G.F. Kelly Trucking, Inc. v. U.S. Xpress Enterprises, Inc. , 281 F. App'x 855 ( 2008 )

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JUNE 6, 2008
No. 07-15496
THOMAS K. KAHN
Non-Argument Calendar
CLERK
________________________
D. C. Docket No. 06-00351-CV-F-E
G.F. KELLY TRUCKING, INC.,
GUY KELLY, individually,
Plaintiffs-Appellants,
versus
U.S. XPRESS ENTERPRISES, INC.,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Middle District of Alabama
_________________________
(June 6, 2008)
Before HULL, MARCUS and WILSON, Circuit Judges.
PER CURIAM:
Plaintiffs-Appellants G.F. Kelly Trucking, Inc. (“Kelly Trucking”) and Guy
Kelly appeal the district court’s order granting summary judgment to the
Defendant-Appellee U.S. Xpress Enterprises, Inc. (“USX”) on their claims of
breach of contract, fraud and suppression. After review, we affirm.
I. BACKGROUND
Defendant USX, a transportation corporation in Tennessee negotiated the
purchase of Kelly Trucking, a short-haul trucking company in Alabama. On
August 8, 2005, Guy Kelly, president of Kelly Trucking, signed an Asset Purchase
Agreement (“APA”) in which, among other things, USX agreed to purchase Kelly
Trucking’s book of business and certain equipment, including tractors and trailers.
In exchange, Kelly Trucking gave USX an exclusive opportunity to hire its
employee drivers and contract with its owner/operator drivers. Kelly Trucking
agreed to provide a list of its drivers, to give USX access to its drivers’ records and
to “provide all reasonable cooperation and assistance” in USX’s attempts to hire
Kelly Trucking’s drivers. USX, in its sole discretion, decided whether to hire each
Kelly Trucking driver.
As a condition to closing, the APA provided that USX: (1) would conduct a
due diligence investigation confirming Kelly Trucking’s business, assets and
financial and legal condition and (2) was to be satisfied, in its sole discretion, that
Kelly Trucking had at least 130 drivers that met USX qualifications for hiring, as
follows:
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Section 3.6. Closing Date Drivers. Buyer shall be satisfied, in its sole
discretion, that there will be at least one hundred thirty (130) Closing
Date Drivers that will meet Buyer’s qualifications for hiring.1
The APA also required the parties to “cooperate and use their reasonable best
efforts to evaluate as promptly as practicable all of [Kelly Trucking’s] employee
drivers and owner-operators for purposes of the condition specified in Section 3.6
above.” As additional closing conditions, USX needed to be satisfied, in its sole
discretion, with the results of an inspection of the equipment to be transferred and
required Kelly Trucking to provide lien payoff letters from lenders financing any
of the transferred equipment and a factoring payoff letter.
During negotiations and the due diligence investigation, Dennis Farnsworth
of USX twice guaranteed to Guy Kelly that USX would purchase Kelly Trucking
and assured Kelly that the sale would close on August 29, 2005.
On August 12, 2005, Kelly Trucking sent USX a list of 167 Kelly Trucking
drivers, from which the 130 Closing Date Drivers could be found to satisfy Section
3.6 of the APA. Kelly Trucking also gave USX access to its drivers’ records,
although some files were incomplete or missing.
As part of its due diligence, USX conducted a preliminary review of the
drivers’ records to determine whether at least 130 drivers would qualify as Closing
1
The phrase “Closing Date Drivers” is defined under the APA as “employee drivers and
owner-operators” as of the date of closing.
3
Date Drivers. USX determined that 27 drivers were not qualified, leaving 140
drivers who were potentially eligible for hire by USX. On August 17, 2005, a
color-coded list of the drivers that indicated which drivers were disqualified was
forwarded to Kelly Trucking.
On August 22, 2005, USX sent employees from its safety department to
Kelly Trucking’s home office in Wadley, Alabama to conduct, among other things,
a driver qualification process. USX’s driver qualification process included a road
test, drug testing, completing employment applications and attending an orientation
by USX’s safety department to introduce Kelly Trucking drivers to USX’s safety
policies and procedures.
