Energy Creates Energy, LLC v. Heritage Grp.

• Citation: 504 S.W.3d 142
• Decision Date: 15 November 2016
• Docket Number: WD 79326,C/w WD 79374
• Parties: ENERGY CREATES ENERGY, LLC and Genesys Industrial Corp., Appellant–Respondents, v. The HERITAGE GROUP, et al., Respondent.
• Court: Court of Appeal of Missouri (US)

504 S.W.3d 142

ENERGY CREATES ENERGY, LLC and Genesys Industrial Corp., Appellant–Respondents,

v.The HERITAGE GROUP, et al., Respondent.

WD 79326

C/w WD 79374

Missouri Court of Appeals, Western District.

Opinion Filed: November 15, 2016

Jason R. Scheiderer, Kansas City, for Appellant-Respondent

Brianna Clark, for Respondent-Appellants

Before Division One: Thomas H. Newton, Presiding Judge, Cynthia L. Martin, Judge and Edward R. Ardini, Jr., Judge

EDWARD R. ARDINI, JR., JUDGE

Genesys Industrial Corporation ("Genesys") and Energy Creates Energy LLC ("ECE"), (collectively "Genesys/ECE") appeal the grant of summary judgment on several counts brought against the Heritage Group, Heritage Recycling LLC ("Heritage Recycling"), Heritage Environmental Services LLC ("HES"), Heritage Research Group, Anthony Kriech, and Williams Jeffery Akers (collectively "Heritage Defendants"), individually and together. Summary judgment was granted in full on ten counts and in part on three additional counts on the basis of claim and issue preclusion arising from a prior arbitration; summary judgment was requested but denied on one other count. The Heritage Defendants cross-appeal the denial of summary judgment with regard to the complete denial of the one count and the denial of full summary judgment with regard to the three counts which were granted partial summary judgment. After a thorough review of the record, we reverse the grant of summary judgment against Genesys/ECE as to all counts, and we dismiss the Heritage Defendants' cross-appeal.

Factual and Procedural Background

Genesys is a Missouri corporation involved in the waste management business. In approximately 2009, Genesys invented a new shredder (the "Genesys Shredder"), purported to have been developed by their employee Kyle Watts. This shredder was promoted as being capable of shredding used residential and commercial carpet, as well as other material, for recycling on a commercially viable basis. Sometime in 2010, Genesys was introduced to a group of entities based out of Indiana and collectively doing business under the name Heritage, specifically the Heritage Group and HES. Genesys and HES entered into a contractual non-disclosure agreement on August 27, 2010, and began discussing a potential business relationship including the purchase of several Genesys Shredders. The Heritage entities ultimately agreed to do business with Genesys and to purchase two Genesys Shredders. In order to effectuate this, both sides formed new subsidiaries. Genesys formed the Missouri limited liability company ECE, and HES created the Indiana limited liability company Heritage Recycling. ECE and Heritage Recycling then, in May 2011, entered into the Heritage Recycling/ECE Purchase, License & Commercialization Agreement ("HEPLC Agreement"). The HEPLC Agreement was a fully formed agreement that included numerous warranties made by both sides and included an arbitration clause that would cover disputes "arising out of or relating to" the HEPLC Agreement.

The business relationship was not meant to be, however, and the agreement between the two sides soon soured. Heritage felt that the Genesys Shredder was not living up to the promises made, while Genesys became concerned that Heritage was stealing its intellectual property and building a competing shredder with the help of Sebright Products Inc. (the "Sebright Shredder"). By December of 2012, the parties' relationship reached a breaking point and Heritage Recycling instigated arbitration procedures against ECE and Genesys as an alter ego of ECE. Heritage Recycling claimed that Genesys/ECE had fraudulently induced it to enter into the HEPLC Agreement based on allegedly false representations about the amount of impurities (or "ash") produced by the shredder, that Genesys/ECE had breached the contract with regard to developing and commercializing a competing shredder and with regard to several express warranties made in the contract, that Genesys/ECE had tortiously interfered with its contracts with third-parties, and that Genesys/ECE had been unjustly enriched.

Genesys/ECE, for their part, did not sit idly by, but rather ECE brought several counterclaims in the arbitration against Heritage Recycling as well as HES, HES Inc.,¹ and the Heritage Group, all as alter egos of Heritage Recycling. ECE alleged that the various Heritage entities had committed acts amounting to breach of the HEPLC Agreement, misappropriated their trade secrets, fraudulently induced them to enter into the HEPLC Agreement, tortiously interfered with their business relationships, and also requested two separate declaratory judgments as to the exclusivity of the license granted by the HEPLC Agreement and ownership of the related intellectual property.

