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Ivan Ware & Son, Inc. v. Delta Aliraq, Inc.

United States District Court, W.D. Kentucky, Louisville

March 28, 2018

IVAN WARE & SON, INC. d/b/a WARE, INC. PLAINTIFF
v.
DELTA ALIRAQ, INC., et al. DEFENDANTS

          MEMORANDUM OPINION

          Charles R. Simpson III, Senior Judge

         I. Introduction

         This case is before the court on defendants Delta Aliraq, Inc. (“Delta”), Kais Almarzouk (“Almarzouk”) and Armando Dupont's (“Dupont”) (collectively “Defendants”) motion for summary judgment. ECF No. 130. Plaintiff Ivan Ware & Son, Inc. (“Ware”) responded, and Defendants replied. ECF Nos. 135, 136. Ware subsequently moved for leave to file a sur-reply to address new arguments in Defendants' reply. ECF No. 139. For the reasons set forth below, Ware's motion for leave to file a sur-reply will be granted, and defendants' motion for summary judgment will be granted in part and denied in part.

         II. Factual Background

         The facts of this case were presented in detail in the memorandum opinion regarding plaintiff's previous motion for summary judgment:

Prior to May 2007, the Iraqi Ministry of Oil (“the Ministry”) requested proposals to supply three boilers at the Iraqi government-owned South Oil Refinery near Basrah, Iraq. The Ministry sought a “turn key” project, which required the successful bidder to design and manufacture boiler components, produce spare parts, install the system, and provide engineering services and operational training. After the initial bid, the bid process mandated that the South Oil Refinery conduct a technical review of the project proposals. The South Oil Refinery would then contingently award the project contract. After this initial award, the Ministry reviewed and determined whether to consent to and award the contract. The Ministry's award, however, was further conditioned on credit and bid bond requirements. Mem Op., ECF No. 105, pp. 1-2.

         Delta, seeking to bid on this project, sent out requests for proposals (“RFPs”) to several boiler providers, including Ware. ECF No. 130-2. Ware responded to Delta's RFP, quoting a price of $18, 500, 000 to $20, 000, 000. ECF No. 130-3. Delta relied on Ware's proposal in drafting its bid for the South Oil Refinery project. ECF No. 130-4. Ware then signed a letter of representation, stating that “Mr. Kais Almarzouk and Delta Aliraq are authorized to represent Ware for the sale of new boiler equipment in Iraq . . . for a period of six months from [May 9, 2007] prior to the contract[, ] [which] will be extended through the life of the program if a purchase order/LC is placed with Ware.” ECF No. 100-2, p. 1. The letter further stated that “[t]his notification of representation does not convey that a relationship other than that of an Independent contractor exists between the two companies.” Id. During this time, communication on behalf of the companies was primarily between Delta's President and Chief Executive Officer (“CEO”), Kais Almarzouk, and Ware's Director of Sales, Steven Taylor.

         South Oil Refinery initially rejected Delta's bid-as it failed to include certain required elements-but allowed the company to re-submit a revised bid. ECF No. 59-1, p. 88. Delta and Ware then jointly revised the bid and submitted it on August 18, 2007. ECF No. 130-5.

         In its review of Delta's bid, South Oil Refinery sought additional information concerning Ware's financial integrity, as it had not previously worked with the company. ECF No. 59-1, pp. 99-100. Ware provided a financial statement written by two independent auditors. ECF No. 130-6. During the review period, a Delta employee learned from a government official associated with the South Oil Refinery project that there were concerns regarding Ware's participation. ECF No. 59-1, pp. 92-93. In October 2007, Delta sent a letter to the Ministry indicating that if Delta were awarded the project, the Ministry could choose whether Ware or another company supplied the boilers. ECF No. 59-1, pp. 101-102. Delta never informed Ware that the Ministry had concerns about its participation, or that Delta told the Ministry it could ultimately choose the boiler supplier. Id. at 148-49. In fact, Delta told Ware that it was “good news” that the Ministry was investigating its financials because Delta wanted Ware “to stay the course.” Id. Delta admits that during the bid review process, it received proposals from two of Ware's competitors- Nebraska Boiler and English Boiler-but these proposals were never submitted to the Ministry. ECF No. 100-5, p. 101.

         During the bid review, Ware provided Delta with a $1.5 million bid bond from Fidelity and Deposit Company of Maryland. ECF No. 59-4. According to Ware, Delta requested that it provide this bid bond. ECF No. 11-1, ¶ 10. Delta contests this, stating that it never asked for Ware to provide a bid bond because the bond for the project was required to come from an Iraqi bank. ECF No. 59-1, p. 93-95. Delta ultimately submitted a bid bond to the Ministry. ECF No. 130-7.

         On November 5, 2007, the South Oil Refinery awarded the project to Delta, conditioned upon Delta providing an additional three-month bank guarantee. ECF No. 130-8. Delta then informed Ware that it received the award for the project, but explained that it no longer had sufficient funding to cover the bid through the remaining review process. ECF No. 130-9. Delta requested that Ware provide it with a $100, 000 loan. Id. at p. 4. On November 19, 2007, Ware responded to Delta's letter, providing a proposed equipment sales agreement and stating that Ware could not provide any funds until an agreement between the two parties was formalized. ECF No. 11-1, ¶ 13. Then, on December 16, 2007, Delta informed Ware that it had obtained the funding through two investors. Id. ¶ 14-15. Delta told Ware that it would need a final proposal for the boilers, and informed Ware that there was a second project from the Ministry that the companies could partner on. Id. at ¶ 15. However, Delta never signed Ware's equipment sales agreement. Id.

