Shah v. Racetrac Petro Co

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 Shah, et al. v. Racetrac Nos. 01-6077/6451
ELECTRONIC CITATION: 2003 FED App. 0244P (6th Cir.) Petroleum Co.
File Name: 03a0244p.06
_________________
UNITED STATES COURT OF APPEALS COUNSEL
FOR THE SIXTH CIRCUIT ARGUED: Jay W. Mader, ARNETT, DRAPER &
_________________ HAGOOD, Knoxville, Tennessee, for Plaintiffs. Debra L.
Fulton, FRANTZ, McCONNELL & SEYMOUR, Knoxville,
SIDDARTH SHAH and DAKSHA X Tennessee, for Defendant. ON BRIEF: Jay W. Mader,
SHAH , - ARNETT, DRAPER & HAGOOD, Knoxville, Tennessee,
Plaintiffs-Appellants/ - Mark A. La Mantia, FARRELL & LA MANTIA, Raleigh,
- Nos. 01-6077/6451 North Carolina, for Plaintiffs. Debra L. Fulton, FRANTZ,
Cross-Appellees, - McCONNELL & SEYMOUR, Knoxville, Tennessee, for
> Defendant.
,
v. - _________________
-
RACETRAC PETROLEUM CO ., - OPINION
Defendant-Appellee/ - _________________
Cross-Appellant. -
- CLAY, Circuit Judge. Plaintiffs Siddarth and Daksha Shah
N appeal from an order awarding summary judgment to
Appeal from the United States District Court Defendant Racetrac Petroleum Company after Plaintiffs filed
for the Eastern District of Tennessee at Knoxville. a complaint in diversity jurisdiction pursuant to 28 U.S.C.
No. 99-00410—James H. Jarvis, District Judge. § 1332 alleging various contract causes of action and raising
claims under the Tennessee Consumer Protection Act, Tenn.
Argued: March 14, 2003 Code Ann. § 47-18-109, and the Tennessee Petroleum Trade
Practices Act, Tenn. Code Ann. § 47-25-601. Defendant
Decided and Filed: July 24, 2003 cross-appeals from an order denying Defendant’s
counterclaim for attorney’s fees. We AFFIRM the district
Before: CLAY and ROGERS, Circuit Judges; COFFMAN, court in part and REVERSE in part.
District Judge.*
FACTS
In late 1994, Plaintiffs became interested in purchasing
Raceway 773, a gas station and convenience store located in
Maryville, Tennessee. Defendant owned the store, exterior
*
The Honorab le Jennifer B. Coffman, United States District improvements, and real property. Clyde and Gloria Holt
Judge for the E astern and W estern D istricts of Kentucky, sitting by operated the Raceway pursuant to a lease and contract with
designation.

1
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Defendant, which operates a chain of similar stores. The including the Federal Petroleum Marketing Practices
Holts planned to sell their interest in the lease and contract, Act (PMPA).
which included certain interior improvements, inventory, and
goodwill, for $90,000. The termination clause in the contract had essentially the
same terms:
Plaintiffs learned about the offer from Bhanu Mehta, who
also considered purchasing the business from the Holts. E. Term of Contract and Renewal. – This Contract
Mehta had previously reviewed the lease and contract under shall be for a duration of (12) months from date of
which the Holts operated the store. Mehta learned that each execution, provided the Contractor complies with all
instrument contained a clause that arguably permitted either the terms and conditions and covenants herein, it
party to terminate the agreement upon thirty days written being the intent of the parties that the term of this
notice. When Mehta asked Holt about the termination Contract will run concurrently with the term of the
clauses, Holt explained that as he understood them, Defendant Lease executed as of even date herewith. Provided
would not terminate the lease or contract as long as the lessee that there has been no default as defined in the
made timely rental payments and operated the business in a Contract within the existing term of the Contract,
satisfactory manner. Mehta had also inquired about the this Contract will be automatically renewed and the
termination clauses present in the agreements held by other term of the Contract extended for subsequent one
Raceway store operators. These other lessees similarly year terms. At any time during the initial or any
reported that Defendant would not terminate the lease or extended term, either party may give thirty (30) days
contract as long as the operator promptly paid rent and ran the written notice in the form hereinafter described of its
business effectively. In December of 1994, Plaintiffs first intent to terminate the Contract. Any such extension
reviewed the lease and accompanying contract for Raceway shall be upon the same terms and conditions as
773. The termination clause in the lease read: stated herein.

2. TERM. This Lease shall be effective on the 7th day Furthermore, highlighted above the word “CONTRACT” on
of February, 1995, and subject to all its terms and the document’s first page, the contract states: “THIS
conditions shall remain in full force and effect for CONTRACT DOES NOT CREATE A FRANCHISE
twelve (12) months from date of execution. Upon RELATIONSHIP UNDER STATE OR FEDERAL LAW
termination of the lease term, this Lease will be (See Paragraph C).” Paragraph C then states:
automatically renewed for subsequent one-year
terms upon the same terms and conditions, subject to C. No Franchise. – Contractor acknowledges that this
Lessor’s adjustments of the rental provided, Contract does not create, extend, or renew a
however, that at any time during the initial or any franchise under any local, state, or federal law
extended term, either party may give thirty (30) days including the Federal Petroleum Marketing Practices
written notice in the form hereinafter described of its Act (PMPA). Contractor fully acknowledges that
intent to terminate this Lease. Lessee acknowledges this Contract with Contractee is a separate and
that this lease does not create, extend, or renew a distinct contract and is not associated with any other
franchise under any local, state, or federal law agreements, contracts or franchise relationships
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which may now or hereafter exist between same date, constitutes the entire understanding
Contractee and Contractor. Contractor further between the parties and supersedes and cancels all
acknowledges that Contractee is the retailer of the previous contracts between the parties with respect
fuel facilty to be operated hereunder and that this to the facilities covered hereby.
Contract does not give any rights to the Contractor
as a fuel retailer. Contractor further acknowledges The contract’s miscellaneous provision reiterates the
that this Contract cancels any existing leases, integration clause:
agreements or other contracts, except any lease,
agreement or contract of same date, or any ground Z. Miscellaneous. –
lease on the Premises between the parties, that may ....
have existed between Contractee and Contractor. 5. This Contract supersedes and cancels all
previous contracts or arrangements between the
With respect to the title to the fuel, the contract provides: parties relating to the matters herein and no
prior or subsequent stipulation, agreement or
F. Gasoline and Payment Obligations. – Contractee understanding, verbal or otherwise, of the
owns and retains all title to the fuel at the property parties or their agents relating to the matters
until sold to the customer. Contractor agrees that all herein shall be valid or enforceable unless
funds collected for fuel sales are the property of the embodied in the provisions of this Contract, or
Contractee and further agrees to act as the agent of a separate instrument in writing.
