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Carter v. Paschall Truck Lines, Inc.

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

January 23, 2019



          Thomas B. Russell, Senior Judge

         This matter is before the Court on Defendant Element Transportation, LLC's (“Element Transportation”) Motion for Summary Judgment. [R. 98.] Plaintiffs Gale Carter and Forbes Hayes (hereinafter “Plaintiffs”) responded, [R. 110], and Element Transportation replied, [R. 113]. Also before the Court is Plaintiffs' Motion for Leave to File a Sur-Reply. [R. 119.] This matter is now ripe for adjudication. For the reasons stated herein, Element Transportation's Motion for Summary Judgment, [R. 98], is GRANTED and Plaintiffs' Motion for Leave to File a Sur-Reply, [R. 119], is DENIED.


         This case arises out of Gale Carter and Forbes Hayes's previous employment as truck drivers for Paschall Truck Lines, Inc. (“PTL”). In short, Element Financial Corp. (“EFC”) leased tractor trailers to Plaintiffs who then subleased the tractor trailers and their driving services to PTL. [See R. 98-4 at 6-7 (Carter's Responses to Request for Admissions); R. 98-6 at 6 (Hayes's Responses to Request for Admissions).] Plaintiffs claim that this arrangement was represented to them as a “Lease-Purchase Program.” [R. 103 at 16 (Amended Complaint).] Specifically, Plaintiffs claim that as a condition of their employment for PTL, PTL required Plaintiffs to lease tractors from EFC, and, under the lease agreement with EFC, Plaintiffs could only drive for PTL. [Id. at 8.] If they did not drive for PTL, the Plaintiffs claim that they would default on their Lease Agreements, “subjecting Plaintiffs to an acceleration clause whereby Plaintiffs would be required to pay the entire balance of the lease immediately.” [Id. at 9] However, this motion does not concern the substance of Carter and Hayes's claims. Rather, it involves the question of who should be held liable.

         On October 20, 2015, Gale Carter entered in to an Individual Program Lease Agreement with EFC. [R. 98-3 at 2 (Carter Individual Program Lease Agreement).] That agreement terminated in December of 2015. [R. 98-4 at 7.] On March 18, 2016, Forbes Hayes entered into an Individual Program Lease Agreement with EFC. [R. 98-5 at 2 (Hays Individual Program Lease Agreement).] Hays discontinued his lease agreement in June of 2016. [R. 110-2 at 3 (Plaintiffs' Statement of Facts); R. 98-1 at 6.]

         On June 30, 2016, EFC became Element Financial, LLC. [R. 110-11 at 3 (Certificate of Conversion).] Element Financial, LLC continued to operate the commercial and vendor leasing business it had previously operated as EFC. [R. 110-2 at 4; R. 98-1 at 6.] On September 19, 2016, a transaction occurred between Element Financial, LLC and Element Transportation, LLC, another subsidiary of Element Financial, LLC's parent company-Element Financial Corporation. [R. 110-19 at 67:17-21 (Bradley Rowse Deposition); R. 110-2 at 4; R. 98-1 at 7.] Plaintiffs refer to a different agreement than Element Transportation, but both parties claim the document to which they refer represents the transaction of September 19, 2016. Plaintiffs provided the Asset Purchase Agreement as evidence that Element Financial, LLC transferred the trucks and the rights to receive lease payments on those trucks to Element Transportation on that date. [R. 110-2 at 4 (citing R. 110-14).] Element Transportation provided the SUBI Sale Agreement, of the same date, as evidence that Element Financial, LLC sold Element Transportation “a special unit of beneficial interest in certain vehicles held in trust, including the vehicles previously leased by the Plaintiffs.” [R. 98-1 at 7 (citing R. 98-8).]

