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CHS Inc. v. Yellow Banks River Terminal, LLC

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

October 6, 2017




         This matter is before the Court on cross-motions for summary judgment [DN 21, DN 26]. Fully briefed, these matters are ripe for decision.

         I. BACKGROUND

         Plaintiff, CHS, Inc., is a farmer-owned cooperative whose business includes purchasing fertilizer and distributing it to customers. Defendant, Yellow Banks River Terminal, LLC., operates a full-service river terminal located on the Ohio River in Owensboro, Kentucky. As part of its business, Yellow Banks loads, unloads, and warehouses bulk products on behalf of customers. CHS purchases fertilizer in bulk from around the country and arranges for the fertilizer to be delivered to the Yellow Banks's terminal. Once received at the terminal, the fertilizer is stored in warehouses until it can be sold and distributed to CHS customers. CHS does not physically handle the fertilizer, but instead contracts with Yellow Banks to handle it.

         In the summer of 2014, CHS agreed to finance the construction of a new fertilizer storage warehouse at the Yellow Banks terminal (“New Warehouse”). In connection with the project, CHS and Yellow Banks entered into a Ground Sublease Agreement and an Operating Agreement. Under the Ground Sublease, CHS agreed to lease certain real estate from Yellow Banks at the terminal for the purpose of storing fertilizer products that are owned or controlled by CHS. The Ground Sublease provided CHS the right to build the New Warehouse on this land. Construction of the New Warehouse was completed in June of 2015 at a total cost to CHS of approximately $4 million. Under the Operating Agreement, Yellow Banks agreed to “provide CHS with services to unload wholesale fertilizer products from river barges, to store and safeguard these products inside warehouses, and load out these products to trucks” at prices set forth in the Operating Agreement.

         Yellow Banks uses front-end loaders to provide services to CHS at the terminal. On February 24, 2016, a Yellow Banks employee parked a Caterpillar front-end loader inside the New Warehouse after using it to provide services to CHS. Around 2:45 a.m. on February 25, 2016, the front-end loader ignited a fire inside the New Warehouse causing damage to the warehouse. Experts believed the fire started at the front-end loader's battery box.

         After the fire, CHS engaged a structural engineer to investigate and provide restoration recommendations. In his report, the expert recommended that CHS remediate and restore fire damage to its New Warehouse, including damage to the roof, rafters, soffit, conveyor system, wood trusses, exterior siding, and interior storage bins. CHS demanded that Yellow Banks pay to remedy all of the fire damage. Yellow Banks refused. As a result, CHS obtained quotes for the remediation work, selected Blue Star Restoration to perform the work, and forwarded the quote for the work to Yellow Banks. Yellow Banks again refused. CHS retained Blue Star to complete the work. CHS paid Blue Star $146, 865.30.

         On November 23, 2016, CHS filed this civil action against Yellow Banks alleging breach of the Operating Agreement, breach of the Ground Sublease, and negligence. CHS seeks to recover the $146, 865.30 paid to Blue Star in connection with the remediation work necessitated by the fire and costs, attorney's fees, pre-suit investigation expenses, and settlement effort expenses. The parties have now filed cross-motions for summary judgment arguing that the Operating Agreement and the Ground Sublease place responsibility for the fire damage squarely on the other party.


         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, 247-48 (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.

         The summary judgment standard does not change when a court is presented with cross-motions for summary judgment. Profit Pet v. Arthur Dogswell, LLC, 603 F.3d 308, 312 (6th Cir. 2010) (citing Taft Broadcasting Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991)). “The fact that both parties have moved for summary judgment does not mean a court must grant judgment as a matter of law for one side or the other; rather, a ‘court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration.'” Id. (quoting Taft, 929 F.2d at 248).


         CHS alleges that under the Ground Sublease and the Operating Agreement, Yellow Banks contractually agreed to indemnify CHS and hold it harmless for all losses incurred by CHS as a result of the fire. Yellow Banks disagrees arguing that the indemnity provisions do not apply to this case. First, Yellow Banks argues that indemnification agreements apply only to third-party claims. Second, Yellow Banks maintains that the indemnification agreement applies only if Yellow Banks acted with ordinary or gross negligence. Finally, Yellow Banks's primary argument is that the Ground Sublease places the responsibility for the fire damage remediation on CHS. Yellow Banks contends that the Ground Sublease specifically required CHS to maintain fire insurance in the amounts equal to the full insurable value of the New Warehouse and improvements and permitted replacement of the New Warehouse building to be paid for with proceeds from the required insurance policy.