Contractee in the collection and safe keeping of all
monies collected for sale of fuel. Contractor Although Plaintiffs did not read all of the contractual
acknowledges that he owes a duty of trust to provisions, they certainly saw the termination clauses.1
Contractee in the collection and safe keeping of all
funds collected for sales and acknowledges that he Plaintiffs expressed concern to the Holts about investing
holds himself in such fiduciary relationship to money in a business that they could lose upon thirty days
Contractee. Contractor agrees to remit funds so held notice. Clyde Holt told Plaintiffs what he told Mehta—that
in trust to Contractee upon demand or otherwise as Defendant would not terminate a lease as long as the tenant
directed by Contractee in cash or by cashier’s check. performed acceptably. Plaintiffs also questioned J.D. Main,
. . . In addition, Contractor shall submit all books Defendant’s district manager responsible for Racetrac 773.
and records relating to the sale of fuel and gasoline Main explained that “[Defendant’s] policy is that they will
products purchased from Contractee for an audit and not kick any dealer out as long as they perform satisfactorily.”
taking of inventory. (J.A. at 137.)

Also significant, the contract contained the following merger
provision:
Y. Entirety. – This Contract, together with attached 1
exhibits, and any other lease or contract executed the Plaintiffs also signed a guaranty relevant to the attorney fee
dispute discussed in detail below.
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Plaintiffs thereafter spoke with James Smith, who assumed Confirmation of Purchase and Sale Agreement and paid
Main’s corporate role after Main departed. Plaintiffs $76,172.59 to the Holts, not including $5000 they previously
explained that they could not afford to risk their money on an tendered as earnest money. Plaintiffs then executed the lease
investment in Racetrac 773 without assurances that Defendant and contract with Defendant. Before executing the
would not terminate the lease and contract on only thirty days agreements with Defendant, Siddarth Shah asked about the
notice. Smith echoed the earlier representations of the Holts termination clauses a final time. Smith assured him that “[i]f
and Main. According to Smith, “[Defendant] operates their you perform right we will not kick you out.” (J.A. at 145.)
business as a family. [Defendant] never kicks any dealer out
from that business as long as it perform[s] satisfactorily.” After executing the documents, Smith called Floyd Philpot,
(J.A. at 137.) Furthermore, when Plaintiffs requested a five Defendant’s general manager. Smith introduced Plaintiffs to
or ten year lease instead of Defendant’s one year Philpot, who welcomed Plaintiffs to “the Racetrac family.”
automatically renewable term, Smith advised Plaintiffs that (J.A. at 141-42.) During his conversation with Philpot,
Defendant would not agree to changes in the agreement, but Siddarth Shah reiterated his concerns about the termination
counseled Plaintiffs not “to worry about it . . . you will not clause, and Philpot repeated the same assurances.
have any problem if you perform right.” (J.A. at 148.)
Finally, Smith recommended that Plaintiffs check with other At no point did Defendant inform Plaintiff that, regardless
Raceway operators about Defendant’s reputation and of a dealer’s performance, Defendant used the termination
practices. Plaintiffs received similar assurances to those clauses to terminate an operator’s rights when Defendant sold
Defendant made.2 a Raceway location.3 At the time of the transaction, and

Based on these oral assurances, Plaintiffs began to proceed
with the transaction by completing a credit report for 3
Jackie Russell, Asset Manager in Defendant’s Real Estate
Defendant. Following approval of their credit, Plaintiffs Department Russell, testified that Philpot must have known Defendant
executed separate closing documents with the Holts and planned to sell Raceway 773:
Defendant at Raceway 773 on February 7, 1995. Smith
Q: Did you ever speak with Mr. Floyd Philpot
attended on Defendant’s behalf. Plaintiffs executed a regarding that store being offered for sale or
any stores in his region being offered for sale?

2
Defendant often made these repre sentations. Charles and Diane A: Actually, he is in the decision-making to put
Farhat operated Raceway 773 before the H olts, from March 1 990 until them for sale, so he would have known before
January 199 3. The Farhats operated the business pursuant to a lease and me.
contract containing similar termination clauses, but Smith advised Charles
Farhat that Defendant would not terminate the contract or lease as long as ....
he timely paid rent, operated the business in a satisfactory manner, and
did not abuse the premises. Lalit N. Desai considered operating a Q: So if a Raceway is going up for sale, he
Raceway store in Athens, Tennessee, in 1994. When he asked Ma in about know s abo ut it?
the termination clauses, Main informed him that Defendant would not
terminate the lease or contra ct as long as he maintained the premises, p aid A: Yes.
rent on time, and otherw ise ran the business app ropriately.
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unbeknownst to Plaintiffs, Defendant was already trying to On February 10, 1995, three days after the closing, Jackie
sell Raceway 773.4 Russell, Asset Manager in Defendant’s Real Estate
Department, mailed a bid package of Raceway stores
Sometime in 1992 and again in 1994, Defendant contacted (including Raceway 773) to Worth L. Thompson of Fast
members of the Tennessee Oil Marketers Association to Petroleum. In her cover letter to Thompson, Russell
ascertain whether other oil companies were interested in instructed him that when “visiting the stores please use
purchasing some of Defendant’s properties, including discretion as our field employees or our Contract operators
Raceway 773. In November of 1995, representatives from are not aware of this offering.” (J.A. at 211.) To receive the
Downey Oil Co., Inc., contacted Defendant and inquired offer at all, Fast Petroleum had to execute a Confidentiality
about purchasing Raceway 773. Agreement with Defendant. Philpot made the ultimate
decision on Defendant’s behalf to keep a store’s offering
hidden from its operators.
(J.A. at 205, 50.)
After becoming operators, and with Defendant’s approval,
Plaintiffs continued to invest money in the business. They
4
In his deposition Smith testified:
installed a surveillance system, improved the coolers,
increased inventory, and cut an overhang wall. Smith advised
Q: W hat was your und erstand ing of how Plaintiffs in May and December of 1995 that they had a
procedurally [Defendant] would sell a store satisfactory performance history and that they did not need to
when there’s an operator in it? worry about Defendant terminating them. Smith also
A: The thirty-day clause.
encouraged Plaintiffs to continue making improvements to
the store.
Q: Okay. So is it fair to say then that it was your
understanding that when [Defendant] wanted In January of 1996, Smith telephoned Plaintiffs and told
to sell a Raceway and there was an operator in them that Defendant received an offer for the property.
it, that they would use the thirty-day clause? Although Smith did not disclose the identity of the potential
A: If that’s what they cho se.
purchaser, Downey Oil proposed to purchase Raceway 773 in
December of 1995. Smith also advised Plaintiffs that they
Q: But that was your understanding of could bid on the property, but he did not provide them with
historica lly how Racetrac would procedurally specific terms or other information necessary to properly
implement the sale of the store? formulate a bid. Plaintiffs asked for information in writing,
A: Sure.
but failed to receive any. As a consequence, Plaintiffs did not
make a bid.
Q: And you knew that at the time when you met
[Plaintiffs] initially, correct? On March 27, 1996, Defendant provided Plaintiffs with a
letter serving as “a thirty-day notice of cancellation as
A: Yeah. provided in your Lease and Contract.” (J.A. at 179.)
(J.A. at 178).