         On October 3, 2016, Element Financial Corporation split to form ECN Capital Corp. and Element Fleet Management Corporation. [R. 110-19 at 49:12-18; R. 98-1 at 7.] As a part of the split, Element Financial, LLC became ECN Financial, LLC (ECN). [R. 110-19 at 49:12-18; R. 98-1 at 7; R. 110-2 at 5.] Plaintiffs states that, with that name change, ECN Financial, LLC was divested from Element Fleet Management Corporation and became a subsidiary of ECN Capital Corp. [R. 110-2 at 5.] Element Transportation, on the other hand, became a subsidiary of Element Fleet Management Corporation. [R. 110-19 at 40:16-41:7.]

         On December 30, 2016, Element Transportation assigned its interests in the trucks and accompanying leases to ECN Financial, LLC as interim assignee and 19th Capital Group, LLC as assignee. [R. 98-9 at 1 (Assignment Agreement).] In exchange, Element Transportation received an approximately 49.9995 percent equity interest in 19th Capital Group and a loan receivable-with an initial balance of approximately $740 million. [R. 110-19 at 67:24-69:2.]

         On December 19, 2017, Gale Carter and Forbes Hayes, on behalf of themselves and those similarly situated, filed the First Amended Complaint against PTL, ECN (as successor to EFC), and Element Transportation, LLC (as successor to ECN). [R. 19.] On October 12, 2018, Element Transportation filed the Motion for Summary Judgment that is currently before the Court. [R. 98.] It raises the question of whether Element Transportation should be considered a successor in liability to Element Financial, LLC.


         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).

         As the party moving for summary judgment, the defendant must shoulder the burden of showing the absence of a genuine dispute of material fact as to at least one essential element of the plaintiff's claims. Fed.R.Civ.P. 56(c); see also Laster, 746 F.3d at 726 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)). Assuming the defendant satisfies his or her burden of production, the plaintiff “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 Corp., 477 U.S. at 324). As the United States Supreme Court has stated, “there is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the [nonmoving party's] evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Anderson, 477 U.S. at 249- 50 (citations omitted); see Celotex, 477 U.S. at 322-23. “The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff.” Anderson, 477 U.S. at 252; see Cox v. Ky. Dep't of Transp., 53 F.3d 146, 150 (6th Cir.1995).


         As mentioned above, this motion mainly concerns the question of whether successor liability should be applied to Element Transportation. The Seventh Circuit Court of Appeals once stated: “[T]he issue of successor liability is ‘dreadfully tangled, reflecting the difficulty of striking the right balance between the competing interests at stake.”' Upholsterers' Int'l Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323, 1325 (7th Cir. 1990), quoting EEOC v. Vucitech, 842 F.2d 936, 944 (7th Cir. 1988). This proves to be true in the case at hand. The Court will address Element Transportation's Motion for Summary Judgment, [R. 98], as well as Plaintiffs' Motion for Leave to File a Sur-Reply, [R. 119.]

         I. Element Transportation's Motion for Summary Judgment

         Element Transportation moves for summary judgement on Count III and Count IV of the Amended Complaint. The Court will analyze each in turn.

         A. Count III: Violations of the Federal Forced Labor Statute

         Under Count III of the Amended Complaint, Plaintiffs allege that the defendants, including Element Transportation, “obtained the continuous labor of Plaintiffs by using threats of serious harm” and “operated a scheme, plan or pattern intended to cause Plaintiffs to believe that non-performance of labor would result in serious financial and professional harm.” [R. 103 at 28-29.] Plaintiffs allege that this conduct violates the federal forced labor statute, 18 U.S.C. §§ 1589 and 1595. [Id.][1] In its Motion for Summary Judgment, Element Transportation asserts that it should be granted summary judgment on Count III “because it did not agree to assume liability for Plaintiffs' claims and it would not be equitable and in keeping with federal policy to hold it liable as a successor when it did not have notice of Plaintiffs' claims, did not benefit from its predecessors' alleged unlawful conduct, and ECN is able to provide Plaintiffs the requested relief.” [R. 98-1 at 5.]

