Apex Abrasives, Inc. v. WGI Heavy Minerals, Inc., CV 14-37-BU-DWM

Decision Date24 July 2019
Docket NumberCV 14-37-BU-DWM
CourtUnited States District Courts. 9th Circuit. United States District Court (Montana)


This case arises out of a dispute over the production and sale of commercial-grade garnet. Plaintiff Apex Abrasives, Inc. ("Apex") alleges that following its construction of a garnet processing facility in Glen, Montana, it was forced to cease operations and liquidate its inventory because Defendants WGI Heavy Minerals, Inc. and WGI Heavy Minerals, LLC (collectively "WGI") violated the parties' purchase agreement. Apex alleges constructive fraud/inducement (Count 1); negligent misrepresentation (Count 2); breach of contract (Count 3); and breach of the implied covenant of good faith and fair dealing (Count 4), requesting both compensatory and punitive damages. (Third Amend. Compl., Doc. 207.) WGI seeks summary judgment on Counts 1, 2, and 4, as well as on Apex's punitive damages claim. (Doc. 221.) WGI further seeks to limit certain "loss" and "lost profits" evidence at trial. (Doc. 224.) WGI's partial motion for summary judgment is granted in part and denied in part. WGI's motion in limine is denied.


The facts are largely undisputed, (see Docs. 223, 230; Sched. Order, Doc. 205 at ¶ 3), but to the extent disputes exist, the record is viewed in the light most favorable to Apex, Tolan v. Cotton, 134 S. Ct. 1861, 1866 (2014) (per curiam).

Apex, a Montana corporation, owns a garnet processing facility near Glen, Montana. (Doc. 205 at ¶ 3(a).) WGI is an Idaho corporation, (id. at ¶ 3(b)), that is in the business of mining and marketing garnets for industrial uses, (Doc. 230 at ¶ 2). In 2005, the parties first met to explore potential business arrangements related to the production and sale of Apex garnets. (Doc. 205 at ¶ 3(c).) In October 2005, WGI produced a "Letter of Intent" in which WGI expressed an interest in an exclusive business relationship with Apex. (Ex. B, Doc. 231-2.) Apex declined, but the parties continued to communicate and WGI consistently touted its ability to market and sell garnet and, in 2006, proposed that Apex build a garnet facility. (Ex. F, Doc. 231-6 at 2.)

Following protracted negotiations, the parties entered into a Marketing and Sales Agreement ("Agreement") on November 18, 2009. (Doc. 230 at ¶¶ 3-8.) The Agreement was for a three-year term stating, inter alia, "Apex agrees to sell toWGI, and WGI agrees to purchase from Apex, a minimum of 5000 short Tons of Garnet in Year 1, and 10,000 short Tons per calendar year thereafter during the Term." (Agree. ¶ 3.1, Ex. S, Doc. 231-20).1 WGI was given the option to purchase garnet in excess of the minimum quantities. (Id.) The specific size and quality of the garnet was identified in Attachment A to the Agreement, which provided for #80 waterjet grade. (See id. at 8.)

The Agreement's termination provision allowed either party to terminate without penalty upon 180-days' written notice or within 30 days of an uncorrected breach by the other party. (Id. at ¶¶ 5, 6.) The Agreement defined breach as:

a) Any failure to perform the terms and conditions of this Agreement;
b) Failure by Apex to supply minimum quantities of specified individual grades of garnet, as shown in this Agreement;
c) Failure of Apex to make regular and sufficient shipments of garnet;
d) Failure of WGI to purchase the minimum quantities of garnet called for in this Agreement; [or]
e) Failure of WGI to pay for product.

(Id. at ¶ 6.1.)

In Year 1 of the Agreement (2010), Apex produced approximately 600 tons of #80 garnet based on purchase orders it received from WGI.2 (Doc. 230 at ¶ 10.) On September 2, 2011, Apex sent WGI a Notice of Breach, stating that WGI hadnot complied with the requirements of the Agreement. (Id. at ¶ 11; Doc. 205 at ¶ 3(e).) On October 5, Apex gave WGI written notice that Apex was terminating the Agreement due to the breach. (Doc. 230 at ¶ 12.) WGI purchased no garnet from Apex in Year 3 (2012), or in any year thereafter. (Doc. 205 at ¶ 3(f).) Apex is seeking to recover from WGI approximately $8.4 to $18.1 million for loss of sales over a 15-year period of production based on known reserves at volumes and rates provided for in the Agreement. (Doc. 230 at ¶ 14.)