Plaintiffs vacated the store one month later.
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PROCEDURAL HISTORY matter under advisement and requested additional briefing on
the claim under the Tennessee Petroleum Marketing Practices
Plaintiffs initially filed suit in the Circuit Court for Blount Act and the claim for fraudulent concealment and
County, Ohio on December 9, 1996. Defendant removed the nondisclosure. On July 31, 2001, the court granted
action to federal court on April 10, 1997. On February 3, Defendant’s Motion for Summary Judgment. Plaintiffs
1998, the parties filed a joint stipulation of dismissal without timely filed this appeal on August 29, 2001.
prejudice pursuant to Fed. R. Civ. P. 41(a)(1).
Relying on its counterclaim, Defendant moved the district
Plaintiffs filed a second complaint against Defendant in the court to award costs and attorney’s fees under Fed. R. Civ. P.
Circuit Court for Blount County, Ohio on February 2, 1999. 54, but the court denied the request on October 12, 2001.
Plaintiffs also included Downey Oil Company, Inc. Defendant timely appealed this order on November 6, 2001.
(“Downey Oil”), as a defendant. Defendant again removed
the action to United States District Court, but the case was DISCUSSION
quickly remanded back to Blount County for lack of subject
matter jurisdiction because Downey Oil is a Tennessee We review summary judgment de novo. Eastman Kodak
corporation and Plaintiffs reside in Tennessee. The Plaintiffs Co. v. Image Technical Servs., Inc., 504 U.S. 451, 466 n.10
then voluntarily dismissed Downey Oil as a Defendant, re- (1992); Johnson v. Econ. Dev. Corp., 241 F.3d 501, 509 (6th
creating diversity jurisdiction, and Defendant again removed Cir. 2001); Buckeye Cmty. Hope Found. v. City of Cuyhaoga
the matter to federal court on July 21, 1999. Falls, 263 F.3d 627, 633 (6th Cir. 2001). Summary judgment
is appropriate when there is no genuine issue of material fact,
Plaintiffs filed a second amended complaint setting forth thereby entitling the movant to a judgment as a matter of law.
multiple causes of action including breach of contract, breach Kocsis v. Multi-Care Mgmt., Inc., 97 F.3d 876, 882 (6th Cir.
of the implied covenant of good faith and fair dealing, 1996). In Anderson v. Liberty Lobby, Inc., 477 U.S. 242
promissory estoppel, promissory fraud, fraudulent or (1986), the Supreme Court explained that “[t]he mere
negligent misrepresentation (including fraudulent existence of a scintilla of evidence in support of the plaintiff's
concealment and nondisclosure), violation of the Tennessee position will be insufficient; there must be evidence on which
Consumer Protection Act, and violation of the Tennessee the jury could reasonably find for the plaintiff.” Id. at 252.
Petroleum Trade Practices Act. Plaintiffs sought $579,000 in Thus, our “inquiry, therefore, unavoidably asks whether
compensatory damages and $15 million in punitive damages. reasonable jurors could find by a preponderance of evidence
that the plaintiff is entitled to a verdict.” Id.
Defendant generally denied the allegations, raised the
Statute of Frauds as an affirmative defense, and asserted The “mere possibility” of a factual dispute does not suffice
counterclaims for breach of contract, conversion, and to create a triable case. Gregg v. Allen-Bradley Co., 801 F.2d
attorney’s fees. On June 5, 2000, Defendant filed a Motion 859, 863 (6th Cir.1986). To defeat summary judgment, the
to Dismiss or, in the alternative, for Summary Judgment. plaintiff "must come forward with more persuasive evidence
to support [his] claim than would otherwise be necessary."
On August 1, 2000, after Plaintiffs replied, the parties Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
argued the motion before the trial court. The court took the 574, 587 (1986). If the defendant successfully demonstrates,
Nos. 01-6077/6451 Shah, et al. v. Racetrac 13 14 Shah, et al. v. Racetrac Nos. 01-6077/6451
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after a reasonable period of discovery, that the plaintiff cannot demonstrate that “a promise or representation was made with
produce sufficient evidence beyond the bare allegations of the the intent not to perform.” Fowler v. Happy Goodman
complaint to support an essential element of his or her case, Family, 575 S.W.2d 496, 499 (Tenn. 1978). Tennessee courts
summary judgment is appropriate. Celotex Corp. v. Catrett, have found promissory fraud in several cases. See, e.g.,
477 U.S. 317, 325 (1986). When determining whether to Brungard v. Caprice Records, 608 S.W.2d 585, 590 (Tenn Ct.
reach this conclusion, we view the evidence and draw all App. 1980) (finding promissory fraud when defendant’s talent
reasonable inferences in the light most favorable to the non- scout made promises to induce aspiring singer to enter into
moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, recording contract, when evidence showed scout had no intent
157 (1970); Williams v. Int’l Paper Co., 227 F.3d 706, 710 to keep the promises); Steed Realty v. Oveisi, 823 S.W.2d
(6th Cir. 2000); Smith v. Thornburg, 136 F.3d 1070, 1074 195, 200-201 (Tenn. Ct. App. 1991) (finding promissory
(6th Cir. 1998). fraud when real estate vendor induced vendees to purchase
property by promising to make certain improvements, when
I. evidence demonstrated vendor never intended to make the
improvements).
Plaintiffs first claim that Defendant committed promissory
fraud. The Tennessee Court of Appeals set forth the elements Significantly, the parol evidence rule does not apply to
of an action for fraud in Stacks v. Saunders, 812 S.W.2d 587 allegations of fraudulent misrepresentation inducing a party
(Tenn. Ct. App. 1990): to enter a contract because under Tennessee law, promissory
fraud sounds in tort, not in contract. Brungard, 608 S.W.2d
(1) an intentional misrepresentation with regard to a at 588; Steed Realty; 823 S.W.2d at 202; Haynes v.
material fact, Cumberland Builders, 546 S.W.2d 228, 231 (Tenn. Ct. App.
1976). As this Court explained in Cincinnati Insurance Co.
(2) knowledge of the misrepresentation [sic] v. Avery, No. 89-5536, 1990 WL 132245, at *3 (6th Cir. Sept.
falsity—that the representation was made 12, 1990) (unpublished), Tennessee law “does not require
“knowingly or “without belief in its truth,” or ambiguity when certain defects in the formation of the
“recklessly” without regard to its truth or falsity, agreement are demonstrated; parol evidence can be admitted
to contradict or vary the terms or enlarge or diminish the
(3) that the plaintiff reasonably relied on the obligation of a written instrument upon a showing of fraud.”
misrepresentation and suffered damage, and (citing McMillin v. Great S. Corp., 480 S.W.2d 152, 155
(4) that the misrepresentation relates to an existing or (Tenn. 1972)). Thus, the many oral statements Defendant
past fact, or if the claim is based on promissory made to Plaintiffs are relevant here.
fraud, then the misrepresentation must embody a Plaintiffs argue that Defendant fraudulently induced them
promise of future action without the present to enter into the lease and contract by promising not to use the
intention to carry out the promise. termination clauses for anything other than poor performance.