         “Successor liability is appropriate in the employment-law context if ‘the imposition of such liability would be equitable.'” Comer, No. 2:14-CV-1986, 2016 WL 853027, at *5 (quoting Cobb v. Contract Transp., Inc., 452 F.3d 543, 554 (6th Cir. 2006)).[2] In order to determine whether successor liability is equitable in a particular case, the Court must balance “1) the interests of the defendant-employer, 2) the interests of the plaintiff-employee, and 3) the goals of federal policy, in light of the particular facts of a case and the particular legal obligation at issue.” Cobb, 452 F.3d at 554 (citing EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086, 1091 (6th Cir. 1974)). “There is, and can be, no single definition of ‘successor' which is applicable in every legal context.” MacMillan, 503 F.2d at 1091. Furthermore, “[s]uccessor liability questions must be answered on a case by case basis, and ‘a new employer . . . may be a successor for some purposes and not for others.'” Cobb, 452 F.3d at 554 (quoting MacMillan, 503 F.2d at 1091). The Sixth Circuit also held that the following nine factors are relevant when considering successorship liability:

(1) whether the successor company has notice of the charge; (2) the ability of the predecessor to provide relief; (3) whether the new employer uses the same plant; (4) whether there has been substantial continuity of business operations; (5) whether the new employer uses the same or substantially same workforce; (6) whether the new employer uses the same or substantially same supervisory personnel; (7) whether the same jobs exist under substantially the same working conditions; (8) whether [the defendant] uses the same machinery, equipment and methods of production; and (9) whether [the defendant] produces the same product.

Cobb, 452 F.3d at 554. The Sixth Circuit further explained that these factors are “not in themselves the test for successor liability” but “simply factors courts have considered when applying the three prong balancing approach, considering the defendant's interests, the plaintiff's interests, and federal policy.” Id. “The ultimate inquiry always remains whether the imposition of the particular legal obligation at issue would be equitable and in keeping with federal policy.” Id.

         1. Interests of the Defendant-Employer

         In its Motion for Summary Judgment, Element Transportation argues that it had no notice of Plaintiffs' claims when it purchased a beneficial interest in certain vehicles held in trust through the SUBI Sale Agreement. [R. 98-1 at 7.] Therefore, Element Transportation asserts that it would be “grossly unfair to hold Element Transportation liable as a successor” and the interests of the defendant-employer weigh against successor liability. [Id.] In support of this element, Element Transportation submitted the deposition of Bradley Rowse, Senior Vice President of Finance at Element Fleet Management Corporation, in which Rowse stated that Element Transportation did not have any notice of the claims or alleged violations of the law asserted by Plaintiffs. [R. 98-1 at 11 (citing R. 110-19 at 104:4-7).] Also, Element Transportation points to § 3.02(e) of the SUBI Sale Agreement, in which ECN agreed that it was unaware of any claims or threatened claims against it upon entering the SUBI Sale Agreement. [R. 98-8 at 17 (SUBI Sale Agreement).][3] Furthermore, Element Transportation emphasizes that it purchased the SUBI assets at book value, “as opposed to a discount to account for known claims.” [R. 98-1 at 11 (citing 98-8 at 7).] Element Transportation then cites three different cases from outside the Sixth Circuit in concluding that “[b]ecause it had no notice of Plaintiffs' claims, it would be grossly unfair to hold Element Transportation liable as a successor.” [Id. at 11.][4]

