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Stansbury v. Hopkins Hardwoods, Inc.

United States District Court, W.D. Kentucky, Owensboro Division

April 11, 2017

RICHARD L. STANSBURY and MARY F. STANSBURY PLAINTIFFS
v.
HOPKINS HARDWOODS, INC., ROBERT HENRY CHRIST, DONALD HAYES, and JAMES C. SPEAKS DEFENDANTS AND HOPKINS HARDWOODS, INC. COUNTER-CLAIMANT
v.
RICHARD L. STANSBURY and MARY F. STANSBURY COUNTER-DEFENDANTS

          OPINION AND ORDER

          Joseph H. McKinley, Jr., Chief Judge

         This matter is before the Court on motions for summary judgment by Defendants Hopkins Hardwoods, Inc. and Robert Henry Christ (DN 138-1) and Defendants Donald Hayes and James C. Speaks (DN 132), as well as a motion by Hopkins Hardwoods and Christ to exclude the expert witness of Plaintiffs Richard L. and Mary F. Stansbury. (DN 135-1.) Fully briefed, these matters are ripe for decision.

         I. Background

         Richard and Mary Stansbury purchased a 2, 551-acre tract of land in Meade County, Kentucky, known as the “Kimball tract” in December 2008 for $4, 156, 050.00. (Dep. Richard Stansbury [DN 134-1] at 37:12, 41:18; Kimball Deed [DN 134-2] at 2-4.) Before purchasing the Kimball tract, Stansbury had a timber cruise performed on the property by Harold Gordon. (Dep. Richard Stansbury [DN 134-1] at 26:10; Gordon Cruise [DN 134-2] at 16-19.) This cruise estimated that the Kimball tract contained around 6.5 million board feet of timber, and it valued the timber at over $4.1 million. (Gordon Cruise [DN 134-2] at 16-19.) The Stansburys sold a 792-acre portion of the Kimball tract in July 2011 to Yager Family, LLC for around $1.8 million, retaining the timber rights on the “Yager tract” for five years after the date of sale. (Dep. Richard Stansbury [DN 134-1] at 50:11, 51:6, 57:12, 63:24; Yager Deed [DN 134-2] at 26-35.)

         At some point prior to the sale of the Yager tract, it became known in Meade County that the Stansburys were interested in selling the timber rights to both the Kimball tract and the Yager tract. While the extent to which the Stansburys were marketing the timber rights is unclear, Stansbury stated that he valued the timber rights at $3.5 million. (Dep. Richard Stansbury [DN 134-1] at 70:21.) A group of three individuals became interested in acquiring the timber rights: Defendant Donald Hayes, Defendant James C. (“Jimmy”) Speaks, and Samuel Dunaway. (Dep. Donald Hayes [DN 120-1] at 73:6; Dep. James Speaks [DN 121-1] at 71:22.) At the time, Dunaway was the owner and president of both Dunaway Timber Company and Defendant Hopkins Hardwoods, Inc. (Dep. Robert Christ [DN 130-1] at 18:6, 20:23.) Hopkins Hardwoods acquires timber rights and then sells the lumber to Dunaway Timber for use at its mills. (Id.) The three individuals agreed to hire Rick Sluss to perform his own timber cruise on the property in February 2010. (Dep. Donald Hayes [DN 120-1] at 73:6; Dep. James Speaks [DN 121-1] at 74:15; Dep. Rick Sluss [DN 127-1] at 16:6.) Sluss sent the completed cruise to Speaks in March 2010, but instead of estimating a value on the timber, he only provided an estimate of the amount of board feet on the Kimball tract. (Dep. Rick Sluss [DN 127-1] at 20:19.) The key document from this timber cruise is entitled “Tract: volume, total by product and species, ” as it indicates that there are over seven million board feet on the tracts. (Sluss Cruise [DN 134-2] at 37.)