To complete the driver qualification process, Kelly Trucking’s drivers
needed to be physically present. Consequently, the driver qualification process
was disruptive to Kelly Trucking’s business. Kelly Trucking determined which of
its drivers were routed through Wadley to participate in the driver qualification
process. To minimize the disruption, Kelly Trucking did not route all of its drivers
through Wadley at once. Instead, on August 22, Kelly Trucking routed
approximately 40% of its drivers to Wadley. Although the driver qualification
process was supposed to take only one day, it did not and some of Kelly
Trucking’s drivers were still in Wadley on August 25.
4
Between August 22 and August 24, USX processed 95 Kelly Trucking
drivers and disqualified 29 of them. It is undisputed that 17 of the 29 drivers
disqualified during the driver qualification process had already been disqualified
during the drivers’ record review. Thus, in addition to the 27 drivers disqualified
during the record review, 12 other drivers were disqualified during the driver
qualification process, for a total of 39 disqualified drivers. This left 128 drivers for
USX to evaluate and try to hire.
Fewer drivers showed up for the driver qualification process than USX
expected. There was some discussion between USX and Kelly Trucking about
conducting the driver qualification process at other Kelly Trucking locations to see
drivers who were unable to be routed through Wadley; however, USX
discontinued the driver qualification process before that could happen.
During the week of August 22, 2005, Kelly Trucking lost 50 drivers. These
drivers left Kelly Trucking because they learned during USX’s driver qualification
process that many of USX’s safety policies and procedures were more onerous
than those of Kelly Trucking. For example, Kelly Trucking routed drivers through
their home city for weekends, but USX did not. USX also required all trucks to
have a governor so that trucks could not exceed 67 miles per hour and required
drivers to stop at scales and log all scale and fuel stops. It became apparent to
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USX employees conducting the driver qualification process that many of Kelly
Trucking’s drivers were hostile to and unwilling to comply with USX’s policies
and procedures and that many might not work for USX even if they qualified.
During a telephone conference on August 25, these USX employees advised
USX’s senior management that they believed USX would be unable to qualify the
required 130 Closing Date Drivers. In addition, USX learned through a third-party
evaluation that the book value on Kelly Trucking’s tractors and trailers equaled the
debt outstanding on the equipment. Furthermore, during a physical inspection of
some of the trailers conducted the week of August 22, USX learned that the
trailers’ book value exceeded their actual value. The inspection revealed that many
of the trailers had substantial damage and were not up to USX’s road
specifications. Finally, as of August 25, Kelly Trucking had not provided either
the lien payoff letters or the factoring payoff letter.
Although several conditions to closing had not been met, USX’s
determination that it would be unable to find 130 qualified drivers was
determinative. On August 25, USX discontinued its due diligence efforts and
stopped the driver qualification process, which was ongoing. USX sent a letter to
Kelly stating that “pursuant to the terms of the Asset Purchase Agreement, we have
determined that it is not in the parties’ best interest to move forward with the
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proposed business arrangement.”
According to Kelly, Al Hingst, a USX representative, also informed Kelly in
person on August 25 that USX was not going to purchase Kelly Trucking’s assets.
Hingst told Kelly that USX had “botched this whole deal through
mismanagement.” Hingst apologized to Kelly and said that if he, Hingst, had been
brought into the due diligence investigation earlier (Hingst became involved when
he arrived in Wadley on August 24), the deal would have closed. After Hingst
informed Kelly that the deal was off, Willis Childers, the safety director at Kelly
Trucking, called the drivers together and announced that the deal had fallen
through. In response, the drivers cheered and wanted to hug Childers.
During and after the negotiations, Kelly Trucking lost several clients either
because they did not want to contract with USX or because Kelly Trucking no
longer had adequate fleet capacity after it had lost so many drivers. In addition,
USX employees contacted several Kelly Trucking clients during the due diligence
investigation and told them that USX was acquiring Kelly Trucking. When Kelly
learned of the client contact, he asked USX not to contact his clients until after the
deal had closed. Finally, about two months after the purchase fell through, USX
offered to hire two Kelly Trucking drivers who had been rejected during the driver
qualification process.
