                               UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT


                               No. 07-1539



DOUBLE DIAMOND PROPERTIES, LLC; CYPRESS          POINT   CITGO,
INCORPORATED, trading as Bayside BP,

                  Plaintiffs - Appellants,

             v.


BP PRODUCTS NORTH AMERICA, INCORPORATED, f/k/a Amoco Oil
Company,

                  Defendant - Appellee,

             v.


PAPCO, INCORPORATED,

                  Movant.



Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk. Walter D. Kelley, Jr., District
Judge. (2:06-cv-00226-WDK)


Submitted:    March 20, 2008                  Decided:   May 13, 2008


Before WILKINSON, NIEMEYER, and GREGORY, Circuit Judges.


Affirmed by unpublished per curiam opinion.


Peter G. Zemanian, ZEMANIAN LAW GROUP, Norfolk, Virginia, for
Appellants.  David M. Harris, Lizabeth M. Conran, GREENSFELDER,
HEMKER & GALE, P.C., St. Louis, Missouri; William F. Devine,
WILLIAMS MULLEN, Norfolk, Virginia, for Appellee.


Unpublished opinions are not binding precedent in this circuit.




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PER CURIAM:

           Double Diamond Properties, LLC (“Double Diamond”),* a

Virginia Limited Liability Company that owns and operates a gas

station on Haygood Road in Virginia Beach (the “Haygood station”),

appeals the district court’s order granting summary judgment on

Double Diamond’s complaint for declaratory relief and damages under

Virginia state law against BP Products North America, Incorporated,

formerly known as Amoco Oil Company (“BP”), a Maryland corporation

with its principal place of business in Illinois.   Double Diamond

seeks relief from the operation of a restrictive covenant in favor

of BP in the deed to a parcel of property where Double Diamond

operates the Haygood station.    The district court found that the

deed restriction was enforceable as it is applied against Double

Diamond.   We affirm.

           Double Diamond purchased the Haygood station in January

2006 from Canal Enterprises, LLC (“Canal”).    Canal purchased the

Haygood station from Amoco in 2001, subject to a deed restriction

that provides in pertinent part:

     The Grantee herein covenants and agrees, for itself, and
     its heirs, executors, grantees, successors and assigns,
     that no part of the real estate herein conveyed, shall be
     used by said Grantee, its heirs, executors, grantees,
     successors and assigns, for the purpose of conducting or


     *
      Cypress Point Citgo, Incorporated, trading as Bayside BP,
joined the lawsuit as an additional party plaintiff with claims
based upon the same legal theory as those of Double Diamond.
Cypress Point is also a party to this appeal. For the sake of
clarity, we refer only to Double Diamond.

                                - 3 -
     carrying on the business of selling, handling, or dealing
     in gasoline, diesel fuel, kerosene, benzol, naphtha,
     greases, lubricating oils, or any fuel used for internal
     combustion engines, or lubricants in any form; unless the
     items sold, handled or dealt in are supplied, either
     directly or indirectly, from the Grantor.            This
     restriction binds and restricts the property as a
     covenant and restriction running with the land and is
     deemed to benefit Grantor as an owner or lessee of lands
     in the City of Portsmouth, Virginia metropolitan area or
     as the operator or supplier of retail operations in the
     City of Portsmouth, Virginia metropolitan area. Except
     as otherwise provided herein, this restrictive covenant
     will remain in full force for a term of ten (10) years
     from the date of this conveyance, whereupon this
     restrictive covenant will automatically lapse and
     terminate and be of no further force or effect.        If
     Grantor discontinues supplying gasoline to Grantee or an
     Affiliate (as hereinafter defined) of Grantee, or their
     respective heirs, executors, grantees, successors or
     assigns (unless such discontinuance is a result of the
     action of Grantee or an Affiliate of Grantee), on a
     direct or indirect basis for a period of thirty (30) or
     more consecutive days during such ten (10) year term,
     then, within thirty (30) days after receipt of Grantee’s
     written request therefor, Grantor, at Grantor’s sole
     option, shall either recommence supplying gasoline or
     terminate    the    foregoing    restrictive    covenant.
     Notwithstanding anything herein to the contrary, in the
     event the Dealer Supply Agreement with Grantee or an
     Affiliate of Grantee is terminated early pursuant to
     Section 27 of the Dealer Supply Agreement, this
     restrictive covenant shall remain in full force and
     effect for the remaining balance of the ten (10) year
     term of this restrictive covenant.


          In October 2005, BP assigned to Miller Oil Company

(“Miller Oil”) its exclusive rights, pursuant to deed restrictions,

to distribute BP fuel to several gas stations in the Virginia Beach

area, including the Haygood station, which at the time was owned by

Canal but not in operation.   The assignment was part of BP’s broad

corporate strategy to transition from directly supplying retail

                               - 4 -
operations with BP fuel to indirectly supplying retailers through

contracts with “jobbers” such as Miller Oil that would distribute

BP fuel to the retailers.            Miller Oil paid BP for the rights to

distribute fuel to the specified stations, with the expectation

that the Haygood station in particular would generate approximately

one million gallons per year in fuel sales.

