Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Heartland Materials, Inc. v. Warren Paving, Inc.

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

May 21, 2018

HEARTLAND MATERIALS, INC., et. al., PLAINTIFFS
v.
WARREN PAVING, INC, et al., DEFENDANTS

          MEMORANDUM OPINION AND ORDER

          Thomas B. Russell, Senior Judge

         This matter is before the Court on cross-motions for summary judgment. First, Plaintiffs Heartland Materials, Inc., William R. Frazer, LLC, and Southern Aggregate Distributors, Inc. filed a motion for summary judgment, [DN 30], to which Defendants Warren Paving, Inc. and Slats Lucas, LLC responded, [DN 40], and Plaintiffs replied, [DN 42.] Defendants also moved to file a sur-reply, [DN 44], to which Plaintiffs responded, [DN 45], and Defendants replied, [DN 48.] Second, Defendants filed their own motion for summary judgment, [DN 54.] Plaintiffs responded in opposition, [DN 57], and Defendants replied, [DN 58.] Fully briefed, these matters are now ripe for adjudication. For the reasons explained in detail below, Plaintiffs' motion for summary judgment is GRANTED IN PART AND DENIED IN PART, Defendants' motion to file a sur-reply is GRANTED, [1] and Defendants' motion for summary judgment is DENIED.

         FACTUAL AND PROCEDURAL BACKGROUND

         This suit arises out of a contract entered into between Plaintiff Heartland Materials, Inc. (“Heartland”) and Defendant Warren Paving, Inc. (“Warren Paving”) in 2004. In 2003, Warren Paving sought to purchase or develop a limestone quarry in Kentucky. [DN 1 at 3, ¶ 7 (Complaint).] Heartland, who was assisting Warren Paving in this endeavor, eventually identified the property at issue herein, (“the “Property”), which was owned by Dennis and Kathryn Grabowski and consisted of “approximately 339 acres of land on two contiguous tracts located in Livingston County, Kentucky.” [Id. at 4, ¶ 12.] “After preliminary research indicated that the Property would be an adequate site to develop a limestone quarry if purchased at or near the Grabowskis' asking price, Warren Paving directed Heartland to negotiate the purchase of an option to buy the Property.” [Id.] Warren Paving paid Heartland $5, 000 to acquire a 60-day option to purchase the Property and, later, an additional $5, 000 to extend the option for another 60 days. [Id. at 4-5; DN 40-1 at ¶¶ 5-6 (Lawrence Warren Declaration).]

         According to Plaintiffs, Warren Paving requested that Heartland acquire the option in Heartland's name “in order to keep Warren Paving's corporate plans to develop a limestone quarry confidential” because “Warren Paving did not want its plans to purchase or develop a limestone quarry to become publicly known.” [DN 1 at 4, ¶¶ 13, 10.] Plaintiffs contend that, once geological testing demonstrated that the Property would be an appropriate site for the development of a limestone quarry, Warren Paving decided to purchase the Property in its own name, “thereby requiring an assignment of the purchase option held by Heartland to Warren Paving.” [Id. at 5, ¶ 17.] Plaintiffs assert that Heartland's lawyers drafted an “agreement providing for assignment of Heartland's option to purchase the Property to Warren Paving and payment of certain retained royalties by Warren Paving to Heartland, ” but that Warren Paving rejected the draft agreement and had its own lawyers “draft an entirely new agreement, ” which the parties ultimately executed. [Id.]

         Warren Paving tells a different version of events, however. In his Declaration, Lawrence Warren, the majority owner of Warren Paving, stated that it was his “understanding that the option to acquire the [ ] Property was to be made in Warren Paving's name and not in the name of Heartland.” [DN 40-1 at ¶ 4.] According to Warren, he did not learn that the option had been purchased in Heartland's name until Warren Pacing was preparing to close on the Property. [Id. at ¶ 7.] Warren states in his Declaration that, at that time, he “was told by Heartland and its representatives that if Warren Paving would not agree to a $0.40 per ton [of limestone] royalty, then Heartland would not assign the purchase option to Warren Paving and would instead sell the option to another interested party.” [Id. at ¶ 8.] Warren asserts that Heartland's counsel drafted the assignment and royalty agreement “which Warren Paving reluctantly instructed its legal counsel to review, and, where possible, edit.” [Id. at ¶ 9.]