         Sam Dunaway transferred his ownership interest in Dunaway Timber and Hopkins Hardwoods to Defendant Robert Christ in December 2010. (Dep. Robert Christ [DN 130-1] at 58:6.) Christ, as president of Hopkins Hardwoods, entered into a contract with the Stansburys in September 2011 for the purchase of the timber rights the Stansburys possessed over the Yager tract and almost all of the Kimball tract, agreeing to pay $2.2 million for the rights. (Dep. Robert Christ [DN 130-1] at 179:18; Timber Rights Contract [DN 134-2] at 44.) Hopkins Hardwoods also paid Speaks $300, 000 as a finder's fee that Christ believed was to be split evenly between Speaks and Hayes. (Dep. Robert Christ [DN 130-1] at 182:7.) The timber contract was merged into and superseded by a timber deed, which specified that Hopkins Hardwoods had the right to harvest timber for a period of five years from each tract. (Timber Deed [DN 134-2] at 46-61.) However, Hopkins Hardwoods was not to harvest any trees with a diameter smaller than fourteen inches at a height of twelve inches off the ground on the Yager tract, and it was not to do the same on the Kimball tract to any tree smaller than fourteen inches at stump height. (Id. at 46- 47.) Further, Hopkins Hardwoods was to keep gates locked at all times and not harvest any cedar trees, among other provisions. (Id. at 47-48.) Hopkins Hardwoods began work at the Kimball and Yager tracts shortly thereafter in January 2012. (Dep. Robert Christ [DN 130-1] at 225:1.) Stansbury alleges that all of the above provisions of the timber deed have at some point been violated, as well as alleging that rock from the creek bed on the property was taken without permission. (Compl. [DN 1] ¶¶ 38-45.)

         In January 2015, Richard Stansbury was contacted by Gary Gouvas, an ex-son-in-law of Donald Hayes. Gouvas informed Stansbury that he believed Hayes had shown Stansbury an altered version of the Sluss Cruise that Gouvas had created. (Dep. Richard Stansbury [DN 134-1] at 90:20; Dep. Gouvas [DN 112] at 44:13.) This “Gouvas Cruise” appears very similar to the Sluss Cruise document entitled “Tract: volume, total by product and species, ” except it states that there are only about 5 million board feet on the Kimball and Yager tracts, instead of the 7 million originally included in the Sluss Cruise. (Gouvas Cruise [DN 134-2] at 38.) Gouvas stated that he was asked by Hayes to change the numbers in a spread sheet in March 2010 while Jeanette Hayes, Donald's wife, and Jimmy Speaks were present, and that Donald Hayes told him that the new spreadsheet was just to be used for Donald's personal use. (Dep. Gouvas [DN 112] at 31:23, 34:8, 48:11.) Sluss indicated that he did not prepare the inventory sheet that states there are only 5 million board feet. (Dep. Rick Sluss [DN 127-1] at 117:2.)

         The Stansburys filed this action originally against Hopkins Hardwoods, alleging fraud (Count I), breach of contract (Count II), misappropriation, theft, and trover/conversion (Count III), tortious interference with a potential contract (Count IV), unjust enrichment (Count V), trespass (Count VI), harvesting trees in violation of KRS 364.130 (Count VII), and violation of state constitutional rights entitling them to injunctive relief (Count VIII), and seeking further injunctive relief (Count IX) and punitive damages (Count X). (Compl. [DN 1] ¶¶ 30-76.) They later amended their complaint to add Christ, Hayes, and Speaks as Defendants and now allege that all Defendants violated the Racketeer Influence and Corrupt Organization Act (RICO) (Count XI), that all Defendants conspired to violate RICO (Count XII), and that all defendants either committed common law fraud or aided and abetted each other in doing so (Count XIII). (Am. Compl. [DN 27] ¶¶ 88-113.) The Court denied the Plaintiffs' request for a preliminary injunction directing Hopkins Hardwoods to abide by the terms of the timber deed. (DN 12.) However, after the Stansburys hired a security guard to keep Hopkins Hardwoods and its subcontractors off of the Kimball and Yager tracts, the Court granted Hopkins Hardwoods motion for a preliminary injunction prohibiting the Stansburys from interfering with Hopkins Hardwoods timber operations on the tracts. (DN 67.) Hopkins Hardwoods also filed a counterclaim against the Stansburys, alleging conversion (Counterclaim Count I), breach of contract (Counterclaim Count II, ) interference with business relationships (Counterclaim Count III), and unjust enrichment (Counterclaim Count IV), and seeking punitive damages (Counterclaim Count V). (DN 69.) All Defendants have now moved for summary judgment as to all of the Stansburys' claims as they pertain to each Defendant. (DN 132, 138-1.) Hopkins Hardwoods and Christ have also moved to exclude the testimony of the Plaintiffs' expert witness, Vance Mosely. (DN 135-1.) Further facts will be discussed as they are pertinent to each party's argument.

         II. Standard of Review

         Before the Court may grant a motion for summary judgment, it must find that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of specifying the basis for its motion and identifying that portion of the record that demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party satisfies this burden, the non-moving party thereafter must produce specific facts demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).

