Appalachian Railcar Services v. Boatright Enter.
| Decision Date | 25 March 2008 |
| Docket Number | Case No. 1:05-cv-790. |
| Parties | APPALACHIAN RAILCAR SERVICES, INC., Plaintiff, v. BOATRIGHT ENTERPRISES, INC., an Alabama corporation, Shane Boatright, an individual, Matthew Beard, an individual, Craig Allen, an individual, and Consumers Energy Company, a Michigan corporation, Defendants. |
| Court | U.S. District Court — Western District of Michigan |
David J. Gass, Derek Sebastian Witte, Miller Johnson PLC, Grand Rapids, MI, Patricia Proctor, Anders Wilhelm Lindberg, Christopher Lee Slaughter, Steptoe & Johnson PLLC, Huntington, WV, for Plaintiff.
Douglas A. Dozeman, Daniel P. Ettinger, Jason Laird Byrne, Warner Norcross & Judd LLP, Grand Rapids, MI, for Defendants.
Granting in Part and Denying in Part the Defendants' Motion for Summary Judgment:
Granting in Part and Denying in Part Summary Judgment to Beard on Counts 1 and 4
(Breach of Fiduciary Duty and Duty of Loyalty)
(Breach of Contractual and Common-Law Duties of Confidentiality)
("Deemed" Claim under Michigan Uniform Trade Secrets Act);
Granting Summary Judgment to Beard & Allen on Count 2
(Intentional Misrepresentation / Fraud);
Granting Summary Judgment to Boatright, Boatright Enterprises, & Beard on Count 3
(Tortious Interference with Contract);
Granting Summary Judgment to Defendant Beard on Count 5
(Spoliation of Evidence);
Granting Summary Judgment to Consumers Energy on Count 6
(Breach of Contract);
Granting in Part & Denying in Part Summary Judgment to Consumers Energy on Count 7
(Vicarious Liability);
Granting in Part & Denying in Part Summary Judgment to All Defendants on Count 8
(Civil Conspiracy)
This is a diversity action arising out of a contract between plaintiff Appalachian Railcar Company ("ARS") and defendant Consumers Energy Company ("Consumers") regarding railcar-maintenance at Consumers' Campbell Electric Generating Station in West Olive, Michigan.
After about two and half years, ARS exercised its contractual right to unilaterally terminate the contract. Consumers solicited and received several bids for the work, including a bid by ARS, and it awarded the new contract to defendant Shane Boatright's company Boatright Enterprises (collectively "Boatright"), which then hired Matthew Beard, who had been managing the West Olive shop for ARS. The fifth defendant is Consumers senior engineer Craig Allen ("Allen").
ARS asserts claims against Beard for breach of contractual and common-law duties of loyalty and confidentiality and spoliation of evidence; against Beard and Allen for intentional misrepresentation; and against Beard and Boatright for tortious interference with contract. ARS seeks to hold Consumers directly liable for breach of contract, and vicariously liable for the actions of its senior engineer, Allen. Finally, ARS seeks to hold all defendants liable for civil conspiracy.
Essentially, ARS alleges that the defendants conspired to induce it to terminate the contract, partly by misleading it to believe that it would win a new contract that offered a higher labor rate. Consumers characterizes ARS's theory of the case as follows:
Instead of accepting the consequences of its decision to terminate the Consumers contract in an unsuccessful effort to increase its profits, ARS has invented an incredible conspiracy theory to shift the blame elsewhere. Under this theory, ARS alleges that Beard, Boatright, and Allen were "good friends," and that as a result of this supposed friendship, they decided to manufacture disputes between Consumers and ARS as a pretext to trick ARS into terminating the contract. As part of this complex scheme, according to ARS, Defendants somehow rigged the rebid process for a multimillion dollar contract with a public utility to ensure that the contract would be awarded to Boatright Enterprises.
MSJ at 13. Consumers maintains that ARS "refuses to accept responsibility for its voluntary business decision to terminate the Consumers contract," and they point to ARS President and CEO Kurt Higginbotham's alleged "admi[ssion] that ARS terminated the Consumers contract of its own volition in order to increase its profit, knowing that it very well could lose the contract through the rebidding process, which it did because of the high bid ARS presented." MSJ at 1. Finally, Consumers contends that even if it had engaged in such a conspiracy with the other defendants, ARS still cannot sustain any of its causes of action. MSJ at 14.
All five defendants jointly moved for summary judgment. The motion has been fully briefed, and this court heard oral argument on February 1, 2008. For the reasons that follow, the court will grant in part and deny in part the defendants' motion for summary judgment.