              Also in October 2005, Canal entered into an agreement to

sell   the    Haygood      Station   to    Double    Diamond.    Double   Diamond

negotiated        with   Miller    Oil    concerning    a   supply   agreement   in

November 2005, but closed on the purchase of the Haygood Station in

January 2006 without a supply agreement for BP fuel in place.

Double Diamond then attempted to enter into a supply agreement for

BP fuel with PAPCO, Inc., another jobber for BP.                PAPCO was unable

to supply BP fuel for the Haygood station because BP had assigned

the exclusive distributorship right from the deed to the Haygood

station      to   Miller    Oil.     Double       Diamond   preferred   the   terms

available under a supply contract with PAPCO to those available

from Miller Oil because the cost of BP fuel from PAPCO was lower

than the cost of BP fuel from Miller Oil, and because Miller Oil

operates retail gas stations in the Virginia Beach market, whereas

PAPCO does not compete in the retail market with Double Diamond.

              Double Diamond sought a declaratory judgment that the

restrictive covenant is no longer enforceable, as well as damages

based upon the difference in cost between obtaining BP fuel from


                                          - 5 -
Miller    Oil    or    PAPCO.       Double    Diamond       argues      that:     (1)   the

restrictive covenant is no longer enforceable according to its

stated terms, because BP no longer benefits from the covenant as an

owner or lessee of lands or as an operator or supplier of retail

operations;      (2)    the     covenant     has    terminated       due     to   changed

circumstances because the Haygood station is now supplied directly

by a retail competitor, Miller Oil, that has the power to determine

the wholesale price of fuel purchased by the Haygood station,

rather than BP, which does not compete with the Haygood station in

the retail market; and (3) the covenant has been invalidated by its

unreasonable application to Double Diamond, because BP would earn

the same profit margin on sales of fuel to the Haygood station

through either Miller Oil or PAPCO.

            BP    moved       for   summary        judgment,       arguing      that    the

restrictive covenant is enforceable according to its terms because,

when read as a whole, the covenant benefits BP as either a direct

or indirect supplier of fuel to retail operations, rather than only

as a direct supplier of fuel.                Accordingly, BP claims that the

covenant   did    not     become    unenforceable        when      BP   switched        from

supplying fuel directly to retailers to supplying fuel indirectly

through    jobbers.        BP    also   argued       that    the    covenant       is   not

unreasonable as applied to Double Diamond, because it is applied in

a non-arbitrary and non-discriminatory manner.                      Although BP could

earn the same profit margin on fuel sold to Double Diamond for the


                                        - 6 -
Haygood station through a jobber other than Miller Oil, BP would be

subject to a claim by Miller Oil that it breached the contract for

the sale of its supply agreement for the Haygood station if Double

Diamond were allowed to purchase BP fuel elsewhere, because part of

the value of the supply agreements that Miller Oil purchased from

BP included the anticipated profits from selling fuel to the

Haygood station.

             BP also claimed that the marketability of its supply

agreements to other jobbers throughout the country would be damaged

if Double Diamond were able to avoid purchasing fuel from Miller

Oil under this agreement.         BP argued that the circumstances under

which   it   executed    the   restrictive      covenant       have    not   changed

radically, so as to invalidate the covenant, because although

Miller Oil, unlike BP, is allowed to operate retail gas stations

that could compete with the Haygood station, Miller Oil does not

operate any gas stations within two miles of the Haygood station.

BP’s stated purpose for enforcing the restrictive covenant, to

guarantee a market for its fuel, has not changed despite the move

from    directly      supplying     retailers        to     supplying     retailers

indirectly,    and,    therefore,      BP   argues    that    the     circumstances

surrounding the covenant have not radically changed.

             The   district    court    granted      BP’s    motion    for   summary

judgment, finding that the restrictive covenant remained valid

according to its terms because BP still benefits from the covenant


                                       - 7 -
as a supplier of fuel for retail operations, despite the fact that

it now supplies fuel to retailers only indirectly.                The court

reasoned that BP may benefit as either a direct or an indirect

supplier   because   the   covenant   specifies     that   its   restriction

terminates if BP stops selling fuel “on a direct or indirect

basis.”    The inclusion of “indirect” in that provision would be

meaningless if BP were to lose its status as beneficiary, thereby

invalidating the covenant, by changing its operation from that of

a direct supplier of fuel to that of an indirect supplier of fuel.