This action was originally filed in state court and removed to this Court in June 2014. (Doc. 1.) Following numerous pretrial motions and conferences, (see Docs. 31, 35, 37, 96, 113, 116, 118, 120), a jury trial was held before Judge Haddon in December 2016, (see Min. Entries, Docs. 141, 142, 144, 145, 151, 152). Prior to the presentation of WGI's case, Judge Haddon granted WGI's Rule 50 motion, (see Docs. 152, 157), and judgment was entered in favor of WGI, (Doc. 156). Apex appealed. (Doc. 165.) In June 2018, the Ninth Circuit reversed and remanded in an unpublished memorandum disposition.3 (Doc. 192.) The Ninth Circuit held that the Agreement unambiguously mandated Apex to "sell" and WGI to "purchase" 25,000 tons of garnet over the three-year term and that anymodification of those terms was a jury question. (Id. at 2-3.) On remand, the case was reassigned, (Docs. 194, 197), a preliminary pretrial conference held on October 16, 2018, and trial set for September 30, 2019, (see Doc. 205).


Despite the Ninth Circuit's explicit direction that the issues in this case be tried to a jury, WGI seeks to judicially narrow Apex's case to a breach of contract claim with no damages. And, it seeks to do so by stretching the parol evidence rule beyond its logical bounds. With the exception of Apex's claim for tortious breach of the implied covenant and the attendant claim for punitive damages, Apex's case survives summary judgment. Similarly, a jury must decide whether the damages sought by Apex were reasonably foreseeable.


I. Motion for Summary Judgment

A party is entitled to summary judgment if it can demonstrate 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). Summary judgment is warranted where the documentary evidence produced by the parties permits only one conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). Only disputes over facts that might affect the outcome of the lawsuit will preclude summary judgment. Id. at 248. Because this Court sits in diversity, the substantive law of Montana, theforum state, applies. Med. Lab. Mgmt. Consuls. v. Am. Broad. Cos., Inc., 306 F.3d 806, 812 (9th Cir. 2002).

II. Motions in Limine

"A motion in limine is a procedural mechanism to limit in advance testimony or evidence in a particular area." United States v. Heller, 551 F.3d 1108, 1111 (9th Cir. 2009). Courts have broad discretion in ruling on motions in limine. Frost v. BNSF Ry. Co., 218 F. Supp. 3d 1122, 1133 (D. Mont. 2016). A motion in limine should be granted only when the evidence at issue is "inadmissible on all potential grounds." Id. (internal quotation marks omitted).


I. Constructive Fraud (Count 1) & Negligent Misrepresentation (Count 2)

WGI seeks summary judgment on Apex's claims of fraud and negligent misrepresentation on the ground that the November 2009 Agreement represents the full and final agreement between the parties regarding Apex's garnet facility and the parties' sales agreement. In response, Apex argues that misrepresentations and reliance related to the construction of its garnet facility, the sole basis for Counts 1 and 2, are separate from the Agreement. Apex has the better argument.

Pursuant to the parol evidence rule, "The execution of a contract in writing . . . supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument." Mont. Code Ann.§ 28-2-904. But there is an exception to the rule when fraud is alleged. Mont. Code Ann. § 28-2-905(2). This exception only applies, however, "when the alleged fraud does not relate directly to the subject of the contract. Where an alleged oral promise directly contradicts the terms of an express written contract, the parol evidence rule applies." Sherrodd, Inc. v. Morrison-Knudsen Co., 815 P.2d 1135, 1137 (Mont. 1991).

According to Apex, Counts 1 and 2 deal exclusively with the construction of Apex's garnet facility. The Agreement, on the other hand, "define[s] an arrangement by which the garnet minerals and related products produced by Apex are marketed and sold and purchased by WGI at economic returns and under conditions that are acceptable to both parties." ("Purpose," Doc. 231-20 at 2.) The Agreement includes only passing references to Apex's facility (e.g., the "mining operation" or "mine site at Glen, Montana") with the exception of one statement: "WGI and Apex both recognize that Apex is completing plant construction to produce garnet products." (Id. at ¶ 3.1.) While WGI insists all allegations of misrepresentation directly relate to the subject matter of the Agreement—i.e., WGI's purchase of garnet from Apex—Counts 1 and 2 do not seek to enforce the minimum purchase amounts or the contract price. Rather, the alleged misrepresentations and harmful reliance arise out of the $1 million construction of Apex's garnet facility. Because the written agreement does not address thefacility, potentially fraudulent statements related to the facility may be considered. See Sherrodd, Inc., 815 P.2d at 1137.

Accordingly, Counts 1 and 2 survive summary judgment.

II. Implied Covenant & Punitive Damages (Count 4)

WGI seeks summary judgment on Apex's claims for tortious breach of the implied covenant of good faith and fair dealing and punitive damages on the ground that there was no special relationship between the parties. Apex does not argue that a special relationship exists. Rather, Apex argues that it is entitled to pursue its tort claims in the alternative...

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