7
Kelly Trucking and Guy Kelly filed this action in Alabama state court
alleging that USX: (1) had breached the APA by not completing the purchase, (2)
had fraudulently represented that it would close on the purchase, and (3) had
suppressed the fact that it was using the due diligence process to steal Kelly
Trucking’s customers and drivers and to drive Kelly Trucking out of business.
USX removed the action to federal court based on diversity jurisdiction and,
after discovery, moved for summary judgment. The district court granted USX
summary judgment on all claims. This appeal followed.
II. DISCUSSION 2
A. Breach of Contract
To establish a claim of breach of contract under Tennessee law, the plaintiff
must show: (1) the existence of an enforceable contract; (2) nonperformance
amounting to a breach of the contract; and (3) damages caused by the breach of the
contract. ARC LifeMed, Inc. v. AMC-Tennessee, Inc., 183 S.W.3d 1, 26 (Tenn.
Ct. App. 2005).3 However, if the contract contains a condition precedent, no
2
We review a district court’s grant of summary judgment de novo, applying the same
legal standards used by the district court. Sierra Club v. Leavitt, 488 F.3d 904, 911 (11th Cir.
2007). Summary judgment is proper when the evidence, viewed in the light most favorable to
the non-moving party, presents no genuine issue of material fact and the moving party is entitled
to judgment as a matter of law. Id.
3
As a federal court sitting in diversity, we apply the choice of law rules of the forum
state, in this case, Alabama. See Grupo Televisa, S.A. v. Telemundo Comms. Group, Inc., 485
F.3d 1233, 1240 (11th Cir. 2007). Alabama law first looks to the contract to determine which
8
liability arises under the contract until the condition precedent is fulfilled.
Strickland v. City of Lawrenceburg, 611 S.W.2d 832, 837 (Tenn. Ct. App. 1980).4
Tennessee law implies a duty of good faith and fair dealing in every
contract. Wallace v. Nat’l Bank of Commerce, 938 S.W.2d 684, 686 (Tenn. 1996).
Whether a party has acted in good faith in performing the terms of the contract is
judged “against the intent of the parties as determined by a reasonable and fair
construction of the language of the instrument.” Id. However, where the contract
provides one party with the unilateral exercise of discretion, the other party cannot
reasonably expect that discretion not to be exercised and “[p]erformance of a
contract according to its terms cannot be characterized as bad faith.” Id. at 687
(concluding that bank’s raising of fees did not breach the duty of bad faith because
the contract gave the bank the unilateral discretion to do so).
Under the APA, USX’s obligation to purchase Kelly Trucking’s assets did
not arise unless Section 3.6, the Closing Date Drivers provision, was fulfilled.
Under Section 3.6, USX needed to be satisfied, in its sole discretion, that there
law applies. Stovall v. Universal Constr. Co., Inc., 893 So. 2d 1090, 1102 (Ala. 2004). Here, the
APA provides that Tennessee law governs its construction and enforcement. Thus, we apply
Tennessee contract law.
4
A “condition precedent” under Tennessee law is “a condition which must be performed
before the agreement of the parties shall become a binding contract” or “a condition which must
be fulfilled before the duty to perform an existing contract arises.” Strickland, 611 S.W.2d at
686.
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were at least 130 Closing Date Drivers that met USX’s qualifications for hiring.
Thus, USX’s satisfaction with regard to the Closing Date Drivers was a condition
precedent to its duty to perform under the APA and, if the condition precedent was
not fulfilled, USX’s failure to perform would not constitute a breach of the APA.
Plaintiffs argue that they presented evidence creating a genuine issue of
material fact as to whether USX breached Section 7.12 of the APA, which required
the parties to “cooperate and use reasonable best efforts” to evaluate Kelly
Trucking’s drivers as promptly as practicable for the purpose of the condition in
Section 3.6 and also that USX breached the duty of good faith in determining that
the Closing Date Drivers condition could not be met.
