## Facts

- MG Refining & Marketing, Inc. sold long-term, fixed-price petroleum supply contracts to multiple commercial customers between 1991 and 1993.
- Two contract types were marketed:
  - “Ratables,” requiring monthly physical deliveries by MG and monthly offtake by customers; deliveries regularly occurred and customers had capacity to accept them.
  - “Flexies,” giving customers an option to take delivery or “cash out” if market prices exceeded contract prices; in practice, no flexies customer requested delivery and many lacked physical capacity to take it.
- The Commodity Futures Trading Commission investigated flexies as possible illegal off-exchange futures under the Commodity Exchange Act (CEA).
- MG entered a CFTC settlement in 1995 that imposed a civil penalty, oversight measures, and required MG to notify customers that flexies were illegal off-exchange futures products.
- After a market price spike, customers sought to exercise cash-out rights tied to flexies (including under related short-term “45-day” contracts); MG refused to perform, asserting illegality under the CEA.
- Customers sued for breach; MG admitted nonperformance and asserted affirmative defenses of illegality and impossibility.

## Issues

1. Whether the flexies and related 45-day contracts were illegal off-exchange futures under the CEA, rendering them void or unenforceable, and whether MG could invoke that illegality as a defense.
2. Whether MG’s refusal to perform was excused by impossibility based on the CFTC settlement and asserted legal inability to perform.

## Decision

- The court denied MG’s motion for summary judgment on its illegality defense.
- The court denied the customers’ motion for summary judgment seeking to eliminate the illegality defense.
- The court granted the customers’ motion for summary judgment on impossibility and dismissed MG’s impossibility defense as a matter of law.

## Legal Principles

- Summary judgment is inappropriate where the legality and enforceability of transactions under the CEA depend on unresolved factual distinctions among contracts and parties and on how the transactions functioned in practice.
- A regulatory settlement characterizing a product as unlawful does not automatically resolve, on a summary-judgment record, all private contractual consequences and defenses concerning related agreements.
- Impossibility is narrowly applied and generally does not excuse performance when the claimed impossibility results from the party’s own conduct or risks within that party’s control.

## Conclusion

The court left for later proceedings whether MG could avoid liability by proving the contracts were illegal under the CEA, but it held MG could not excuse nonperformance on an impossibility theory arising from the regulatory consequences of its own marketing of the flexies.


MG Refining & Marketing, Inc. v. Knight Enters., Inc., 25 F. Supp. 2d 175 (S.D.N.Y. 1998)