         The parties agree on what happened next; specifically, on September 1, 2004, Heartland and Warren Paving executed the Contract for the Assignment of an Option to Purchase Real Property with Retained Royalties, (the “Assignment Contract”). [DN 1 at 5, ¶ 18; see DN 40-1 at 2, ¶ 9; DN 1-5 (Assignment Contract).] The Assignment Contract assigned Heartland's option to purchase the Property to Warren Paving. [DN 1 at 5-6, ¶ 18.] It also granted Heartland the right to be paid royalties from the limestone Warren Paving planned to mine from the Property. [See DN 1-5 at 1-3.] In essence, provided that certain conditions precedent were met, such as Heartland obtaining a mining permit, a loading dock permit, and other necessary permits to assign to Warren Paving, Warren Paving agreed to “pay Heartland a retained royalty of $0.40 per ton” for “limestone mined and loaded for transport from the Property.” [Id.] The Assignment Contract specifies that “[q]uantities on which the royalty is to be paid will be determined from the belt scale weights as the material is loaded.” [Id.]

         The Assignment Contract outlined specific payment amounts and schedules:

Warren Paving agreed in the Contract for Assignment to pay Heartland in advance an amount of $300, 000.00, which equals Heartland's retained royalty on the first 750, 000 tons of limestone produced from the Property. Once the first 750, 000 tons of limestone were produced, Warren Paving agreed in the Contract for Assignment to pay Heartland in advance an amount of $300, 000.00, which equals Heartland's retained royalty on the second 750, 000 tons produced from the Property. After 1, 500, 000 tons of limestone were produced, Warren Paving agreed in the Contract for Assignment to pay Heartland its retained royalty of $0.40 per ton of limestone produced from the Property on a monthly basis, and Warren Paving further guaranteed the payment of a minimum royalty of $300, 000.00 per year to Heartland, regardless of the tonnage of limestone produced during such year.

[DN 1 at 7, ¶ 23; DN 1-5 at 2.] Additionally, the Assignment Contract gave Warren Paving the right to terminate its mining operation and sell the Property and its equipment at any time, provided that any “third-party purchaser shall be bound by all of the terms and conditions of this Assignment [Contract], but in particular, shall be bound by all of the obligations to pay royalties delineated in paragraph III [t]hereof.” [DN 1-5 at 3.]

         After all of the conditions precedent were satisfied, “Warren Paving then began mining limestone from the Property and paying royalties, ” including the first advance royalty payment of $300, 000. [DN 1 at 8, ¶¶ 25-26.] On June 4, 2007, Warren Paving conveyed the Property to Defendant Slats Lucas LLC, [DN 1-7 (Quitclaim Deed)], which then “leased the Property and limestone quarry back to Warren Paving.” [DN 1 at 8-9, ¶ 29.] Warren Paving and/or Slats Lucas continued to make royalty payments to Heartland pursuant to the Assignment Contract.

         Next, on July 30, 2009, Heartland assigned one-third of its royalty interest to Walt Gaylord, who, on July 31, 2009, sold that one-third interest to Slats Lucas. [Id. at 9. ¶ 30.] In essence, this transaction “reduced Warren Paving's and Slats Lucas's royalty obligation to Heartland from $0.40 per ton to $0.2667 per ton, and reduced the advanced royalty and future annual minimum royalty payment from $300, 000 to $200, 000. Accordingly, Warren Paving subsequently paid Heartland the second advance royalty payment of $200, 000.00.” [Id.] As a result of this change, Heartland and Warren Paving executed an “Amendment to Contract for the Assignment of an Option to Purchase Real Property With Retained Royalties”, (the “Amended Assignment Contract”), to reflect the change in royalty obligations. [Id. at ¶ 31.]