         Although the Court must review the evidence in the light most favorable to the non-moving party, the non-moving party must do more than merely show that there is some “metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Instead, the Federal Rules of Civil Procedure require the non-moving party to present specific facts showing that a genuine factual issue exists by “citing to particular parts of materials in the record” or by “showing that the materials cited do not establish the absence . . . of a genuine dispute[.]” Fed.R.Civ.P. 56(c)(1). “The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party].” Anderson, 477 U.S. at 252.

         III. Motion for Summary Judgment

         A. Counts I and XIII - Fraud

         The Stansburys argue that each Defendant is liable for fraudulently inducing the sale of the timber rights to the Kimball and Yager tracts for substantially less than their true market value. They argue that the Defendants aided and abetted each other in creating the Gouvas Cruise, which understated the amount of board feet located on the Stansburys' property, and that the Gouvas Cruise induced them to sell the property for $2.5 million, $1 million less than Richard Stansbury's original valuation. Richard Stansbury stated that he originally valued the timber rights at $3.5 million, but that he ultimately accepted $2.2 million from Hopkins Hardwoods after receiving the Gouvas Cruise from Hayes that indicated less board feet than the Gordon Cruise had previously indicated. (Dep. Richard Stansbury [DN 134-1] at 77:8, 79:23.) He further stated that he arrived at the $2.2 million figure because the Gouvas Cruise showed about two-thirds the amount of board feet as the Gordon cruise, and $2.2 million roughly equated to two-thirds of $3.5 million. (Id. at 98:2.)

         Under Kentucky law, a claim for fraud requires proof of six elements: “(1) that the declarant made a material representation to the plaintiff, (2) that this representation was false, (3) that the declarant knew the representation was false or made it recklessly, (4) that the declarant induced the plaintiff to act upon the misrepresentation, (5) that the plaintiff relied upon the misrepresentation, and (6) that the misrepresentation caused injury to the plaintiff.” Flegles, Inc. v. TruServ Corp., 289 S.W.3d 544, 549 (Ky. 2009) (citing United Parcel Service Company v. Rickert, 996 S.W.2d 464 (Ky. 1999)). “The plaintiffs reliance, of course, must be reasonable, or, as the Restatement [(Second) of Torts] states, ‘justifiable.'” Id. (citations omitted). The Flegles Court summarized a plaintiff's “duty to protect themselves” by stating that “the law imposes upon recipients of business representations a duty to exercise common sense.” Id.

         The Defendants argue that Plaintiff's fraud claims must fail because, among other reasons, any reliance Richard Stansbury placed on the Gouvas cruise was unreasonable. The Court agrees. Stansbury indicated that he “trusted the valuation and the appraisal” Gordon performed in 2008. (Id. at 100:11.) Yet, instead of approaching the Gouvas Cruise and its lower estimates with suspicion, Stansbury based the sale price of the timber rights solely on the Gouvas Cruise and ignored the Gordon Cruise. Stansbury could have done a number of “common sense” tasks to protect himself. He could have contacted Gordon to see if he could explain the discrepancies between the two cruises. He could have requested the full cruise from Hayes, rather than just a one-page summary, to see if the cruises relied on different methods for arriving at their totals. He could have had another cruise completed. But he did none of these, making his reliance on the Gouvas Cruise unjustifiable. (Id. at 99:9.) See Buridi v. Branch Banking and Trust Co., 654 F. App'x 802 (6th Cir. 2016) (plaintiff unreasonably relied on representations made by defendant, as plaintiff failed to perform due diligence by investigating the basis for the figures provided to them, defeating claim for fraud under Kentucky tort law).

         The Plaintiffs point to a line of Kentucky cases that stand for the proposition that a “defrauding party cannot escape [liability] on the ground that the complaining party should not have trusted him, or was negligent in so doing.” Meyers v. Monroe, 226 S.W.2d 782, 785 (Ky. 1950) (citing Great A. & P. Co. v. City of Lexington, 76 S.W.2d 894 (Ky. 1935)). However, even if this line of cases has never been explicitly overruled, the proposition for which these cases stand is contradicted by the Kentucky Supreme Court's more recent opinion in Flegles, as that case clearly imposes a requirement that reliance be reasonable.