The court will grant summary judgment to former ARS employee Matthew Beard on counts one and four to the extent that they allege breach of his common-law duty of confidentiality, to the extent that such a claim is preempted by the Michigan Uniform Trade Secrets Act ("MUTSA"). The court will deny summary judgment as to the remainder of counts one and four, which claim that Beard breached his common-law fiduciary duty, common-law duty of loyalty, and contractual duty of confidentiality, as such claims are not preempted by MUTSA under the circumstances. The disposition of said counts leads the court to grant in part and deny in part summary judgment on count 8, civil conspiracy by all five defendants.
The court will grant summary judgment to all defendants on count 2 (intentional misrepresentation / fraud), count 3 (tortious interference with contract), count 5 (spoliation of evidence), count 6 (breach of contract).
Finally, the court will grant summary judgment to defendant Consumers Energy on count 7 (vicarious liability) as to any misconduct by defendants Beard, Boatright, and Boatright Enterprises. The court will deny summary judgment on this count, however, as to any conspiracy by its employee Craig Allen.
The Contract. Consumers has a fleet of over 2,000 railcars that it leases to bring fuel to its power plants. It maintains a railcar repair shop in West Olive, Michigan, and hires outside contractors to provide repair services at the shop. Deposition of Defendant Craig Allen dated May 31, 2007 ("Allen") at 9-15. In September 2002 it awarded a contract to ARS. Am. Comp. ¶ 10; Allen at 17-18; Aug. 9, 2006 Deposition of Warren K. Higginbotham ("Higginbotham") at 163-65.
The contract provided, in pertinent part, that ARS agreed to furnish all supervision,
labor, equipment, services, transportation and tools, and unless otherwise specified by Consumers, all materials and parts, necessary to perform for Consumers inspection and/or maintenance and/or repair of railroad cars . . . which are owned by or leased to Consumers, as may be requested by Consumers from time to time during the term of this Contract, at various locations to be specified by Consumers.
Contract § 1(a).1 In return, Consumers agreed to pay ARS $31.20 per worker-hour (with annual increases) and the actual price of ARS-supplied parts plus a 15% mark-up. Contract § 3. Consumers characterizes the contract as a "requirements" contract and notes that it does not mention additional compensation for overtime ("OT") work done by ARS to complete the work required. MSJ at 3.
The contract provided that it "may be terminated by either party at any time during its initial term or any time during any renewal term thereafter upon fortyfive (45) days' prior written notice to the other party," see Contract § 2(b), and ARS's CEO testified that he knew that either party could terminate the contract at any time without giving any reason for doing so, see Higginbotham at 186.
The Roles of ARS Site Manager Beard and Consumers Senior Engineer Allen. The contract was administered on behalf of Consumers by its senior engineer, defendant Craig Allen ("Allen"), Am. Comp. ¶ 12 and Ans. ¶ 12, who conducted monthly audits of ARS's bills during the first two years of the contract and made annual visits to ARS's facilities for more in-depth audits, Am. Comp. ¶ 15. ARS alleges that when ARS sent its first bill to Consumers, Allen questioned the bill and asked ARS to use an alternative means of calculating the price to be charged for a type of work known as wheel-set repair, and that ARS agreed. Am. Comp. ¶¶ 13-14.
Sometime in 2001, before the contract started, ARS hired defendant Matthew Beard, who signed a confidentiality agreement stating that "information about [ARS]'s business, its employees or its clients will only be released to people or agencies outside the company with [ARS's] written consent." Am. Comp. ¶¶ 17-18 and Ans. ¶ 17. Beard's duties included management of a facility that ARS established at the Consumers plant in West Olive. Am. Comp. ¶ 19 and Ans. ¶ 19.
At some point during the contract period, Beard became friendly with Allen and Boatright. See Am. Comp. ¶¶ 20-21; Ans. 1120 (); ARS Opp'n Ex 20 (on May 2005 application for job with Boatright's company, Beard listed his relationship to Boatright as "friend").
The Building Addition. About two years into the contract, in September 2004, ARS personnel and Consumers employee Allen attended a Railroad Safety Institute ("RSI") convention in Chicago. Am. Comp. ¶¶ 23-24; Ans. ¶ 24. During the convention, Allen met with ARS management and proposed that ARS, at its own expense, build an addition to the West Olive railcar repair ("the Building Addition"), and that ARS rejected the proposal as financially infeasible, eliciting a negative reaction from Allen, who continued to press the proposal. Am. Comp. ¶¶ 25-28. Consumers explains that the facility improvements urged by Allen were intended to enhance working conditions by keeping snow out of...
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