Id. at 592 (citations omitted). To make a showing of Plaintiffs appear to have established a triable case under
promissory fraud within this framework, a plaintiff must Tennessee law as outlined in Stacks, 812 S.W.2d at 592.
First, the numerous assurances made by Smith and Main were
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intentional and material. See id. Second, at least Smith knew Despite Defendant’s assertion otherwise, there is no rule
he was offering false assurances, because he knew that that a merger clause makes reliance on oral representations
Defendant used the termination clauses to remove operators unreasonable per se so as to necessarily defeat a fraudulent
if Defendant sold the property. See id. Third, Plaintiff inducement or promissory fraud claim. Watkins is
reasonably relied on the multiple, uniform statements of distinguishable in two respects. First, the Watkins Court
Defendant’s officials and suffered damages as a consequence. made clear that it was reaching a fact-based conclusion, not
See id. Finally, Plaintiffs must show that “the announcing a new per se rule. The Watkins Court wrote that,
misrepresentation . . . embod[ies] a promise of future action “[o]n the facts of this case, we find that Watkins’s reliance on
without the present intention to carry out the promise.” Id. Iams’s representations was unreasonable as a matter of law.
Defendant promised a future action—not to use the . . . In this case, the reasonableness of Watkins’s reliance
termination clauses to remove operators for any reason other depends upon the effect of the integration clause.” Id. at 612
than mismanagement—and Defendant probably had no (emphasis added). In Watkins, Iams evidently made only one
intention of carrying out that promise, since (as Smith knew) misrepresentation, see id. at 609, whereas Defendant made six
Defendant regularly used the termination clauses to remove misrepresentations to Plaintiffs in response to Plaintiffs’
operators when Defendant wished to sell the property obvious concerns. Second, Watkins relies on Ohio law for the
associated with the lease and contract. In fact, Raceway 773 principle that one acts unreasonably by relying on prior oral
was already for sale. At the very least, a genuine issue of representations when a contract is completely integrated.5
material fact exists as to Defendant’s intent. See id. at 612 (citing Bollinger, Inc. v. Mayerson, 689 N.E.2d
62, 69 (Ohio 1996)). Promissory fraud under Tennessee law
Defendant claims that Plaintiffs cannot meet the third does require reasonable reliance, see, e.g., Dobbs v. Guenther,
component of the test for promissory fraud because, 846 S.W.2d 270, 274 (Tenn Ct. App. 1992), but nothing
Defendant argues, it is unreasonable per se to rely on oral suggests the Tennessee judiciary has either adopted or would
representations when the contract contains an integration adopt a per se rule that an integration clause makes it always
clause. Defendant relies on Watkins & Son Pet Supplies v. unreasonable to rely on prior oral representations. See Loew
Iams Co., 254 F.3d 607 (6th Cir. 2001), in which this Court v. Gulf Coast Dev., Inc., No. 01-A-01-9010-CH-00374, at
examined the non-renewal of a distributorship contract 1991 WL 220576, at *5 (Tenn. Ct. App. Nov. 1, 1991)
between Watkins as distributor and Iams, a pet food (unpublished) (noting that integration clauses “should not be
manufacturer. Watkins claimed Iams represented that if used to restrict the scope of proof” in fraud claims) (citing
Watkins became an exclusive Iams distributor, Iams would Young v. Cooper, 203 S.W.2d 376, 382-83 (1947)).
make it the exclusive Iams distributor in Michigan when Iams
established an exclusive territory distribution system. Id. at
609. Watkins alleged that it relied on these representations,
but Iams terminated its agreement with Watkins and gave the 5
To the extent Watkins is unclear, it is useful to consider that
exclusive contract to a competitor. Id. Watkins alleged Watkins relies on Bollinger, Inc. v. Mayerson, 689 N.E .2d 6 2 (O hio
promissory fraud under Ohio law. Id. at 611. The Watkins- 1996), and Bollinger also never established a per se rule. See Bollinger,
Iams contract had a merger clause, however, and this Court 689 N.E.2d at 70 (“Furthe r, und er the fa cts of this case, Bollinger co uld
not have justifiably relied on any alleged oral promise on the part of
found that it was unreasonable for Watkins to rely on Iams’ Mayerson to fund the New Comp any without limit.”) (emphasis added)).
oral statements when the contract contained a merger clause.
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For these reasons, Plaintiffs have raised a genuine issue of recover damages even for negligent violations. Menuskin v.
material fact with respect to their promissory fraud claim.6 Williams, 145 F.3d 755, 767-68 (6th Cir. 1998).
II. Plaintiffs presented evidence that Defendant fraudulently
represented it would not invoke the termination clauses
Related to the promissory fraud claim, Plaintiffs allege except for poor performance. These assurances induced
Defendant violated the Tennessee Consumer Protection Act Plaintiffs to sign the lease and contract with Defendant, which
(“TCPA”), Tenn. Code Ann. § 47-18-109. The TCPA grants violated the TCPA. See TENN. CODE ANN . § 47-18-104(27).
a private right of action to consumers who suffer a loss due to The misrepresentations also made the transaction
“unfair or deceptive acts or practices” as defined in the Act. impermissibly appear as though it “involve[d] rights,
Id. In particular, the law proscribes “[r]epresenting that a remedies, or obligations that it does not have or involve.” Id.
consumer transaction confers or involves rights, remedies, or at § 47-18-104(12).
obligations that it does not have or involve.” Id. at § 47-18-
104(12). The TCPA also prohibits “[e]ngaging in any other The district court rejected Plaintiffs’ TCPA claim because
act or practice which is deceptive to the consumer or to any the court found Defendant did not commit the prerequisite
other person.” Id. at § 47-18-104(27). The Act’s scope fraudulent conduct. Defendant reiterates this position on
includes “the advertising, offering for sale, lease or rental . . . appeal. Since, as discussed above, Plaintiffs have raised a
of any goods, services, property, tangible or intangible, real, genuine issue of material fact as to whether Defendant
personal or mixed.” Id. at § 47-18-103(9). committed promissory fraud, Plaintiffs have also raised a
genuine issue of material fact as to whether Defendant
Plaintiffs who successfully press allegations of promissory violated the TCPA.
fraud often have TCPA claims as well. See, e.g., Steed Realty
v. Oveisi, 823 S.W.2d 195, 201 (Tenn Ct. App. 1991); III.
Brungard v. Caprice Records, 608 S.W.2d 585, 589 (Tenn.
Ct. App. 1980). Moreover, this Court has held that the TCPA Plaintiff next argues that the doctrine of promissory
does not require deceptive intent, which means a plaintiff may estoppel bars Defendant from using the termination clauses
because of the representations Philpot made after Plaintiffs
executed the agreement. This Court recognized and applied
6 the generally accepted definition of promissory estoppel in
The district court made another argument that Defendant
evide ntly abandoned on appeal. The court below found it very significant Owen of Ga., Inc. v. Shelby County, 648 F.2d 1084, 1095 (6th
that, in response to Plaintiffs’ effort to negotiate more favo rable terms, Cir. 1981):
Smith told Plaintiffs that “[Defendant’s] policy is not to change the lease.”
