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Thomas Energy Corp. v. Caterpillar Financial Services corp.

Court of Appeals of Tennessee, Knoxville

December 26, 2014


Session October 29, 2014

Appeal from the Circuit Court for Washington County No. 26751 Hon. Thomas J. Seeley, Jr., Judge

Rick J. Bearfield, Johnson City, Tennessee, for the appellant, Thomas Energy Corporation.

Gary L. Edwards, II, Johnson City, Tennessee, for the appellee, Caterpillar Financial Services Corporation.

John W. McClarty, J., delivered the opinion of the Court, in which Charles D. Susano, Jr., C.J., and D. Michael Swiney, J., joined.




Between 2003 and 2005, Thomas Energy Corporation ("Thomas Energy"), a corporation formed to mine coal and owned by Gerald Thomas ("Plaintiff"), entered into ten lease agreements for the use of earthmoving equipment with Caterpillar Financial Services Corporation ("Defendant"), a wholly owned subsidiary of Caterpillar, Incorporated. Each of the ten leases contained a modification clause that provided as follows:

A delay or omission by Lessor to exercise any right or remedy shall not impair any right or remedy and shall not be construed as a waiver of any breach or default. Any waiver or consent by Lessor must be in writing. This lease completely states the rights of Lessor and Lessee and supersedes all prior agreements with respect to a Unit. No variation or modification of this Lease shall be valid unless in writing. All notices shall be in writing, addressed to the other party at the address stated on the front or at such other address as may hereafter be furnished in writing.

(Emphasis added).

In 2006, Thomas Energy was operating at a loss pursuant to a mining contract with Lambert Coal. Plaintiff debated whether he should exit the coal mining business due to the increasing cost of tires and fuel. He ultimately advised Lambert Coal that his company intended to cease mining operations on December 26, 2006. He also contacted Defendant and requested a modification in each of his leases that would allow him to miss three payments, starting in January 2007. Defendant agreed and modified the contracts.

On January 23, 2007, Plaintiff spoke with Kim Webb, a remarketing sales representative for Defendant, about marketing the equipment at issue for resale. Ms. Webb suggested that Cat Redistribution Services, Incorporated ("CRSI") might have an interest in the equipment, thereby allowing him to simply return the equipment without breaching the lease agreements. Shortly thereafter, Ms. Webb allegedly informed him that CRSI wanted the equipment and had agreed to the arrangement. Plaintiff requested documentation confirming the modification of the lease agreements; however, Ms. Webb never provided the documentation as requested.

In March 2007, Ms. Webb informed Plaintiff by email that CRSI did not want the equipment and that the terms of the original lease agreements remained in effect. Ms. Webb explained that she was unaware of his request to skip three payments when she advised him that he could likely return the equipment. She advised Plaintiff that he should attempt to sell the equipment in the mining sector but explained that the "new set of circumstances" would not permit the return of the equipment. Plaintiff eventually sold the equipment and fulfilled the terms of the lease agreements.

On March 14, 2008, Plaintiff filed suit against Defendant on behalf of Thomas Energy, alleging breach of contract and promissory estoppel. He alleged that Defendant had agreed to an oral modification of the leases to allow the return of the equipment but then breached that agreement. Defendant responded by denying wrongdoing and filing a motion for summary judgment. Relative to the breach of contract claim, Defendant asserted that the parties had agreed that any modifications to the lease agreements must be in writing and that no such writing existed. Relative to the promissory estoppel claim, Defendant argued that the claim was not viable because the alleged promise contradicted the terms of the lease agreements. Plaintiff responded by asserting that the modification clause in the contract was null and void pursuant to Tennessee Code Annotated section 47-2A-208(2), which provides, in pertinent part,

A signed lease agreement that excludes modification or rescission except by a signed writing may not be otherwise modified or rescinded, but, except as between merchants, such a requirement on a form supplied by a merchant must be separately signed by the other party.

Plaintiff claimed that the clause was void because he, a nonmerchant, never separately signed the requirement. He further argued that the alternative promissory estoppel theory was viable because the court had not yet decided whether the oral modification of the lease agreements was a separate, discrete agreement. The trial court granted the motion for summary judgment, in part, by dismissing the promissory estoppel claim. The case proceeded to a jury trial on the remaining breach of contract claim.

Plaintiff testified that his brother founded Thomas Construction Company ("Thomas Construction") in 1973 and that he began working with his brother in the business that same year. He first purchased an interest in the company in 1999 before purchasing the remainder of the company in 2002. He stated that he currently owned Thomas Holdings, the umbrella company for Thomas Construction and Thomas Energy. He related that Thomas Energy was formed in 2001 solely to mine coal in Southwest Virginia.

Plaintiff testified that his company used very large mining equipment, namely "off-road 150-ton trucks, large dozers, articulating rubber-tire loaders, big drills, [and] large earthmoving equipment." He asserted that Thomas Energy primarily used Caterpillar earthmoving equipment and that over the course of 40 years, the company gradually switched to Caterpillar equipment at his insistence. He stated that his two companies likely maintained at least 66 pieces of Caterpillar equipment. He believed that Caterpillar equipment was simply better and operated more efficiently than comparable brands. He acknowledged that he purchased the equipment for use in his mining business and that he had even acquired tires from Russia for the equipment. He stated that he only liquidated or marketed the equipment for resale when the equipment became too costly to operate. He stated that he kept a mechanic from Stowers Machinery on site to maintain the equipment, which was "very high-tech" and "computer-controlled." He explained that at the time, the company did not have the capability of analyzing and troubleshooting issues with the equipment. He acknowledged that the company had since purchased the necessary technology to maintain the equipment.

Plaintiff testified that Thomas Energy leased the equipment at issue from Defendant. He related that while there were different leases for each piece of equipment, none of the leases required him to purchase the equipment at the end of the applicable lease term. He recalled that he contacted Defendant when he decided to exit the mining business and requested a modification of each lease agreement that would allow him to skip three payments. At Defendant's direction, he submitted a written request, dated January 11, 2007, which provided, in pertinent part, as follows:

This request [to "skip lease payments" for three months] is to allow us to operate at a reduced level of production and prepare to market equipment while still maintaining cash flow. Our intention is to sell all equipment and payoff the referenced leases within a period of 90 to 120 days. This skip of payments is vitally important to help us implement our plans and be successful in our exit strategy and maintain the viability of our core construction business, which has successfully operated for over 33 years. Your consideration and help will be greatly appreciated. You may contact Gerald or I for any information needed to help expedite this process at [].

The leases were modified to reflect the approval of his request on February 28, 2007.

Plaintiff testified that in his attempt to market the entirety of his mining equipment, he contacted several companies, including Stowers Machinery and Defendant, to request assistance in the marketing process. He asserted that he was referred to Ms. Webb, who advised him that they could not market the equipment for him but that CRSI might be interested in his mining equipment, including the leased ...

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