         From November 2007 to February 2008, Ware continued to work on formalizing details for the project with Delta. Id. at ¶ 16. During this time period, Delta continued to get negative feedback from the Ministry regarding Ware's participation in the project. ECF No. 100-5, p. 98. The Ministry was familiar with Ware's competitors, Nebraska Boiler and English Boiler, but was unfamiliar with Ware. Id. In response to this, Delta submitted a letter to the Ministry stating that it would be working with Ware, and vouching for Ware's business experience. ECF No. 55-10.

         On May 25, 2008, the Ministry awarded Delta the contract for the project. ECF No. 130-13. However, two weeks later the Deputy Minister of the Ministry unilaterally changed the payment schedule for the award, requiring Delta to shoulder a greater cost burden during construction. ECF No. 130-15. Specifically, the modifications required a new performance bond equal to 5% of the purchase price. Id.

         Delta contacted Ware regarding the contract for the project. ECF No. 130-16. Delta told Ware that it would like to enter a partnership with Ware, but that it had insufficient funds to complete the project. Id. Both Delta and Ware then began searching for alternative ways to fund the project. Id. During this time, Ware sent a letter of intent and another equipment sales agreement to Delta. ECF No. 130-17. Delta signed the letter of intent, but did not execute the equipment sales agreement. Id.

         Despite efforts by both Delta and Ware, the companies were initially unable to secure financing for the project. As a last resort, Delta met with investor Dave Weisman to secure the funding for the project. Weisman agreed to provide the funds for the South Oil Refinery project in exchange for 55% of the project's profits, return on investment funds, and a position as CEO. ECF No. 130-18.

         Once positioned as CEO, Weisman requested boiler providers-including Ware, Nebraska Boiler, and English Boiler-re-submit proposals for the project. ECF No. 11-1, ¶ 28. Ware submitted a revised copy of its proposal in February 2009, which included its copyrighted technical proposal. ECF No. 130-20. At some point, Delta showed Ware's technical proposal to Nebraska Boiler without Ware's consent. ECF No. 130-21; ECF No. 100-5, p. 158. In April 2009, Delta-under Weisman's authority-executed a contract with Nebraska Boiler for the production of boilers for the project. ECF No. 130-24.

         In 2012, Delta's Board of Directors voted to terminate Weisman as CEO based on his alleged embezzlement of funds from the corporation. ECF No. 100-5, pp. 121-22. Almarzouk subsequently resumed his position as CEO. As of May 2012, Delta had not completed the South Oil Refinery project because the company “r[an] out of money.” Id. at 162.

         Ware filed suit against Delta in this court, alleging fraud in the inducement, quantum meruit and unjust enrichment. ECF No. 1. Ware subsequently amended its complaint, adding Almarzouk and Dupont as co-defendants and adding claims for promissory estoppel, breach of fiduciary duty, and piercing the corporate veil. ECF No. 59. Defendants now move for summary judgment on all of Ware's claims. ECF No. 130.

         III. Legal Standard

         The trial court shall grant summary judgment in a case “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The party moving for summary judgment bears the initial burden of “demonstrating that [there is] no genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party satisfies this burden, the burden then shifts to the nonmoving party to “point to evidence demonstrating that there is a genuine issue of material fact for trial.” Id. at 323 (emphasis added).

         In considering a motion for summary judgment, the court must consider the facts in the light most favorable to the nonmoving party. Scott v. Harris, 550 U.S. 372, 378, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007). However, the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). There must actually be “evidence on which the jury could reasonably find for the [nonmoving] party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

         IV. Discussion

         Defendants contend that they are entitled to summary judgment on all of Ware's claims. Specifically, Defendants argue that Ware has failed to demonstrate prima facie claims for fraud in the inducement, quantum meruit/unjust enrichment, promissory estoppel, and breach of fiduciary duty. Additionally, Defendants claim that Ware has not shown a need to pierce the corporate veil to extend liability to Almarzouk and Dupont in their individual capacities. These arguments will be addressed in further detail below.

         A. Count I: Fraud in the Inducement

         Count I of Ware's amended complaint alleges that Delta defrauded Ware by making multiple oral misrepresentations and omissions “which caused Ware to provide Delta with Ware's technical expertise, legal counsel, contractors, team and copyrighted information.” ECF No. 59, ¶¶ 85-86. Because the elements for fraud by misrepresentation are different than those for fraud by omission, these claims will be considered separately. Rivermont Inn v. Bass Hotels & Resorts, Inc., 113 S.W.3d 636, 641 (Ky. Ct. App. 2003).

         i. Fraud By Misrepresentation

         In order to state a claim for fraud by misrepresentation, a plaintiff “must establish six elements by clear and convincing evidence: (a) material representation; (b) which is false; (c) known to be false or recklessly made; (d) made with inducement to be acted upon; (e) acted in reliance thereon; and (f) causing injury.” Farmers Bank & Trust Co. of Georgetown, Ky. v. Wilmott Hardwoods, Inc., 171 S.W.3d 4, *11 (Ky. 2005). A material representation “must concern an existing or a past fact, and not a future promise, prophecy, or opinion of a future event, unless [the] declarant falsely represents his opinion of a future happening.” Kentucky Elec. Dev. Co.'s ...


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