(J.A. at 54.) According to the district court, this put Plaintiffs on “notice Where one makes a promise which the promisor should
of Mr. Smith’s lack of authority to va ry the lease so that Mr. Smith’s
representations about future action by [Defendant] are not binding on
reasonably expect to induce action or forbearance of a
[De fendant].” (Id.) This is unpersuasive . Smith, who represented definite and substantial character on the part of the
Defendant, only said that he would not change the lease, not that he could promissee, and where such promise does in fact induce
not change the lease. Moreover, even reading Smith’s remark as the such action or forbearance, it is binding if injustice can
district court did, P laintiffs could still have reasonably believed Main (or be avoided only by enforcement of the promise.
some other corp orate official) had the authority to change the lease.
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(citing Foster & Creighton Co. v. Wilson Contracting Co., Paschall v. Mooney, 110 F.Supp. 749, 751 (D.C.N.Y. 1953)
579 S.W.2d 422, 427 (Tenn Ct. App. 1978)). (quoting Meredith v. City of Winter Haven, 320 U.S. 228,
234-35 (1943)).
Defendant makes the same claim it made with respect to
promissory fraud, that Plaintiffs could not have reasonably Although not absolutely dispositive, Tennessee case law is
relied on Philpot’s statements after the execution because the still very helpful. The fact-specific nature of any
lease and contract contained an integration clause. Defendant “reasonableness” inquiry inherently lends itself to flexibility.
again points to Watkins for the principle that it is Tennessee courts have found promisees to have reasonably
unreasonable per se to rely on oral representations when the relied even when something suggested they should not have
contract contains an integration clause. As already explained, done so. See, e.g., Alden v. Presley, 637 S.W.2d 862, 863-64
Watkins, which applies Ohio law, does not stand for such a (Tenn. 1982) (finding promisee stated promissory estoppel
broad proposition.7 Moreover, Tennessee law has not clearly claim by reasonably relying on promisor’s promise even
defined when reliance is reasonable enough to support a though promisee continued to rely on promise with
promissory estoppel claim. Calabro v. Calabro, 15 S.W.3d knowledge that promisor was dead); Bank of Gleason v.
873, 879 n.4 (Tenn. Ct. App.1999) (“Courts have not reached Weakley Farmers Coop., Inc., No. W1999-02161-COA-R3-
a uniform standard to determine if the promisor's words and CV, 2000 Tenn. App. LEXIS 303, at *9 (Tenn. Ct. App.
actions justify the promisor's reliance.”); Amacher v. Brown- Apr. 9, 2000) (enforcing promise despite lack of agreement
Forman Corp., 826 S.W.2d 480, 482 (Tenn. Ct. App. 1991) regarding type or quantity of product to be supplied)
(“The courts have not worked out a uniform standard to (unpublished).
determine whether a defendant's words or actions justify the
plaintiffs’ reliance.”). Nevertheless, Finally, when diversity jurisdiction forces us to grapple
with an uncertain question of state law, we should approach
the fact that the state law here involved may seem to be the problem with the background assumption that the state
uncertain and that the question has not yet been answered judiciary would not formulate a new rule of equity that would
by the State Court of Appeals or by an Appellate Court produce an unfair result. Philpot served as Defendant’s
of the State does not relieve this court of its duty, since general manager. When, in response to the Plaintiffs’ direct
jurisdiction has been properly invoked, “to decide query, Philpot told Plaintiffs that the termination clauses
questions of state law whenever necessary to the would not be used except if Plaintiffs failed to perform
rendition of a judgment.” satisfactorily, Philpot should have expected his assurances to
“induce action or forbearance of a definite and substantial
character on the part of the promisee.” Owen of Georgia,
Inc., 648 F.2d at 427. At the very least, “there are disputes of
7 material fact as to the alleged promises of defendant, the
Defendant’s entire Watkin s argument hinges on one sentence,
which is somewhat misleading when removed from context: “[i]f a plaintiff[s’] action and response thereto, and any inferences
written contract is completely integrated, it is unreasonable as a matter of
law to rely on parol representations or promises within the scope of the
contract made prior to its execution.” Watkins, 254 F.3d at 612 (em phasis
added). Philpot misled Plaintiffs about the termination clauses after
Plaintiffs executed the agreem ent.
Nos. 01-6077/6451 Shah, et al. v. Racetrac 21 22 Shah, et al. v. Racetrac Nos. 01-6077/6451
Petroleum Co. Petroleum Co.

that legitimately may be drawn therefrom.”8 Calabro, 15 reposes a trust and confidence in the other,” and (3) “[w]here
S.W.3d at 879. the contract or transaction is intrinsically fiduciary and calls
for perfect good faith.” Domestic Sewing Mach. Co. v.
IV. Jackson, 83 Tenn. 418, 425 (1885).
Plaintiffs claim that Defendant fraudulently concealed No previous fiduciary relationship existed between the
important information. As the Tennessee Supreme Court parties, nor was this lease and contract agreement
explained, “[t]he tort of fraudulent concealment is committed “intrinsically fiduciary.” See Domestic Sewing, 83 Tenn. at
when a party who has a duty to disclose a known fact or 425. Nor were the parties in a confidential relationship.
condition fails to do so, and another party reasonably relies Tennessee law defines a confidential relationship as one
upon the resulting misrepresentation, thereby suffering created when “confidence is placed by one on the other and
injury.” Chrisman v. Hill Home Dev., Inc. 978 S.W.2d 535, the recipient of that confidence is the dominant personality
538-39 (Tenn.1998) (citing Simmons v. Evans, 206 S.W.2d with the ability because of that confidence to influence and
295, 296 (Tenn.1947)). The duty to disclose arises in three exercise dominion over the weaker or dominated party.”
distinct circumstances: (1) “[w]here there is a previous McGuirk Oil Co., Inc. v. Amoco Oil Co., 889 F.2d 734, 737-
definite fiduciary relation between the parties,” (2) “[w]here 38 (6th Cir. 1989) (quoting Edwards v. Travelers Ins. of
it appears one or each of the parties to the contract expressly Hartford, 563 F.2d 105, 115 (6th Cir. 1977)). Plaintiffs and
Defendant in the instant case reached an agreement at arms’
length, and Defendant did not “exercise dominion” over
8 Plaintiffs. None of the Domestic Sewing categories applies;
Defendant never argues that the Statute of Frauds, Tenn. Code
Ann. § 29-2-101(a)(5), would interfere with the operation of promissory
thus, Defendants did not have a duty to disclose.
estop pel. Thus, we need not address this co ncern. Security Watch, Inc.
v. Sentinel Sys., Inc., 176 F.3d 36 9, 375 (6th Cir. 1999) (noting issues not Plaintiffs argue for a broader interpretation of Tennessee
addressed in appellate brief are deemed abandoned); United States v. law by citing a few cases in which the Tennessee Court of
Elder, 90 F.3d 11 10, 1118 (6th Cir. 1996) (finding that issues adverted to Appeals analyzed a fraudulent concealment claim without
by an appellant in a perfunctory manner, unaccompanied by some effort referring to the limits Domestic Sewing imposes. See, e.g.,
at developed argumentation, are deemed waived). Tennessee’s Statute of
Frauds may, in fact, create a problem for a promissory estoppel claim.