The court found that although the restrictive covenant does not

expressly allow BP to assign exclusive rights to distribute fuel to

particular stations to third-party suppliers, BP has the inherent

authority to unilaterally choose how it distributes its products,

regardless   of   the   covenant.     The   court    determined    that    the

circumstances     surrounding   the   covenant      have   not   changed   so

radically as to destroy its purpose to benefit BP as a refiner and

supplier of gasoline, because BP still benefits from fuel sales as

a result of the covenant, despite the fact that those sales are

made through Miller Oil as an intermediate supplier.                 Double

Diamond and Cypress Point noted a timely appeal.

           We review de novo a district court’s interpretation of a

written contract as a question of law.              See Seabulk Offshore,

Ltd. v. Am. Home Assur. Co., 377 F.3d 408, 418 (4th Cir. 2004).

The interpretation of the restrictive covenant at issue is guided


                                    - 8 -
by Virginia law.         Providence Square Assocs., L.L.C. v. G.D.F.,

Inc., 211 F.3d 846, 850 (4th Cir. 2000).              A federal court sitting

in diversity must “rule upon [Virginia] state law as it exists and

not . . . surmise or suggest its expansion.”                   Id. at 850 n.3

(internal quotes and citation omitted).



(I) Enforceability of the Restrictive Covenant by its Stated Terms

              Under Virginia law, covenants restricting the free use of

land are disfavored and must be strictly construed.                   Mid-State

Equipment Co. v. Bell, 225 S.E.2d 877, 884 (Va. 1976).                   “[T]he

person claiming the benefit of the restrictions must prove that the

covenants are applicable to the acts of which he complains.”

Sloan    v.   Johnson,   491   S.E.2d   725,    727   (Va.    1997)   (citations

omitted).      We will also apply Virginia principles of contract

interpretation and “seek to determine the intent of the parties

from the language expressed in the contract.”                Providence Square,

211 F.3d at 850 (citation omitted).            Contract terms that are clear

and unambiguous will be afforded their plain and ordinary meaning,

but extrinsic evidence may be used to interpret vague or ambiguous

terms, and substantial doubts or ambiguity about the meaning of a

restrictive covenant will be resolved in favor of the unrestricted

use of land.      Id. (citations omitted).

             To enforce a real covenant in Virginia, a party must
        prove the following elements: (1) privity between the
        original parties to the covenant (horizontal privity);
        (2) privity between the original parties and their

                                    - 9 -
       successors in interest (vertical privity); (3) an intent
       by the original covenanting parties that the benefits and
       burdens of the covenant will run with the land; (4) that
       the covenant “touches and concerns” the land; and (5) the
       covenant must be in writing.

Sonoma Dev., Inc. v. Miller, 515 S.E.2d 577, 579 (Va. 1999)

(citation and footnote omitted).

               Double Diamond argues that the restrictive covenant has

expired according to its terms because BP no longer benefits from

the covenant as a direct supplier of fuel to the Haygood station.

Double       Diamond    contends       that   the    language     in   the   covenant

concerning direct or indirect supply of fuel relates only to the

scope of the restriction, meaning that Double Diamond may comply

with the restriction by purchasing BP fuel either directly or

indirectly.         Double Diamond likewise contends that BP must benefit

as a direct supplier of fuel if it does not benefit as an owner or

lessee   of     land    or   as   a    fuel   retailer,     because    the   language

describing the benefit to BP from the restriction does not include

the description “indirect supplier.”

               We   find,    however,      that     BP   still   benefits    from    the

restriction as an indirect supplier of fuel to the Haygood station.

Arguably, BP would still benefit as a direct supplier of retail

operations even if a particular retail operator chose to obtain its

BP    fuel    indirectly,     thereby       maintaining     the   validity    of     the

covenant while still giving meaning to the restriction.                      However,

the    restriction       could        be   rendered      meaningless    under       this


                                           - 10 -
construction if all retail operators in the area chose to obtain BP

fuel indirectly, robbing BP of its status as a direct supplier

through no action of its own.      We conclude that the term “supplier”

in the beneficiary sentence was intended to encompass acting as

either an indirect supplier or a direct supplier, because both

manners of supplying are contemplated by the description of the

restriction.         The circumstances surrounding the covenant also

indicate that BP was clearly contemplating that it would no longer

own land or operate retail facilities in the area, and strongly

indicate that BP contemplated phasing out its role as a direct

supplier of fuel to retail operations, at the time the covenant was

made.    Accordingly, because BP clearly benefits from the covenant

as an indirect supplier of fuel, the covenant is still enforceable

according to its terms.



(II) Reasonableness of the Restrictive Covenant as Applied

              A restraint on alienation of property is valid if it is

reasonable.      Carneal v. Kendig, 85 S.E.2d 235, 237 (Va. 1955)

(citation omitted).       The determination of the reasonableness of a

restraint on alienation requires balancing the policy in support of

free alienation against the policy in favor of carrying out the

wishes   of    the    grantor,   while   also   considering   whether   the

limitation in question is favored or disfavored by the law.             Id.

