Kelley Metal Trading Co. v. Al-Jon/United, Inc., 92-4116-RDR.

Decision Date22 October 1993
Docket NumberNo. 92-4116-RDR.,92-4116-RDR.
Citation835 F. Supp. 1339
CourtU.S. District Court — District of Kansas
PartiesKELLEY METAL TRADING COMPANY, Plaintiff, v. AL-JON/UNITED, INC., Defendant.

Donald Patterson, Fisher, Patterson, Sayler & Smith, Topeka, KS, Elliot M. Kaufman, Ronald H. Isroff, F. Thomas Vickers, James A. DeRoche, Ulmer & Berne, Cleveland, OH, for plaintiff.

John H. Stauffer, Jr., Goodell, Stratton, Edmonds & Palmer, Topeka, KS, Mark I. Wallach, David James Carney, Calfee, Halter & Griswold, Cleveland, OH, for defendant.

MEMORANDUM AND ORDER

ROGERS, District Judge.

This lawsuit arises from the plaintiff's purchase of a wire reclamation furnace from the defendant. Plaintiff is an Ohio corporation while defendant is a Kansas corporation. Jurisdiction is based upon diversity of citizenship. This matter is presently before the court upon defendant's motion for summary judgment. The court has heard oral argument on the motion and is now prepared to rule.

Plaintiff asserts three claims against the defendant:1 fraud, breach of implied warranty of merchantability, and breach of express warranty. Defendant seeks summary judgment on all of the plaintiff's claims.

In considering the defendant's motion for summary judgment, the court must examine all the evidence in the light most favorable to the plaintiff. Barber v. General Electric Co., 648 F.2d 1272, 1276 n. 1 (10th Cir.1981). Summary judgment is proper only when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Under this rule, the initial burden is on the moving party to show the court "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). The moving party's burden may be met when that party identifies those portions of the record which demonstrate the absence of a genuine issue of material fact. Id. at 323, 106 S.Ct. at 2553.

Once the moving party has met these requirements, the burden shifts to the party resisting the motion. The non-moving party must "make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322, 106 S.Ct. at 2552. The party resisting the motion "may not rest upon the mere allegations or denials of his pleadings ..." to avoid summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The mere existence of a scintilla of evidence will not avoid summary judgment; there must be sufficient evidence on which a jury could reasonably find for the nonmoving party. Id. at 251, 106 S.Ct. at 2511 (quoting Improvement Co. v. Munson, 81 U.S. (14 Wall.) 442, 448, 20 L.Ed. 867 (1872)).

Some background is necessary to understand the arguments of the parties. In 1987, R. Blake Kelley, President of Kelley Metal Trading Company, became interested in starting a scrap wire reclamation business. After seeing an advertisement circulated by Al-Jon, Inc., Kelley contacted the defendant and expressed an interest in purchasing a wire reclamation furnace. After some discussions, Kelley Metal eventually purchased a furnace. The purchase agreement was signed by Blake Kelley on June 28, 1990 and accepted by Al-Jon/United on July 2, 1990. Plaintiff then sought a permit to operate the furnace from the Ohio Environmental Protection Agency. After some testing, the Ohio EPA denied plaintiff a permit to operate the furnace. Plaintiff then brought this action seeking compensatory and punitive damages.

I. Fraud

Plaintiff contends that it was a victim of fraud in the purchase of the wire reclamation furnace. In its amended complaint, plaintiff alleges that R. Blake Kelley relied upon the following false representations made by representatives of the defendant in deciding to purchase the furnace:

(a) that wire with chlorinated insulation accounted for only a small percentage of the scrap wire available for reclamation;
(b) that wire with chlorinated insulation could easily and economically be separated from wire with non-chlorinated insulation;
(c) that the Al-Jon/United reclamation furnace could pass all applicable EPA emission tests;
(d) that the Al-Jon/United wire reclamation furnace could legally process 250 to 300 pounds of combustible insulation.

To recover on a claim of fraudulent misrepresentation under Kansas law, a plaintiff must show that a defendant made a representation or statement of material fact which was untrue and known to be untrue or recklessly made with disregard of its truth or falsity, on which plaintiff reasonably relied to his detriment. Tetuan v. A.H. Robins Co., 241 Kan. 441, 738 P.2d 1210, 1230 (1987). The reliance element has both an objective and subjective prong: (1) the plaintiff must actually rely on the misrepresentations and thereby incur damages; and (2) plaintiff's reliance must be reasonable and justifiable. Smith v. MCI Telecommunications Corp., 124 F.R.D. 665, 677 (D.Kan.1989).

In its motion for summary judgment, defendant argues that plaintiff has failed to demonstrate a fraud claim because plaintiff has not shown that (1) plaintiff actually relied on defendant's representations; (2) plaintiff's reliance was reasonable; and (3) defendant intended to defraud plaintiff.