Garrett v. Mazda Motors of Am., 844 S.W.2d 178 (Tenn. Ct.
See S.I.B.C. v. Ford Mtr. Cred it Co., 911 S.W.2d 720, 723 App. 1992). Despite a few outliers, federal courts considering
(Tenn.App.1995) (declining to recognize promissory esto ppe l as an fraudulent concealment under Tennessee law have made clear
exception to the Statute of Frauds); but see Engenius Entm’t, Inc. v. that Domestic Sewing is the governing law.9 See Aetna Cas.
Herenton, 971 S.W.2d 12, 20-21 (Tenn. App. 1997) (“Although the
statute of frauds may prevent the defendants from seeking enforcement
of an alleged oral agreement under these equitable doctrines [including 9
promissory estoppel], the statute does not preclude [promisee] from W e recognize that in Simmons v. Evans, 206 S.W.2d 295, 296
recovering damages for unjust enrichment or detrimental reliance.”). In (Tenn. 1947), the Tennessee Supreme Court held that “each party to a
any event, Plaintiffs’ part performance would exempt D efendant’s oral contract is bo und to disclose to the other a ll he may know respecting the
promise from the Statute of Frauds. See Blasing ame v. Am . Materials, subject matter materially affecting a correct view of it.” Subsequent
Inc., 654 S.W.2d 659, 663 (Tenn.19 83). Plaintiffs had already paid Tennessee opinions have relied on Simmons and related decisions for the
Defendant substantial sums in rent and sp ent to m ake improvements to proposition that each party to a contract has a duty to disclose to the other
Raceway 7 73 b ased on P hilpot’s guarantee. all material knowledge of which the party is aware respecting the subject
Nos. 01-6077/6451 Shah, et al. v. Racetrac 23 24 Shah, et al. v. Racetrac Nos. 01-6077/6451
Petroleum Co. Petroleum Co.

& Sur. Co. v. FDIC, No. 90-5292, 1991 WL 23543, at *8 (6th “does not support an independent cause of action for failure
Cir. Feb. 26, 1991) (unpublished); French v. First Union Sec., to perform or enforce in good faith.” See TENN. CODE ANN .
Inc., 209 F. Supp. 2d 818, 825 (M.D. Tenn. 2002); Morgan v. § 47-1-203. As one court explained, “good faith or the lack
Wellman, Inc., 165 F. Supp.2d 704, 721 (E.D. Tenn. 2001). of it may be an element or circumstance of recognized torts,
Thus, the district court properly granted Defendant summary or breaches of contracts, but it does not appear that good faith,
judgment on Plaintiffs’ fraudulent concealment and or the lack of it is, standing alone, an actionable tort.”
nondisclosure claim. Solomon v. First Am. Nat’l Bank, 774 S.W.2d 925, 945
(Tenn. Ct. App. 1989). Breach of the implied covenant of
V. good faith and fair dealing is not an independent basis for
relief.
Plaintiffs next allege that Defendant breached the implied
covenant of good faith and fair dealing. In Tennessee, “there VI.
is implied in every contract a duty of good faith and fair
dealing in its performance and enforcement.” TSC Indus., Plaintiffs aver that the assurances Defendant made after
Inc. v. Tomlin, 743 S.W.2d 169, 173 (Tenn. Ct. App. 1987); Plaintiffs executed the lease agreement constitute an oral
see also TENN. CODE ANN . § 47-1-203 (imposing an modification of the contract. Specifically, Philpot told
obligation of good faith and fair dealing upon parties in the Plaintiffs that Defendant would not use the termination
performance or enforcement of contracts). The nature of the clauses for any reason other than inadequate performance.
duty “depends upon the individual contract in each case.” Plaintiffs claim that under the agreement, as modified,
TSC Indus., 743 S.W.2d at 173. Defendant would not terminate Plaintiffs for any reason other
than inadequate performance. When Defendant invoked the
The official commentary to the statute creating the implied termination clauses to sell the property, Plaintiffs argue
covenant of good faith and fair dealing explains that the law Defendant breached the orally modified agreement.
In Tennessee, “[a]fter a written contract is made, it may be
modified by the express words of the parties in writing, as
matter of the contra ct, other than the know ledge that one may ga in well as by parol.”10 Galbreath v. Harris, 811 S.W.2d 88, 91
through the exercise of ordinary diligence. See, e.g., Gray v. Boyle Inv.
Co., 803 S.W .2d 6 82, 6 85 (Tenn. Ct. A pp. 1 990 ); Lonning v. Jim Walter (Tenn Ct. App. 1991); see also Co-Operative Stores Co. v.
Hom es, 725 S.W .2d 6 82, 6 85 (Tenn. Ct. App . 198 6); Patel v. Bayliff, No. United States Fid. & Guar. Co., 195 S.W. 177, 180 (Tenn.
W2002-00238-COA-R3-CV, 2003 WL 11 93248, at *5 (Tenn. Ct. App. 1917). The parol evidence rule is inapplicable to evidence of
Mar. 12, 200 3) (unpublished). However, these cases ha ve gen erally been oral modification because the rule will “permit testimony to
limited to real estate purchases, see Patel, 2003 WL 1993 248 , at *5 . . . show a subsequent modification to a written agreement.
(noting the use of the doctrine in the rea l estate context), and used car
sales, see Mazda Motors of Am., 844 S.W .2d at 181 ; Patton v. McHone, Once admitted, this evidence does not in any way deny what
822 S.W .2d 608 , 616 n.14 (Te nn. Ct. A pp. 1 991 ). W e dec line to
anticipate that the Tennessee Supreme Court would extend the Simmons
and Lonning cases to the context of a franchise dispute. Cf. O’Neil v. 10
Burger Chef Sys., Inc., 860 F.2d 1341, 13 46 (6th Cir. 1988) (questioning This is true even if the contract expressly specifies that the
the applicability of Lon ning to a suit by a franchisee alleging that the parties may only modify the agreement in writing. Co-Operative Stores
parent of the franchiso r had not disc losed its intent to sell franchiso r). Co. v. United States Fid. & Guar. Co., 195 S.W. 17 7, 180 (T enn. 1917).
Nos. 01-6077/6451 Shah, et al. v. Racetrac 25 26 Shah, et al. v. Racetrac Nos. 01-6077/6451
Petroleum Co. Petroleum Co.