There is a distinction between the reasonableness of a restriction


                                   - 11 -
on its face and the reasonableness of the restriction as applied,

and a complaint must raise both issues in order for a court to

properly consider them.   See Buchner v. Kenyon L. Edwards Co., 171

S.E.2d 676, 678 (Va. 1970).    A court must “consider (1) whether or

not the agreement in question is reasonable as between the parties;

and (2) if so, whether or not the agreement is injurious to the

public interest by reason of its effect upon trade and, therefore,

void.”   Klaff v. Pratt, 86 S.E. 74, 77 (Va. 1915).

           Double Diamond argues that the restrictive covenant is

unreasonable as applied because the requirement that only BP fuel

be sold at the Haygood station is unreasonable when applied in

conjunction with Miller Oil’s exclusive right to distribute BP fuel

to the Haygood station, because Miller Oil competes in the retail

fuel market and because BP earns the same profit on fuel it

supplies regardless of whether it uses Miller or another supplier.

This argument presents a more difficult question. On the one hand,

as the district court noted, BP possesses an inherent right to

determine how it supplies retailers with fuel in the market, so the

right to supply retailers through distributors with exclusive

supply agreements does not have to be created by the restrictive

covenant itself.   However, BP’s decision to supply fuel to the

Haygood station through an exclusive distributorship agreement with

Miller Oil has a greater impact on Double Diamond as a consequence

of the restrictive covenant.   Because Double Diamond cannot choose


                                - 12 -
to   reject    Miller   Oil   as   a   supplier,    the     covenant     accords   a

potential retail competitor great control over the price of the

fuel supply for the Haygood station.

              If   Double   Diamond    were     allowed    to   comply   with   the

restrictive covenant by purchasing BP fuel for the Haygood station

through the supplier of its choice, the burden of the restrictive

covenant on the Haygood station and its owner, Double Diamond,

would be reduced, because Double Diamond could negotiate a lower

price for its fuel supply.         The burden is arguably no greater than

it would be if BP were the sole direct supplier of its fuel,

however, because Double Diamond would have no choice as to the

terms of its fuel supply agreement with BP.               Although Miller Oil is

a potential competitor with Double Diamond in the retail market,

there is evidence in the record that Miller Oil does not operate

any retail gas stations within two miles of the Haygood station,

and is therefore not currently in direct competition.                     Although

this is a close issue, the standard for reasonableness established

by Virginia courts does not clearly compel the invalidation of the

restrictive covenant as applied to Double Diamond.                Because we are

sitting in diversity jurisdiction, we decline to surmise or suggest

the expansion of Virginia law in this case by holding that the

restrictive covenant is unreasonable as applied.




                                       - 13 -
(III) Validity of the Restrictive Covenant in Changed Circumstances

            A   change   in    circumstances     that   is    “so   radical   as

practically to destroy the essential objects and purposes of the

[covenant]” will render a restrictive covenant null and void.

Chesterfield Meadows Shopping Ctr. Assocs., L.P. v. Smith, 568

S.E.2d 676, 680 (Va. 2002).           “The determination of the degree of

change necessary to have this effect is inherently a fact-specific

analysis in each case.”        Id.    In order to determine the extent of

the restriction imposed by a covenant, a court should “look to the

substance   -   not   the     label   -   of   the   activity   sought   to   be

restricted.”     Providence Square, 211 F.3d at 851.

            Double Diamond argues that the restrictive covenant has

expired due to changed circumstances because BP has radically

altered its business practices by discontinuing its operations as

a direct supplier of fuel to retail operations, instead supplying

fuel for retail operations only indirectly.                  We hold that the

circumstances     surrounding     the     covenant    have    not   changed   so

radically as to destroy the primary purpose of the covenant for its

beneficiary, BP, namely to ensure a continuing retail market for

its fuel in the Virginia Beach area.           Although BP now benefits from

the covenant as an indirect supplier of fuel, rather than a direct

supplier, the essential purpose, to ensure an ultimate retail

market for BP fuel, is still being met.               Although arguably the

covenant did not expressly restrict the retailer’s choice of


                                      - 14 -
supplier for BP fuel, the district court properly found that BP had

the power to determine the terms under which it would supply fuel

to retailers before the covenant was in place.   The circumstances

surrounding the covenant have not radically changed merely because

BP has opted to exercise that pre-existing right, and BP’s ultimate

purpose in enforcing the covenant is still served.

          For the reasons stated above, we affirm the district

court’s judgment in favor of BP and against Double Diamond and

Cypress Point.   We dispense with oral argument because the facts

and legal contentions are adequately presented in the materials

before the court and argument would not aid the decisional process.



                                                          AFFIRMED




                              - 15 -