Plaintiffs point to evidence that, during the August 22 driver qualification
process, USX evaluated 17 drivers it had already disqualified during the
preliminary review of the drivers’ files. Plaintiffs complain that USX’s safety
department employees sent to Wadley “[u]nexplainably . . . spent valuable time
taking applications, conducting driving tests and drug tests” on these 17 already
disqualified drivers. However, it is undisputed that it was Kelly Trucking, and not
USX, that routed the drivers through Wadley to participate in the driver
qualification process and that Kelly Trucking knew the identity of the already
disqualified drivers at that time. Therefore, this evidence does not suggest that
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USX failed to cooperate and use reasonable best efforts to evaluate the drivers
promptly.
Plaintiffs also emphasize that USX had not completed the driver
qualification process when it decided not to go through with the purchase.
Plaintiffs note that USX’s Hingst testified that at the time he expected between 60
and 100 additional drivers to show by the end of the week for evaluation.
However, the undisputed facts show that, as of August 25, Kelly Trucking
did not have enough drivers from which USX could find 130 Closing Date Drivers.
Of the original pool of 167 Kelly Trucking drivers, 39 had already been
disqualified, leaving only 128 potentially eligible drivers. Even if all 128 drivers
were deemed qualified to USX’s satisfaction, Kelly Trucking still would have been
2 drivers short of the 130 needed to meet the Closing Date Drivers condition.
Thus, it was not unreasonable for USX to halt the driver qualification process
before it was completed.5
Furthermore, although Hingst estimated that between 60 and 100 drivers still
needed to be evaluated as of August 25, he did not testify that there were enough
drivers left in the pool to permit USX to find at least 130 qualified drivers.
5
Based on these undisputed facts, there also is no jury issue as to whether the condition
precedent (Section 3.6 Closing Date Driver condition) to USX’s duty to perform under the APA
was not met. See Strickland, 611 S.W.2d at 837.
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Further, Hingst testified that even if 130 drivers passed the driver qualification
process, he believed that many of them would be unwilling to work for USX and
that he passed this information on to his superiors.
Finally, Plaintiffs point to Kelly’s testimony that Hingst admitted to him on
August 25 that USX had “botched the whole deal through mismanagement.”
Although Hingst denies making this statement, for summary judgment purposes we
must construe all facts in favor of the plaintiffs. However, this one conclusory and
vague statement is insufficient to support a jury finding that USX acted in bad faith
or failed to use reasonable best efforts. See Allen v. Tyson Foods, 121 F.3d 642,
646 (11th Cir. 1997) (“A mere ‘scintilla’ of evidence supporting the [nonmoving]
party’s position will not suffice; there must be enough of a showing that the jury
could reasonably find for that party.” (quotation marks omitted)).
Even if Hingst made the statement, it is not supported by any other evidence
that USX did not use reasonable best efforts to promptly evaluate Kelly Trucking’s
drivers. Kelly Trucking provided files for its 167 drivers on August 9 and by
August 17 USX had reviewed them all and provided Kelly Trucking with a color-
coded chart indicating, among other things, which drivers were disqualified. By
August 22, USX was at Kelly Trucking’s Wadley location performing its driver
qualification process. Within three days it became apparent that USX would be
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unable to find the required 130 qualified drivers from the remaining pool of
eligible drivers. At that point, USX immediately informed Kelly Trucking. Given
these undisputed facts, Hingst’s statement to Kelly does not create a genuine issue
of material fact as to whether USX failed to use reasonable best efforts to evaluate
Kelly Trucking’s drivers as promptly as practicable or whether USX acted in bad
faith in evaluating the drivers.
B. Promissory Fraud
To prove a claim of promissory fraud under Alabama law, the plaintiff must
show: “(1) a false representation (2) of a material existing fact (3) reasonably relied
upon by the plaintiff (4) who suffered damage as a proximate consequence of the
misrepresentation . . . . (5) proof that at the time of the misrepresentation, the
defendant had the intention not to perform the act promised, and (6) proof that the
defendant had an intent to deceive.” Waddell & Reed, Inc. v. United Investors Life
Ins. Co., 875 So. 2d 1143, 1160 (Ala. 2003).6
Plaintiffs’ promissory fraud claim arises out of Dennis Farnsworth’s two
alleged verbal guarantees to Guy Kelly that USX would purchase Kelly Trucking.