the original agreement expressed; however, it merely Buice, 250 S.W.2d at 48. Plaintiffs altered their position to
demonstrates that parties may have exercised their right to their detriment by installing a surveillance system, improving
modify the written agreement.” Golden Constr. Co. v. the coolers, increasing inventory, and modifying the store’s
Greene, No. 83-286, 1987 WL 18061, at *1 (Tenn Ct. App. layout. Plaintiffs might not have done so if they believed
Oct. 9, 1987) (unpublished); see also GRW Enters., Inc. v. Defendant could terminate their lease and contract for reasons
Davis, 797 S.W.2d 606, 610-11 (Tenn. Ct. App. 1990). other than poor performance.11
Defendant suggests that any oral modification would fail Since part performance occurred, the Statute of Frauds did
under Tennessee’s Statute of Frauds. See TENN. CODE. ANN . not prevent Defendant from modifying the agreement after its
§ 29-2-101 (1980). The Statute of Frauds requires that parties execution. Because Defendant invoked the termination
memoralize certain types of contracts in writing. Huffine v. clauses without alleging that Plaintiffs mismanaged Raceway
McCampbell, 257 S.W. 80, 89 (1923). The Statute of Frauds 773, Plaintiffs have at least raised a genuine issue of material
does not apply, however, once part performance occurs. fact as to whether an oral modification occurred and, if so,
Blasingame v. Am. Materials, Inc., 654 S.W.2d 659, 663 whether Defendant breached the revised agreement.
(Tenn.1983); Foust v. Carney, 205 Tenn. 604, 329 S.W.2d
826, 829 (1959); Buice v. Scruggs Equip. Co., 250 S.W.2d 44, VII.
47 (Tenn.1952); Schnider v. Carlisle Corp., 65 S.W.3d 619,
621 (Tenn. Ct. App. 2001). The Tennessee Supreme Court Finally, Plaintiffs claim Defendant violated the Tennessee
explained the “part performance” exception this way: Petroleum Trade Practices Act (TPTPA), Tenn. Code Ann.
§ 47-25-601. The TPTPA regulates petroleum trade practices
Th[e] doctrine of partial performance to take the verbal in Tennessee. See TENN. CODE ANN . § 47-25-601. Most
contract out of the operation of the Statute of Frauds is relevant here, the law provides that “[a]ny vertically
purely an equitable doctrine and is a judicial integrated producer engaged in a franchise agreement with a
interpretation of the acts of the parties to prevent frauds. dealer shall give sixty (60) days’ notice to such dealer prior to
The acts of the appellant relied on as partial performance termination or nonrenewal of such franchise agreement.” Id.
had been done by him in pursuance to the averred
contract and agreement and are clearly referable thereto.
“The plaintiff must be able to show such acts and 11
The district court dispatches with Plaintiff’s breach of contract
conduct of the defendant as the court would hold to claim in just a few sentences: “In this case, plaintiffs do not dispute the
amount to a representation that he proposed to stand by fact that both the lease and the contract provide that ‘either party may give
his agreement and not avail himself of the statute to thirty (30) days written notice’ to terminate the initial lease or agreement
as well as any extended lease or agreement. Nor is there any dispute that
escape its performance; and also that the plaintiff, in [De fendant] gave plaintiffs proper written notice of its intent to terminate
reliance on this representation, has proceeded, either in both the lease and the contra ct. Hence, plaintiffs do not, and cannot, point
performance or pursuance of his contract, so far to alter to any sp ecific provision o f either the contact or lease which was
his position as to incur an unjust and unconscious [sic] breached.” (J.A. at 4 7) (em phasis add ed). The district court
injury and loss, in case the defendant is permitted after misunderstands Plaintiffs’ argument. Plaintiffs are not arguing that
Defendant breached the lease and contra ct agreement as originally
all to rely upon the statutory defense." 49 Am. Jur., Sec. written. Rather, Plaintiffs contend that Defendant breached the lease and
427, page 733. contract agreem ent as orally modified.
Nos. 01-6077/6451 Shah, et al. v. Racetrac 27 28 Shah, et al. v. Racetrac Nos. 01-6077/6451
Petroleum Co. Petroleum Co.

at § 47-25-604(a)(1). Plaintiffs allege that Defendant violated The TPTPA defines “franchise” as follows:
this provision by affording only thirty days notice.
(5) (A) "Franchise" means a contract or agreement
To receive the Act’s protection, Plaintiffs must show (1) between a dealer and a distributor or producer of
that Defendant is a “vertically integrated producer;” (2) that petroleum products or other related products which
Defendant “engaged in a franchise agreement;” and that (3) grants to the dealer the right and authority to sell or use
Plaintiffs qualify as a “dealer.”12 in connection with the sale of petroleum products, motor
fuel, or related products, such as tires, batteries, etc., a
The TPTPA defines “vertically integrated producer” as “a petroleum trademark, trade name, service mark, or other
producer controlling all phases of petroleum production and identifying symbol or name.
sale from the well through distribution to dealers as defined
herein.”13 Id. at § 47-25-602(11). Although the record does (B) "Franchise" includes a contract or agreement under
not include information about the entire scope of Defendant’s which such dealer is granted authority to occupy
business operations, it appears Defendant could qualify as a premises owned, leased, or in any way controlled by a
“vertically integrated producer.” It is significant that the producer or distributor, which premises are to be
contract between Plaintiffs and Defendant states that employed for the sale or distribution of petroleum or
Defendant “owns and retains all title to the fuel at [Raceway related products under the producer or distributor's
773] until sold to the customer.” (J.A. at 87.) Neither petroleum trademark, trade name, service mark, or other
Defendant nor the court below contends that Defendant is not identifying symbol or name which is controlled by the
a “vertically integrated producer” for any reason other than distributor or producer.
that Defendant does not distribute to “dealers” as defined in
the TPTPA. Thus, if Plaintiffs are dealers, then Defendant TENN. CODE ANN . § 47-25-602. Pursuant to this definition,
can qualify as a “vertically integrated producer.”14 the lease and contract between Plaintiffs and Defendant
creates a franchise relationship. Plaintiffs were “granted
authority” to “lease” premises “employed for the sale or
12 distribution of petroleum . . . under the producer or
The district court found that Plaintiffs did not qualify as distributor’s petroleum trademark.” Id.
“dealers” within the meaning of the TPTP A, and did not address whether
Defendant is a “vertically integrated producer” or whether Defendant
“engaged in a franchise agreement.”
Defendant argues that the contract expressly provided that
it would not create a franchise relationship. The contract did
13
The TP TP A sep arately d efines “ve rtical integration” as “the
include several disclaimers purporting to guarantee that “this
ownership or co ntrol of all phase s of the production of petroleum products contract does not create a franchise relationship under state or
including the drilling, pumping, refining, distribution, and resale of such
petroleum products by a person, firm, partne rship or corporation or from
the well to the gasoline pump.” T E N N . C ODE A N N . § 47 -25-6 02(11).

14
oil wells, for instance. The issue o f whether Defendant is a “vertically
Conceiva bly, Defendant could estab lish on remand that it is integrated producer” was briefed by the parties for the trial court, but the
not a “vertically integrated producer” for some reason other than that trial court did not address the question in its short memorandum and
Plaintiffs do not qualify as “dealers.” Perhaps Defendant does not own order.