         On August 16, 2010, Heartland assigned one half of its remaining royalty interest in the $0.2667 per ton of limestone to Plaintiff William R. Frazer, LLC, (“WRF”), and assigned the other half to Plaintiff Southern Aggregate Distributors, Inc., (“Southern Aggregate”). [Id. at 10, ¶ 32 (citing DN 1-9 (Assignment of Royalty).] As a result of these assignments, “WRF and Southern Aggregate each retained a right to receive from Warren Paving or Slats Lucas $0.1333 per ton for each ton of limestone produced from the Property.” [Id.] According to Plaintiffs, Warren Paving or Slats Lucas thereafter made royalty payments directly to WRF and Southern Aggregate. [Id. at ¶ 33.]

         On August 6, 2014, however, Warren Paving and Slats Lucas (collectively, “Defendants”) brought suit against Heartland, WRF, and Southern Aggregate (collectively, “Plaintiffs”), in this Court. See Warren Paving, Inc., et. al. v. Heartland Materials, Inc. et. al., No. 5:14-CV-149-TBR, 2015 WL 269204 (W.D. Ky. Jan. 21, 2015). In that suit, Warren Paving and Slats Lucas

alleged that Heartland engaged in wrongdoing in negotiating the option contract with Warren Paving, which entailed continuing payments of royalties to Heartland based on the amount of limestone extracted. [Warren Paving and Slats Lucas] sought (1) a declaratory judgment stating that the assignment contract was void because Heartland did not hold a license to practice real estate brokerage in Kentucky; (2) rescission of the assignment contract based on mistake of fact- Heartland's lack of a real estate brokerage license; (3) damages for Heartland's breach of fiduciary duty in surreptitiously obtaining the option in its own name using Warren Paving's money, requiring Warren Paving to make substantial payments in return for an assignment of the option contract, and continuing to receive payments from Warren Paving; (4) damages based on Heartland's fraud and intentional misrepresentation in obtaining the option; (5) restitution based on the previous allegations; and (6) relief under the theories of assumpsit, unjust enrichment, or constructive trust based on the previous allegations.

Warren Paving, Inc., et. al. v. Heartland Materials, Inc. et. al., No. 15-6052, at *1-2 (6th Cir. July 6, 2016). In a Memorandum Opinion issued on January 21, 2015, this Court dismissed all of Warren Paving and Slats Lucas's claims, finding that each were barred by a five-year statute of limitations period as codified in KRS § 413.120. Warren Paving, 2015 WL 269204, at *1-5. The Court also denied Warren Paving and Slats Lucas's motion to reconsider on August 26, 2015. Warren Paving, Inc. v. Heartland Materials, Inc., No. 5:14-CV-149-R, 2015 WL 5050553, at *1 (W.D. Ky. Aug. 26, 2015), aff'd (July 6, 2016). Thereafter, Warren Paving and Slats Lucas appealed to the Sixth Circuit Court of Appeals, which affirmed this Court on July 6, 2016. Warren Paving, No. 15-6052 (6th Cir. July 6, 2016). In its decision, the Sixth Circuit determined that this Court properly dismissed Warren Paving and Slats Lucas's claims for declaratory judgment, mistake of fact, breach of fiduciary duty, and fraud on statute of limitations grounds. Id.

         In the instant lawsuit, the sides are switched. Herein, Heartland, WRF, and Southern Aggregate allege that, “[s]ince entry of the Sixth Circuit's Order on July 6, 2016, Warren Paving and Slats Lucas have refused to pay any royalties to WRF and Southern Aggregate for limestone produced from the Property, in violation of the Contract for Assignment.” [DN 1 at 11, ¶ 37.] Additionally, Plaintiffs contend that they “recently discovered that Warren Paving and/or Slats Lucas has never paid the appropriate royalty amount because the tonnage of limestone produced from the Property was not appropriately determined ‘from the belt scale weights as the material is loaded.' As a result, WRF and Southern Aggregate were underpaid royalties during the term of the agreement.” [Id. at 10, ¶ 33.] As a result, Plaintiffs brought claims against Warren Paving and Slats Lucas for breach of contract and a declaration of their right to receive royalties under the Amended Assignment Contract. [Id. at 12-15.]