The parties engaged in discovery for a year before having the arbitration hearing, which took place over six days in Indianapolis, Indiana, beginning on January 27, 2014. The arbitrator issued his award on February 28, 2014. The arbitrator found that Genesys was the alter ego of ECE and that HES was the alter ego of Heritage Recycling but denied all other alter ego claims. The Arbitrator further denied all of Heritage Recycling claims save for a breach of warranty under section 4.1(k) of the HEPLC Agreement, which the arbitrator found to be material. The arbitrator granted Heritage Recycling its requested relief and rescinded the contract, ordering Heritage Recycling to return the two shredders and for ECE to return the $3,000,000.00 purchase price plus fees and expenses. As to ECE, besides the finding of an alter ego relationship between Heritage Recycling and HES, the arbitrator denied all counterclaims.²

Believing there remained issues still unresolved, Genesys/ECE commenced an action in the Circuit Court of Jackson County in September of 2014, bringing a twenty-one count petition against the Heritage Group, HES, Heritage Recycling, Heritage Research Group, two Heritage employees (William Akers and Anthony Kriech), Owens Corning, Sebright Products Inc., the law firm Brinks Gilson & Lione, and Michael S. Gzybowski. This new action was based on claims that Genesys/ECE argued fell outside of the HEPLC Agreement and could not have been brought in arbitration.

Predictably, the Heritage Defendants disagreed with Genesys/ECE's assessment and brought a motion to dismiss on the basis of claim and issue preclusion, attaching voluminous records regarding the prior arbitration. Genesys/ECE strenuously opposed the motion on substantive grounds and objected on procedural grounds, pointing out that the language of Rule 55.27(a)³ required the motion to be converted to a motion for summary judgment. The court appointed a special master to assist it in addressing the complexities presented in the case, and, at the recommendation of the special master, the trial court converted the motion to dismiss into a motion for summary judgment pursuant to Rule 55.27(a). The order granting the conversion gave the parties only ten days to respond and stated that no materials other than those addressing the authenticity of the previously attached records would be considered. No statement of uncontroverted facts pursuant to Rule 74.04(c) was ordered or presented.

On September 28, 2015, the special master issued his report, Special Master's Report No. 10, which recommended summary judgment in favor of the Heritage Defendants on several, but not all, of Genesys/ECE's claims. Both parties filed objections.⁴ On December 31, 2015, the court entered a judgment adopting the special master's report in full and granting summary judgment for the respective Heritage Defendants as to counts 1, 4, 5, 6, 9, 12, 13, 14, 20, and 21 in their entirety as well as partial summary judgment as to counts 2, 10, and 15. The court denied summary judgment as to count 11. The court further stayed all other actions during the pendency of any appeal and certified the judgment as a final judgment fit for appeal as permitted under the Missouri Rules of Civil Procedure. See Rule 74.01(b); First Community Credit Union v. Levison , 395 S.W.3d 571, 580–81 (Mo. App. E.D. 2013).⁵ Genesys/ECE timely appealed the grant of full and partial summary judgment on all counts with the Heritage Defendants bringing a cross-appeal as to the denial of summary judgment on count 11 and the denial of full summary judgment on counts 2, 10, and 15.

Standard of Review

A circuit court shall enter summary judgment only "after the response, reply and any sur-reply have been filed or the deadlines therefor have expired" and only if "the motion, the response, the reply and the sur-reply show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Rule 74.04(c)(6). An appellate court's review of the grant of summary judgment is de novo . ITT Commercial Fin. Corp. v. Mid–Am. Marine Supply Corp. , 854 S.W.2d 371, 376 (Mo. banc 1993). The record is reviewed in the light most favorable to the party against whom judgment was entered, and the non-movant is given the benefit of all reasonable inferences from the record. Id. However, "[f]acts set forth by affidavit or otherwise in support of a party's motion are taken as true unless contradicted by the non-moving party's response to the summary judgment motion." Id.

Discussion of Genesys/ECE's Third Point on Appeal

The summary judgment now before this court first began as a motion to dismiss brought by the Heritage Defendants pursuant to Rule 55.27(a)(6) for failing to state a claim on the basis of claim and issue preclusion. In bringing their motion, the Heritage Defendants attached numerous materials from outside of the pleadings, setting forth both the grounds for the underlying arbitration as well as the ultimate decision of the arbitrator, which they believed mandated claim and issue preclusion. Genesys/ECE successfully argued that the attachment of these materials from outside of the pleadings required the motion to...