         In their Response, Plaintiffs make several arguments concerning notice. First, Plaintiffs argue that lack of notice is not dispositive to a finding of successor liability. [R. 110 at 17.] As support, Plaintiffs cite to Clark v. Shop24 Global, LLC, 77 F.Supp.3d 660, in which the plaintiff brought an action against his former employer under the Fair Labor Standards Act (FLSA) and Ohio state law, alleging that the defendants failed to pay him overtime. Clark, 77 F.Supp.3d at 668. During the plaintiff's employment, his initial employer, Shop24 USA, sold its assets to Shop24 Global; however, his job responsibilities did not change and he continued to work. Id. at 667. The Southern District of Ohio denied the defendant employers' motion for summary judgment on the issue of successor liability even though the plaintiff conceded that Shop24 Global did not have notice of the plaintiff's law suit against Shop24 USA when Shop24 Global bought its assets. Id. at 693. Although the court noted that the first factor was “[i]n one sense . . . irrelevant to the case at hand, ” the court also recognized that the record indicated that Shop24 Global “potentially had notice” of the claims against Shop24 USA because the plaintiff expressed concerns about overtime pay before the transfer from Shop24 USA to Shop24 Global occurred. Id. at 693 n.14. Similarly, Plaintiffs argue that Element Transportation “was or should have been aware of” Plaintiffs' potential claims. [R. 110 at 18.]

         Secondly, Plaintiffs argue that Element Transportation had constructive notice of their claims against Element Financial, LLC. [R. 110 at 19.][5] As examples of courts that have broadly construed such notice, Plaintiffs cite to a Supreme Court case, Golden State Bottling Co., Inc. v. N.L.R.B., in which the Court found that a successor business had notice due to an individual serving as a manager for both the predecessor and the successor business, and a Sixth Circuit case, N.L.R.B. v. South Harlan Coal, Inc., in which the court found the successor business had notice due, in part, to the proximity of the predecessor and successor's business operations. [Id. (citing Golden State Bottling Co., Inc, 414 U.S. 168, 173 (1973); South Harlan Coal, Inc., 844 F.2d 380, 386 (6th Cir. 1988)).] Plaintiffs reason that “[b]ased upon the principles of Harlan and Golden State, Courts have held that when a successor's officer was a director in a predecessor's company, such facts give rise to a determination of notice for a successor company of its predecessor's unfair labor practices.” [R. 110 at 19 (citing Laborer's Pension Fund v. Lay-Corn, Inc., 455 F.Supp.2d 773 (N.D. Ill. 2006) and Sullivan v. Alpine Irr. Co., No. 09 C 2329, 2011 WL 1575617, at *6 (N.D. Ill. April 25, 2011)]. Thus, Plaintiffs conclude that notice of Element Financial, LLC's unfair labor practices can be imputed upon Element Transportation because “[t]he officers of Element Financial, LLC . . . were the same as the officers of Defendant Element Transportation.” [Id. at 20.] Furthermore, Plaintiffs argue “as evidenced by its use of identical lease terms, Defendant Element Transportation continued the unfair labor practices of its predecessors, presumably because of the benefits its predecessors derived from same.” [Id.]

         Finally, Plaintiffs reject Element Transportation's contractual argument regarding the SUBI Sale Agreement for two reasons. First, Plaintiffs state that “because the doctrine of successor liability is an equitable one, in making a determination on notice, entities may not rely upon contractual disclaimers to demonstrate an absence of notice.” [Id. (citing Clark, 77 F.Supp.3d at 692).] Second, Plaintiffs argue that the SUBI contract term that the seller is “unaware of any claims” does not control whether Element Transportation is liable for claims related to the assets it purchased because Element Transportation “expressly agreed to assume all liabilities of the seller, known or unknown, as set forth in Section 2.2 of the Asset Purchase Agreement . . ..” [R. 110 at 21.]