         In their answer, Warren Paving and Slats Lucas assert that: 1) they do not legally owe the royalty payments, which are essentially brokerage fees, due to the violation of Kentucky brokerage licensure laws, 2) the Assignment Contract is void ab inito, 3) the Assignment Contract is unenforceable due to a mistake of fact, 4) Heartland breached its fiduciary duties of loyalty and good faith, 5) that the Assignment Contract was procured through fraud, breach of fiduciary duties, or material mistake of fact, 6) Plaintiffs have “unclean hands” by engaging in unauthorized real estate brokerage, 7) the correct amount of royalty payments has been made, and that 8) there is no right to accelerate payments pursuant to the Assignment Contract. [DN 10 at 10-11 (Answer).]

         LEGAL STANDARD

         Summary judgment is appropriate when the record, viewed in the light most favorable to the nonmoving party, reveals “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). A genuine dispute of material fact exists where “there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The Court “may not make credibility determinations nor weigh the evidence when determining whether an issue of fact remains for trial.” Laster v. City of Kalamazoo, 746 F.3d 714, 726 (6th Cir. 2014) (citing Logan v. Denny's, Inc., 259 F.3d 558, 566 (6th Cir. 2001); Ahlers v. Schebil, 188 F.3d 365, 369 (6th Cir. 1999)). “The ultimate question is ‘whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.' ” Back v. Nestlé USA, Inc., 694 F.3d 571, 575 (6th Cir. 2012) (quoting Anderson, 477 U.S. at 251-52).

         The moving party must shoulder the burden of showing the absence of a genuine dispute of material fact as to at least one essential element of the nonmovant's claim or defense. Fed.R.Civ.P. 56(c); see also Laster, 746 F.3d at 726 (citing Celotex, 477 U.S. at 324). Assuming the moving party satisfies its burden of production, the nonmovant “must-by deposition, answers to interrogatories, affidavits, and admissions on file-show specific facts that reveal a genuine issue for trial.” Laster, 746 F.3d at 726 (citing Celotex, 477 U.S. at 324). “[N]ot every issue of fact or conflicting inference presents a genuine issue of material fact.” Street v. Bradford & Co., 886 F.2d 1472, 1477 (6th Cir. 1989). The test is “whether the party bearing the burden of proof has presented a jury question as to each element in the case.” Hartsel v. Keys, 87 F.3d 795, 799 (6th Cir. 1996). Nor will mere speculation suffice to defeat a motion for summary judgment: “[t]he mere existence of a colorable factual dispute will not defeat a properly supported motion for summary judgment. A genuine dispute between the parties on an issue of material fact must exist to render summary judgment inappropriate.” Monette v. Elec. Data Sys. Corp., 90 F.3d 1173, 1177 (6th Cir. 1996).

         DISCUSSION

         Both sides have filed motions for summary judgment. Because the same general issues are raised in both parties' motions and are intertwined, the Court will consider the motions together.[2]

         A. Warren Paving and Slats Lucas's Affirmative Defenses

         Plaintiffs, in essence, seek summary judgment on the grounds that this Court already addressed and decided Defendants' affirmative defenses in the prior lawsuit between the same parties, and therefore that Defendants have no basis on which to invalidate the Assignment Contract/Amended Assignment Contract or cease making payments required thereunder. In that suit, the Court granted Heartland's motion to dismiss, finding that all of Warren Paving and Slats Lucas's claims seeking to invalidate the Assignment Contract were barred by the applicable statutes of limitations. Warren Paving, 2015 WL 269204, at *1-5. The Sixth Circuit affirmed that decision. Warren Paving, No. 15-6052 (6th Cir. July 6, 2016). In their motion for summary judgment, Plaintiffs argue that, in “[t]he same month in which the Sixth Circuit Court of Appeals rendered its Order affirming [this Court], the defendants . . . stopped paying royalties thus forcing the Plaintiffs herein to file this lawsuit so Warren Paving could resurrect its same line of attacks which earlier were found to be time-barred.” [DN 30-1 at 9.] In support of their argument that Defendants acted deliberately to invite the present lawsuit, Plaintiffs rely, in part, on statements that Defendants made in filings in the prior lawsuit in which Warren Paving and Slats Lucas were the plaintiffs. Specifically, in their memorandum in support of their motion to deposit funds in that suit, Defendants stated that they

