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Conocophillips Alaska, Inc. v. Williams Alaska Petro., Inc.

Supreme Court of Alaska

March 14, 2014

CONOCOPHILLIPS ALASKA, INC., Appellant and Cross-Appellee,
v.
WILLIAMS ALASKA PETROLEUM, INC., Appellee and Cross-Appellant

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Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, John Suddock, Judge. Superior Court No. 3AN-08-08998 CI.

Spencer C. Sneed and Katherine Demarest, Dorsey & Whitney, LLP, Anchorage, for Appellant/Cross-Appellee.

Paul L. Davis, K& L Gates, LLP, Anchorage, and Randolph L. Jones, Jr., Conner & Winters, LLP, Dallas, Texas, for Appellee/Cross-Appellant.

Before: Fabe, Chief Justice, Winfree, Stowers, Maassen, and Bolger, Justices.

OPINION

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FABE, Chief Justice.

I. INTRODUCTION

Williams Alaska Petroleum owned and operated a refinery, which ConocoPhillips Alaska supplied with crude oil pursuant to an Exchange Agreement. ConocoPhillips demanded that Williams tender a payment of $31 million as adequate assurances of Williams's ability to perform if an ongoing administrative rate-making process resulted in a large retroactive increase in payments that Williams would owe ConocoPhillips under the Exchange Agreement. ConocoPhillips offered to credit Williams with a certain rate of interest on that principal payment against a future retroactive invoice. Williams transferred the principal of $31 million but demanded, among other terms, credit corresponding to a higher rate of interest. Williams stated that acceptance and retention of the funds would constitute acceptance of all of its terms. ConocoPhillips received and retained the funds, rejecting only one particular term in Williams's latest offer but remaining silent as to which rate of interest would apply. Years later, after the conclusion of the regulatory process, ConocoPhillips invoiced Williams retroactively pursuant to the Exchange Agreement. ConocoPhillips credited Williams for the $31 million principal already paid as well as $5 million in interest on that principal calculated using the lower of the two interest rates. Williams sued ConocoPhillips, arguing that a contract had been formed for the higher rate of interest and that it was therefore owed a credit for $10 million in interest on the $31 million principal.

On cross-motions for summary judgment, the superior court initially ruled for Williams, concluding that a contract for the higher rate of interest had formed under the Uniform Commercial Code (UCC) § 2-207(1) when ConocoPhillips retained the $31 million while rejecting one offered term but voicing no objection to Williams's specified interest term. On a motion for reconsideration, the superior court again ruled for Williams, this time determining that a contract for the higher rate of interest had formed based on the behavior of the parties after negotiation under UCC § 2-207(3), or, in the alternative, that Williams was entitled to a credit for a different, third rate of interest in quantum meruit. The superior court also ruled in favor of Williams on all issues related to attorney's fees and court costs.

ConocoPhillips and Williams both appeal. We conclude that the superior court was right the first time and that the parties entered into a contract for the higher rate of interest under UCC § 2-207(1). Thus, it was incorrect for the superior court to rescind its initial summary judgment order as improvidently granted. Accordingly, we do not reach the UCC § 2-207(3) or quantum meruit holdings of the superior court's order on reconsideration. Finally, we affirm all of the superior court's actions with regard to attorney's fees and court costs.

II. FACTS AND PROCEEDINGS

A. Facts

1. The parties and the contract

In December 1999, BP Oil Supply Company and Williams Energy Marketing & Trading Company entered into a contract for the sale of crude oil, called an Exchange Agreement. Within months, the rights and duties of the original parties to this Exchange Agreement were assigned to the parties to the present case: ConocoPhillips and Williams.

Under the Exchange Agreement, ConocoPhillips would provide Williams's refinery at North Pole with crude oil from the Trans-Alaska Pipeline System. Williams would extract valuable components from the crude oil and provide an equal volume of lower-quality crude back to ConocoPhillips, and ConocoPhillips would then return the crude oil to the pipeline. The Trans-Alaska Pipeline System operates a " Quality Bank," which compensates all pipeline shippers for the degradation in the average quality of crude in the pipeline downstream caused by tender of less-valuable crude upstream. The Quality Bank Administrator assesses " degradation charges" to shippers tendering comparatively lower-value crude to the pipeline based on a quality pricing scheme set by the Federal Energy Regulatory Commission (FERC) and

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the Regulatory Commission of Alaska (RCA). ConocoPhillips, as the shipper tendering lower-quality crude back into the pipeline, would be assessed degradation charges by the Administrator. The Exchange Agreement's pricing provision, on top of a flat per-barrel fee, required Williams to reimburse ConocoPhillips for such degradation ...


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