Nos. 01-6077/6451 Shah, et al. v. Racetrac 29 30 Shah, et al. v. Racetrac Nos. 01-6077/6451
Petroleum Co. Petroleum Co.

federal law.” (J.A. at 42.) It would defeat the purpose of the The purpose of this part is to regulate vertical integration
TPTPA (and many other statutes like it) if parties could of the petroleum industry in Tennessee, it being the
simply “opt-out” of otherwise applicable legislation by conclusion of the general assembly hereby expressed that
declaring that the law would not apply to their particular vertical integration tends to operate in restraint of free
transaction. If the relationship between Plaintiffs and trade and inhibits full and free competition and,
Defendant qualifies as a “franchise relationship” under the therefore, tends to increase the price of petroleum and
terms of the TPTPA, which it does, how the parties describe related products and services . . . .
their relationship is irrelevant. Petereit v. S.B. Thomas, Inc.,
853 F. Supp. 55, 60 (D. Conn. 1993), aff'd in relevant part, 63 TENN. CODE ANN . § 47-25-603(a). Since the district court
F.3d 1169 (2d Cir. 1995) (holding, when interpreting the never made the necessary factual findings, it is unclear
Connecticut Franchise Act, that a court must determine whether Defendant qualifies as a “vertically integrated
parties’ relationship by reality rather than disclaimers and producer.” It is undeniable, however, that the Tennessee
labels in a contract). legislature intended the TPTPA to regulate the activities of
vertically integrated producers. As a consequence, this Court
Tenn. Code Ann. § 47-25-602(2) defines dealer as “any should broadly interpret the definition of dealer by including
person, firm, corporation or partnership engaged in the sale of those operators, like Plaintiffs, who are involved in the
petroleum products to the public at retail.” The statute then transfer of title to petroleum products. Otherwise, vertically
defines “sale at retail” as “any transfer, made in the ordinary integrated producers could avoid the very legislation designed
course of trade or in the usual prosecution of the seller’s to regulate their activity by simply failing to relinquish title to
business, of title to tangible personal property to the purchaser their petroleum until it reaches the consumer—which, not
for use or consumption and/or for valuable consideration.” coincidentally, is part of what “vertical integration” means.
TENN. CODE ANN . § 47-25-602(9). Defendant argues that
Plaintiffs cannot meet this definition because, pursuant to the A franchise agreement existed and Plaintiffs qualify as
contract and lease agreement, Plaintiffs never had title to the “dealers” within the meaning of the TPTPA. At this stage,
gasoline. Yet, nothing in the definition actually requires the we lack the factual basis to conclude that no genuine issue of
dealer to hold title to the petroleum—rather, the dealer must material fact exists as to whether Defendant is a “vertically
be involved in its “transfer.” The statute does not define integrated producer.”
“transfer.”
VIII.
Legislative intent should guide this Court’s attempt to
apply an ambiguous statutory provision to a particular set of Defendant counterclaimed for $60,000, including
facts. Security Ins. Co. of Hartford v. Kevin Tucker & Assoc., $51,354.25 for attorney’s fees and $8,645.75 for alleged
Inc., 64 F.3d 1001, 1007 (6th Cir. 1995) (“If a statute is found breach of contract and conversion of personal property.
to be ambiguous, the ambiguity is resolved in favor of Correspondingly, Defendant moved for an award of
upholding the statute and giving effect to legislative intent.”). attorney’s fees under Fed. R. Civ. P. 54(d)(2)(B). The district
The Tennessee legislature made its intent clear by including court denied the motion because it lacked supplemental
a “purpose” provision in the TPTPA: jurisdiction over Defendant’s counterclaim and remanded the
case to state court. “[I]n an effort to discourage defendant
Nos. 01-6077/6451 Shah, et al. v. Racetrac 31 32 Shah, et al. v. Racetrac Nos. 01-6077/6451
Petroleum Co. Petroleum Co.

from amending its counter-complaint in state court to increase The pertinent section of the guaranty provides that
the amount of attorney’s fees, and therefore the amount in “[g]uarantor agrees to pay all costs of collection, including
controversy, in order to again remove the matter,” the trial reasonable attorney’s fees and all costs of suit, in the
court also stated that Defendant’s claim for fees lacked merit. enforcement of any right of the Lessor hereunder.”
(J.A. at 395.) Defendant’s counterclaim for fees, however, does not involve
Defendant’s attempt to enforce any rights under the
Our decision to reinstate some of Plaintiffs’ claims makes guaranty. 16
the supplemental jurisdiction issue moot, because Plaintiff
now has a triable case worth more than the jurisdictional CONCLUSION
minimum. Nevertheless, we will still consider Defendant’s
counterclaim for fees because Defendant bases its For the aforementioned reasons, we AFFIRM the district
counterclaim on substantive provisions of the disputed court’s rulings on fraudulent concealment and nondisclosure,
agreement governed by Tennessee law, which makes the the implied duty of good faith and fair dealing, and the
counterclaim a contract action rather than a procedural counterclaim for attorney’s fees, but REVERSE the district
motion. We review “a decision regarding the award of court’s decisions on promissory fraud, breach of contract,
attorney's fees for an abuse of discretion.” Nichols v. promissory estoppel, the Tennessee Consumer Protection Act,
Muskingum Coll., 318 F.3d 674, 682 (6th Cir. 2003). and the Tennessee Petroleum Trade Practices Act.

In pertinent part, the attorney’s fees clause of the contract
states that “if Contractee at any time rightfully seeks to
recover possession of said premises and payment due and
Contractee is obstructed or resisted therein and any litigation
ensues, Contractors shall pay and discharge all costs and
attorney’s fees and expenses that shall arise from enforcing
the covenants of the Contract.”
None of the causes of action involve Defendant regaining
possession of Raceway 773 or recovering payment due.
Thus, the attorney’s fees clause does not entitle Defendant to
recover for defending Plaintiffs’ claims.15
16
Defendant cites two cases, Hosier v. Crye-Leike, M2000-
01182-COA-R3-CV, 2001 WL 799740 (Tenn. Ct. App. July 17, 2001)
(unpublished), and Pic ‘N Pay Stores v. Jessee, No. 79, 1986 WL 2148
15 (Tenn. Ct. Ap p. Feb. 12 ,198 6) (unpub lished). Both of these cases are
Another well-established rule of contract construction points
distinguishable because each involves claims in which a party to a
toward the same conclusion: “the language of the contract, where
contract attempted to enforce its rights under the guaranty. See Hosier,
ambiguous, will be construed most strongly against the party who drew
200 1 W L 79 997 40, at *3; Pic ‘N Pay, 198 6 W L 2148, at *1.
it.” Hanover Ins. Co. v. Haney, 425 S.W.2d 590, 592 (Tenn. 1968 ); see
also AP CO Am usem ent C o., Inc. v. Wilkins Family Rests. of Am., Inc., 673
S.W .2d 5 23, 5 28 (Tenn. Ct. A pp. 1 984 ).