could have simply discontinued payments purportedly owed to Defendants as per the terms of the Contract for Assignment thereby forcing Defendants to bring a claim under the Contract for Assignment, and Plaintiffs would defend by, among other things, asserting that the Contract for Assignment is unenforceable for being in violation of Kentucky law. Instead, Plaintiffs have brought the declaratory judgment action presently before this Court, and now seek to deposit the disputed funds with the Court. [T]his Court should not force Plaintiffs into the position of choosing to cease payments under the Contract for Assignment or paying funds in dispute, and should instead allow Plaintiffs to deposit the funds with the Court.

[DN 10-1 at 6 in 5:14-CV-149; DN 30-13 at 6 (emphasis added).] Defendants do not deny that they ceased making royalty payments in July 2016. According to Plaintiffs, this is further evidence that “Warren Paving intended to deny Heartland and Southern Aggregate the right to receive these payments” in order to force them to bring the instant action for breach of contract.

         Indeed, Defendants do raise several arguments as affirmative defenses in this lawsuit that were rejected as time-barred claims in the prior lawsuit in which Warren Paving and Slats Lucas were the plaintiffs. For instance, Defendants asserted the following as claims in the prior lawsuit and as affirmative defenses in this lawsuit: that the Assignment Contract is void and unenforceable, and therefore that Plaintiffs are not entitled to any payments under it, mistake of fact, breach of the fiduciary duties of loyalty and good faith, and fraud. [See DN 1 in 5:14-CV-149 (Warren Paving's Complaint in Prior Lawsuit); DN 10 (Warren Paving's Answer in Current Lawsuit).] Each of these claims and defenses were and are aimed at invalidating the Assignment Contract, specifically, the royalty provision, and from preventing Plaintiffs from asserting their right to payments thereunder. [See DN 1 in 5:14-CV-149 at 13-14; DN 10 at 10-11.]

         In response, however, Warren Paving argues that, “[t]o the extent Warren Paving's affirmative claims of breach of fiduciary duties, fraud, and material mistake of fact were barred by statutes of limitations in the prior litigation, they are entitled to be litigated as part of Warren Paving's affirmative defenses here.” [DN 40 at 27.] Additionally, Warren Paving asserts that the affirmative defenses it repeats here “were not decided on the merits in the prior litigation” and further that “Warren Paving has asserted additional defenses that are wholly distinct from its claims in the prior litigation. [Id. at 4.] Specifically, Warren Paving asserts that Heartland has ‘unclean hands' and it not entitled to the relief it seeks; that, assuming the enforceability of the royalty provision, it has paid the correct amount of royalties; and, that there is no right to accelerate the Contract of Assignment.” [Id. (emphasis added).] Similarly, in its motion for summary judgment, Warren Paving argues that “the royalty provision of the Contract for Assignment is unenforceable, ” [DN 54-1 at 15], because “Kentucky has indisputably adopted a rigid rule precluding enforcement of commission contracts procured by unlicensed brokers.” [id. at 17 (quoting Kirkpatrick v. Lawrence, 908 S.W.2d 125, 129 (Ky. Ct. App. 1995)).]

         On the whole, Heartland is correct that Warren Paving is barred from litigating nearly all of its affirmative defenses in this action.[3] The Court rests this conclusion on two primary, overlapping grounds: 1) the rule adopted by the Ninth Circuit in City of Saint Paul, Alaska v. Evans and 2) res judicata.

         1. The Evans Rule

         First, multiple courts have recognized a rule prohibiting parties from skirting statute of limitations by bringing time-barred claims as affirmative defenses. In City of Saint Paul, Alaska v. Evans, the Ninth Circuit held that the Plaintiff, City of Saint Paul, whose “claims were barred by the six-year statute of limitations that Alaska law imposes on lawsuits by municipalities” could not “raise the identical allegations as defenses ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.