Defendant refuses to consent to termination of the Agreement.[4] The parties disagree as to whether the terms and conditions on Page One is a part of the Agreement.

         II. Legal Standards

         Defendant moves to dismiss Counts I and II of the FAC for failure to state a claim under Fed.R.Civ.P. 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'”[5] “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[6]“Under this standard, ‘the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.'”[7] Although the Court assumes the complaint's factual allegations are true, it need not accept mere legal conclusions as true.[8] “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements” are not enough to state a claim for relief.[9]

         III. Analysis

         Because this is a diversity case, the Court “appl[ies] the substantive law of the forum state, including its choice of law rules.”[10] Here, Kansas is the forum state. Both parties' briefs rely on Kansas law. Because the parties have made the deliberate choice to rely on Kansas law, the Court applies Kansas law throughout this Memorandum and Order.

         A. Count I - Declaration that the Agreement is void for lack of mutuality of obligation

         In Count I, Plaintiff seeks a declaration that the Agreement is void for lack of mutuality of obligation because the Price Changes provision gave Defendant the unilateral right to escape performance at any time by raising prices at a level it knows Plaintiff will not accept. As a result, Plaintiff argues there is no fixed price that binds Defendant to the requirements and obligations of the Agreement, rendering the Agreement void for lack of mutuality of obligation. Defendant argues that the Price Changes provision does not void the Agreement because it allows the parties to account for changes in market prices. Defendant contends that similar provisions have been upheld as valid in other contexts. Defendant also argues that a ...


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