6
Alabama choice of law rules apply the doctrine of lex loci delicti to tort claims, which
means that the law of the state in which the injury occurred governs the substantive rights of the
injured party. Colonial Life & Accident Ins. Co. v. Hartford Fire Ins. Co., 358 F.3d 1306, 1308
(11th Cir. 2004). Here, because the alleged fraudulent misrepresentations occurred in Alabama,
we apply Alabama law.
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The first time was on July 22, 2005 at Kelly Trucking in Wadley, before the APA
was signed. However, that statement on July 22 was made before the parties
entered into the APA. Any pre-contract guarantees Farnsworth made that USX
could close on the deal were vitiated by the APA, which imposed conditions
precedent to closing. See Tyler v. Equitable Life Assurance Soc’y, 512 So. 2d 55,
57 (Ala. 1987) (“[F]raud or misrepresentation cannot be predicated upon a verbal
statement made before execution of a written contract when a provision in that
contract contradicts the verbal statement.”).
The second time was on August 20, 2005. Kelly had sent Farnsworth an
email telling USX to either “piss or get off the pot” because USX had pushed back
the original closing date target of July 15 and Kelly Trucking’s customers and
drivers were getting nervous. In response, Farnsworth called Kelly and apologized
for the delays. Farnsworth said, “Guy, I guarantee you and promise you we are
going to buy your company” and further promised, “we are going to close on
August the 29th.” Farnsworth told Kelly that a USX team would be coming to
Wadley on August 22 to “start the process.” Farnsworth also told Kelly not to
worry about Section 3.6’s Closing Date Drivers condition because “they would
work out the deal with the drivers through safety.”
Plaintiffs argue that it was reasonable for Kelly to believe, based on
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Farnsworth’s verbal assurances, that the Closing Date Drivers condition in Section
3.6 of the APA had been met or would be met at closing. However, under
Alabama law, a contracting party cannot as a matter of law reasonably rely on
verbal statements that are inconsistent with the written terms of a contract.
Foremost Ins. Co. v. Parham, 693 So. 2d 409, 421 (Ala. 1997). Here, the written
terms in Section 3.6 of the APA explicitly stated that USX had to be satisfied that
there were 130 Closing Date Drivers that would meet its hiring qualifications
before USX would close on the purchase of Kelly Trucking’s assets. The APA
also included a clause prohibiting any of its conditions from being waived verbally,
as follows:
Section 11.6. Amendments. This Agreement shall not be changed or
terminated orally and no waiver of compliance with any provision or
condition hereof and no consent provided for herein shall be effective
unless evidenced by a written instrument duly executed by the party to
be charged therewith.
Kelly signed the APA and is presumed to have known its contents. See Massey
Automotive, Inc. v. Norris, 895 So. 2d 215, 218-20 (Ala. 2004) (explaining that
when a contracting party who is able to read signs a written contract, the
contracting party is bound by the contract and cannot reasonably rely upon verbal
statements that are inconsistent with the contract’s terms).
Moreover, it is undisputed that USX had not completed its evaluation of
15
Kelly Trucking’s drivers when Farnsworth made the second statement on August
20. At that time, Kelly knew that 27 drivers had been disqualified in the
preliminary review of the drivers’ files and that the driver qualification process
would begin at the Wadley location two days later on August 22. And even Kelly
stated that Farnsworth told him that a USX team was coming to Wadley to start the
driver qualification process. Thus, it was unreasonable for Kelly to believe, based
on Farnsworth’s statements, that the condition had already been met or that the
condition would necessarily be met or that the closing was guaranteed.
Furthermore, because the APA expressly provided that conditions could only be
waived in writing, Kelly could not have reasonably believed based on
Farnsworth’s statements that USX would buy Kelly Trucking’s assets even if the
condition was not met.7
For these reasons, the district court did not err in granting summary
judgment to USX on plaintiffs’ breach of contract and fraud claims.
AFFIRMED.
7
On appeal, Plaintiffs do not appear to challenge the district court’s summary judgment
on their claim of fraudulent suppression. In any event, we note that that claim fails for the same
reason that the promissory fraud claim fails. See Crowder v. Memory Hill Gardens, Inc., 516
So. 2d 602, 605 (Ala. 1987) (stating that claims for both misrepresentation and suppression
require a showing of reasonable reliance).
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