         The issues raised in the parties' cross-motions for summary judgment are governed by principles of contract interpretation. Under Kentucky law, “the construction and interpretation of a contract including questions regarding ambiguity are questions of law to be decided by the Court.” Hulda Schoening Family Trust v. Powertel/Kentucky Inc., 275 F.Supp.2d 793, 794 (W.D. Ky. 2003) (citation omitted). “In construing a contract, a court's primary objective is to ascertain and to effectuate the intention of the parties to the contract from the contract itself.” Logan Fabricom, Inc. v. AOP Partnership LLP, 2006 WL 3759412, at *2 (Ky. App. Dec. 22, 2006). A court's analysis thus begins with a contract's four corners. See 3D Enters. Contracting Corp. v. Louisville and Jefferson County Metro. Sewer Dist., 174 S.W.3d 440 (Ky. 2005) (noting that when no ambiguity in a contract exists, a court should look “only as far as the four corners of the document to determine the parties' intentions”). As a rule, a contract “must be construed as a whole, giving effect to all parts and every word in it if possible.” American Dairy Queen Corp. v. Fortune Street Research & Writing Inc., 753 F.Supp.2d 675, 679 (W.D. Ky. 2010).

         “[I]n the absence of ambiguity a written instrument will be enforced strictly according to its terms, and a court will interpret the contract's terms by assigning language its ordinary meaning and without resort to extrinsic evidence.” Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99, 106 (Ky. 2003). “A contract is ambiguous if a reasonable person would find it susceptible to different or inconsistent interpretations.” Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. App. 2002). “The fact that one party may have intended different results, however, is insufficient to construe a contract at variance with its plain and unambiguous terms.” Id. “Where a contract is ambiguous or silent on a vital matter, a court may consider parol and extrinsic evidence involving the circumstances surrounding execution of the contract, the subject matter of the contract, the objects to be accomplished, and the conduct of the parties.” Id. “[O]nce a court determines that a contract is ambiguous, areas of dispute concerning the extrinsic evidence are factual issues and construction of the contract become subject to resolution by the fact-finder.” Id.; see also Prime Finish, LLC v. ITW Deltar IPAC, 2017 WL 1823064, at *9 (E.D. Ky. May 5, 2017).

         A. Indemnification Agreements

         CHS contends that in exchange for its agreement to finance the construction of the New Warehouse, Yellow Banks broadly agreed to defend, indemnify, and hold CHS harmless from all damages or losses: (1) “arising out of or resulting from” Yellow Banks's provision of services to CHS at the Yellow Banks terminal (Operating Agreement § 8); or (2) arising “directly or indirectly in connection with . . . any act or omission of” Yellow Banks (Ground Sublease § 11.) According to CHS, this obligation is triggered here because CHS's losses were caused by the fire, which was caused by Yellow Banks's loader, which was used to provide services to CHS at the terminal, and which Yellow Banks decided to park inside the New Warehouse overnight. CHS maintains that under both the Operating Agreement and Ground Sublease, indemnifiable losses include property or consequential damages arising from the fire ignited by Yellow Banks's front-end loader, plus expenses associated with investigating, settling, or litigating these indemnification claims, including attorney's fees.

         Specifically, under Section 11 of the Ground Sublease, Yellow Banks agreed to:

defend, indemnify and hold harmless [CHS] from and against any and all claims, demands, actions, suits, judgments, damages, losses, liability, costs and expenses (including, but not limited to reasonable attorneys' fees and consequential damages) that arise, directly or indirectly, in connection with: (a) any injury to person or property, loss of life, or other act or omission that occurs on the Yellow Banks Premises (excluding the Premises, unless caused by Lessor's gross negligence or willful misconduct); (b) any act or omission of Lessor or Lessor's agents, employees, contractors and licensees within the Yellow Banks Premises or otherwise . . . .

(Ground Sublease § 11.) The “Premises” is the land and easements on which the New Warehouse is built. (Id. ...

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