         In its Reply, Element Transportation mainly retorts these arguments made by Plaintiffs concerning notice. First, Element Transportation reiterates that it did not have notice of Plaintiffs' claims and argues that it would be inequitable to hold Element Transportation liable for the alleged unlawful acts of Element Financial, LLC when it did not have notice of those acts. [R. 113 at 2.] Specifically, Element Transportation quotes the following line from Golden State as support: “Since the successor must have notice before liability can be imposed, ‘his potential liability for remedying the unfair labor practices is a matter which can be reflected in the price he pays for the business, or he may secure an indemnity clause in the sales contract which will indemnify him for liability arising from the seller's unfair labor practices.'” [Id. (quoting Golden State Bottling Co., Inc., 414 U.S. at 185).] Secondly, Element Transportation distinguishes Clark from the matter at hand by stressing that, unlike the plaintiffs in Clark, the Plaintiffs in this matter never expressed concerns about potential violations of the federal forced labor statute. [Id.] Third, Element Transportation asserts that the only evidence provided by Plaintiffs for the proposition that the officers at Element Financial, LLC were the same as the officers at Element Transportation is the Asset Purchase Agreement, in which Michael Beland signed on behalf of both the seller and the buyer. [Id. at 4.] However, Element Transportation states that this evidence falls short of being sufficient. Furthermore, Element Transportation argues that the “interplay between the terms of Plaintiffs' Lease Agreements with EFC and the terms of their ICS Agreements with PTL” is not adequate to prove that Element Transportation continued the alleged unlawful labor scheme because Plaintiffs did not show that “PTL continued to use the same terms in its ICS Agreement and that Element Transportation continued EFC's relationship with PTL.” [Id.] Finally, Element Transportation argues that it did not assume Element Financial, LLC's liabilities in Section 2.2 of the Asset Purchase Agreement because “Section 2.2 applies only to future liabilities, i.e., those that arise or accrue after the asset purchase is completed.” [Id. at 5.]

         Out of the tangled mass of notice arguments strewn before the Court, three main issues rise to the surface: (1) the weight of lack of notice in a successor liability analysis, (2) the evidence regarding crossover of officers from Element Financial, LLC to Element Transportation, and (3) contractual interpretation of the agreements between the parties. First, the Court recognizes that the parties take a different perspective on the weight of notice as opposed to the other nine MacMillan factors. Neither perspective is necessarily incorrect. While the Supreme Court seemingly made notice a requisite for successor liability in the quote provided by Element Transportation, the Sixth Circuit stated that the nine MacMillan factors “are not in themselves the test for successor liability” and “all nine factors will not be applicable to each case.” Cobb, 452 F.3d at 554. Although other circuits have labelled notice as critical to the successor liability analysis, see, e.g., Wheeler v. Snyder Buick, Inc., 794 F.2d 1228, 1236 (7th Cir. 1986), the Sixth Circuit's stance on this matter remains unclear. However, notice's role in this case becomes more transparent when one examines the actual evidence before the Court.

         Under the second issue, the Court notes that the only evidence provided for the assertion that the officers of Element Financial, LLC were the same as the officers of Element Transportation is the signature of one individual, Michael Beland, on behalf of both entities. [See R. 110 at 20.][6] Element Transportation emphasizes that Plaintiffs failed to provide any information on Beland, i.e., his title and responsibilities with the organizations, whether he was involved in the negotiations, the dates of his employment, whether he was involved in the alleged unlawful labor scheme, etc. Granted, the Sixth Circuit stated that “knowledge of unfair labor practice litigation need not be actual, but may be inferred from the circumstances.” S. Harlan Coal, Inc., 844 F.2d at 385 (6th Cir. 1988) (citing Golden State Bottling Co., 414 U.S. at 173). However, Beland's signature on its own pales in comparison to the evidence available to the courts involving the officers in Golden State and Harlan Coal-the cases Plaintiffs cite as broadly construing the successor liability standard.[7]

         In Golden State, All American Beverages, Inc. bought Golden State Bottling Co.'s soft drink bottling and distribution business after the National Labor Relations Board (NLRB) ordered Golden State to reinstate with backpay a driver-salesman whose discharge was found to be an unfair labor practice. 414 U.S. at 170. The Supreme Court agreed with the NLRB that All American had notice of the unfair labor practice litigation because the secretary/manager of Golden State discharged the driver-salesman, closely followed the progress of the litigation, and then continued working with the entity under All American's ownership as a general manager ...

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