A. Actual Reliance

The defendant begins by contending that the record shows that plaintiff never actually relied upon the representations of the defendant. This argument is almost exclusively directed at plaintiff's fraud claim based upon the representation that the furnace would pass EPA tests. See Memo. in Support of Motion for Summary Judgment at 14 ("Blake Kelley's conduct shows that he did not actually believe Al-Jon could guarantee the EPA's permit."). The contention is based upon two premises. First, the defendant asserts that the record shows that Blake Kelley had serious doubts about the ability of the furnace to pass EPA tests. Second, the defendant contends that Blake Kelley's insistence upon a buy-back provision in the contract further demonstrates his lack of actual reliance in the defendant's representations concerning the ability of the furnace to pass the EPA tests. The defendant relies upon Slaymaker v. Westgate State Bank, 241 Kan. 525, 739 P.2d 444 (1987) for support of its lack of actual reliance argument.

The two bases for defendant's argument are obviously related. The buy-back provision was contained in a letter written by Kelly Pettit, President of the United division of Al-Jon/United, to Blake Kelley. The pertinent part of the letter, which became a part of the purchase agreement pursuant to an agreement between the parties,2 reads as follows:

In the event Ohio EPA does not issue a Permit To Install for the G-466, we will refund your deposit.
If stack testing is a requirement prior to the issuance of Permit To Operate, then it would be your responsibility to pay for same. We would have one of our representatives present during the test (at no charge to you) to ensure that the machine is operating properly. Likewise, if additional opacity or temperature monitoring equipment has to be installed, it would be at your expense. In the event the machine would not "pass" the stack test, we would modify it and retest it at our expense within 30 days of our notification of non-compliance.
If, after a second stack test, Ohio EPA would not issue the Permit To Operate, then we will refund the total purchase price of the machine to you, less $1,500.00 per month or any portion thereof from the date of arrival of the machine.
Once the Permit to Operate is issued by the state, the agreement to repurchase the equipment becomes null and void. The agreement to repurchase the equipment applies only to the equipment supplied by Al-Jon, Inc, United Division and does not extend to any other associated equipment nor (sic) lease obligations.

The court agrees with the defendant that Slaymaker requires the entry of summary judgment on plaintiff's fraud claim based upon the representation that the furnace would pass EPA tests. At oral argument, plaintiff's counsel conceded Slaymaker controls this particular claim.3 The court, however, does not find that the defendant is entitled to summary judgment on the other fraud claims.

An examination of Slaymaker is necessary to understand the court's conclusions concerning the plaintiff's fraud claims. In Slaymaker, plaintiff alleged that the defendant made fraudulent misrepresentations concerning the authenticity of a 1962 automobile. After hearing representations about the car's "originality" and mileage, plaintiff undertook an investigation concerning the car. Plaintiff was ultimately induced to buy the car when the seller agreed to a buy-back provision if the car turned out not to be as represented. The Kansas Supreme Court affirmed a grant of summary judgment to the defendant, finding that the record showed that plaintiff had not actually relied upon the representations concerning the car. 739 P.2d at 451-52. In reaching this conclusion, the Court cited two factors: (1) evidence that plaintiff had "actively doubted" the representations about the car and, in fact, knew that some of the representations concerning the car were false; and (2) evidence that plaintiff was induced to buy the car only after the seller agreed to repurchase the car if the representations were untrue. 739 P.2d at 452-53.

The record in this case shows that plaintiff did actively doubt the representations concerning the ability of the furnace to pass EPA tests and was ultimately induced to purchase the furnace, at least in part, based upon the agreement of the defendant to buy back the furnace if it did not pass EPA tests. Accordingly, as previously stated, Slaymaker does control this particular fraud claim. Slaymaker, however, does not require the entry of summary judgment to the...

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4 cases
  • Koch v. Koch Industries, Inc.
    • United States
    • U.S. District Court — District of Kansas
    • 11. Juli 1997
    ...and an objective inquiry (Was the plaintiffs reliance reasonable and justifiable?). Kelley Metal Trading Co. v. Al-Jon/United, Inc., 835 F.Supp. 1339, 1341 (D.Kan.1993). "The injured party's reliance on a fraudulent misrepresentation `must be reasonable, justifiable and detrimental.'" Slaym......
  • Koch v. Koch Industries, Inc.
    • United States
    • U.S. District Court — District of Kansas
    • 14. Januar 1998
    ...to the exclusion of or in lieu of any reliance on the truthfulness of the defendants' disclosures. Cf. Kelley Metal Trading Co. v. Al-Jon/United, Inc., 835 F.Supp. 1339, 1343 (D.Kan.1993) (no evidence that plaintiff actively doubted certain representations and insisted on the buy-back claus......
  • Quinn v. City of Kansas City, Kan.
    • United States
    • U.S. District Court — District of Kansas
    • 19. August 1999
    ...Inc. v. McGregor, 10 Kan. App.2d 461, 464, 701 P.2d 977, 980, rev. denied, 238 Kan. 877 (1985)); Kelley Metal Trading Co. v. Al-Jon/United, Inc., 835 F.Supp. 1339, 1341 (D.Kan.1993). Because the Court has never entered final judgment in the case, it construes defendants' motion as one again......
  • US v. Ziegler, 91-40024-01-DES.
    • United States
    • U.S. District Court — District of Kansas
    • 22. Oktober 1993

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