         No reasonable jury would conclude that Stansburys' reliance on the allegedly fraudulent representations made in the Gouvas Cruise was reasonable; thus, the Stansburys have no viable claim for fraud. As such, there is no underlying claim in which any Defendant could have aided or abetted. Therefore, the Defendants' motions for summary judgment as to Counts I and XIII for fraud are GRANTED.

         B. Counts XI and XII - RICO

         The Stansburys allege that the Defendants violated the Racketeer Influence and Corrupt Organizations Act (RICO) through the creation of the Gouvas Cruise and its use in inducing the Richard Stansbury to lower the sale price of the timber rights to the Kimball and Yager tracts. They also allege that the Defendants formed an unlawful conspiracy to commit acts in violation of RICO. The Defendants argue that these claims must fail since the Plaintiffs have failed to establish a “pattern of racketeering activity” as required under RICO, among other arguments.

         RICO provides, in pertinent part, that it “shall be unlawful for any person employed by or associated with any enterprise engaged in . . . interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity . . .” 18 U.S.C. § 1962(c). “‘Racketeering activity' encompasses many criminal acts, including those indictable for mail or wire fraud.” Grubbs v. Sheakley Group Inc., 807 F.3d 785, 804 (6th Cir. 2015) (citing 18 U.S.C. § 1961(1)). A “pattern” of racketeering activity requires at least two acts of racketeering within a ten year period, 18 U.S.C. § 1961(5), but even then, “two acts of racketeering activity within ten years will not generally give rise to liability. Predicate acts of racketeering must be both continuous and related to combine to produce a pattern.” Grubbs, 807 F.3d at 804 (citations and quotations omitted).

         Taking the evidence in a light most favorable to the Stansburys, their claims under RICO must fail, as there is insufficient evidence to support more than one predicate act of racketeering. According to Richard Stansbury, Don Hayes sent him via mail the Gouvas Cruise in the fall of 2011. (Dep. Richard Stansbury [DN 134-1] at 77:8.) Assuming that this would constitute indictable mail fraud, this amounts to one act of racketeering. But the Stansburys have offered no evidence of any other act of racketeering that would even require the Court to evaluate the continuity and relatedness of the individual acts. The Amended Complaint is in no way specific as to what the Defendants actually did other than “preparing and then transmitting information by wire and/or mail to the Plaintiffs, ” (Am. Compl. [DN 27] ¶ 94), and the Plaintiffs' response to the present motions points to “follow-up” communication that the Defendants made after the Gouvas Cruise was allegedly sent. (Pl.'s Resp. to Def. Mot. for Summ. J. [DN 143] at 12.) But Stansbury offers no specifics in his deposition about the time, place, and nature of these discussions, instead repeatedly just referring to them as “negotiations” and offering contradictory statements about who those negotiations were with. (Id. at 97:14 (“the only person that negotiated that price was Henry Christ”), 98:15 (“I'm sure Henry, Don Hayes, and Jimmy [negotiated the price]”).) And his testimony even casts doubt on whether the price was actually ever negotiated, as Stansbury gives no specifics about the content of those negotiations but speaks with certainty about how he calculated the sales price down from $3.5 million to $2.2 million on his own after receiving the Gouvas Cruise. (Id. at 98:4, 174:17.) Thus, the Stansburys have failed to provide sufficient evidence that two or more racketeering activities took place that gave rise to a pattern of racketeering activity.

         Further, the Stansburys have also failed to offer sufficient evidence of a RICO conspiracy, as prohibited under 18 U.S.C. § 1962(d). To prove a conspiracy under RICO, the plaintiff must show that “(1) the defendant agreed . . . to participate in the affairs of an enterprise through a pattern of racketeering activity, and (2) the defendant further agreed that someone would commit at least two predicate acts to accomplish those goals.” United Food and Commercial Workers Union and Employers Midwest Health Benefits Fund v. Walgreen Co., 719 F.3d 849, 856 (7th Cir. 2013) (citations and quotations omitted). Again, there is no evidence of a second act of racketeering activity that was even contemplated by the Defendants, much less agreed to and completed. Therefore, the Defendants' motions for summary judgment as to Counts XI and XII for violations of RICO are GRANTED.

         C. Count II - Breach of Contract

         The Stansburys assert that Hopkins Hardwoods breached the terms of the timber deed by (1) failing to keep gates to the property locked at all times, (2) harvesting cedar trees, (3) harvesting undersized trees from both the Yager (under fourteen inches at twelve inches above the ground) and Kimball (under fourteen inches at stump height) tracts, and (4) taking rock from the creek beds for use in constructing roads on ...


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