Kirby Developments LLC v. XPO Glob. Forwarding
| Decision Date | 09 September 2021 |
| Docket Number | 2:18-CV-500 |
| Parties | KIRBY DEVELOPMENTS LLC, Plaintiff, v. XPO GLOBAL FORWARDING, INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of Ohio |
Plaintiff Kirby Developments, LLC, alleges it was a victim of a massive Ponzi scheme involving the sale of Off the Road ("OTR") mining tires orchestrated by Defendants Jason Adkins, XPO Logistics, Inc. and XPO Global Forwarding Inc. (collectively "XPO"), Midwest Coal, LLC, Mid America Tire of Hillsboro, Inc. d/b/a Best-One Tire & Service of Hillsboro, Jason Adkins, Afif Baltagi, John Eckerd, Todd Wilkin, L.A.D. Impex Corporation, and Ahmet Neidik.[1] XPO moves for summary judgment (ECF No. 177) and to strike certain testimony of Richard Armstrong, Kirby's expert. (ECF No. 178). In turn, Kirby seeks an Order that Pennsylvania law applies to some, but not all, of its claims. (ECF No. 176.) Briefing on the three motions being complete the Court GRANTS in part and DENIES in part the Motions for Summary Judgment (ECF No. 177) and to Partially Exclude (ECF No. 178), and DENIES the Motion to Apply Pennsylvania Law (ECF No. 176).
Given the multitude of players involved in this matter, the Court begins by summarizing the role of each.
Status
Role
Residency
Kirby
Real estate holding company. OTR tire buyer.
West Virginia LLC.
Principal place of business in Pennsylvania.
Scott Kiger
50% owner of Kirby. (ECF No. 190-1, PageID 6757.)
Jim Cunningham
Non-party
In-house counsel for Kirby.
N/A
John O'Connor
Business consultant for, and advisor to, Kirby. (ECF No. 194-1, PageID 9138.) Co-owner with Adkins of OTR Tires Direct, Inc. (ECF No. 195-1, PageID 9537.)
OTR Tires Direct, Inc.
Pennsylvania corporation involved in OTR tire sales. (ECF No. 195-57, PageID 9921.) Co-owned by O'Connor and Adkins.
Jason Adkins
Principal of Defendant Midwest Coal, LLC. (ECF No. 91, PageID 1115.)
Midwest Coal, LLC
Buyer and reseller of OTR tires. (ECF No. 82-9, PageID 978.)
Ohio corporation. Principal Place of Business in Ohio
Defendant. Bankruptcy stay in effect.[2]
Friend of Adkins.
Texas
Defendant. Bankruptcy stay in effect.
Principal of Mid America Tire of Hillsboro, Inc. d/b/a Best-One Tire & Service of Hillsboro.
Mid America Tire of Hillsboro, Inc. d/b/a Best-One Tire & Service of Hillsboro
Defendant. Bankruptcy stay in effect.
Tire seller and distributor.
Ohio corporation. Principal place of business in Ohio.
XPO Logistics, Inc.
Holding company. Parent of Defendant XPO Global Forwarding, Inc.
Delaware corporation. Principal place of business in Connecticut.
XPO Global Forwarding, Inc.[3]
Wholly owned subsidiary of XPO Logistics, Inc. Storage facility for tires.
Delaware corporation. Principal place of business in Illinois.
XPO employee. Branch manager at XPO's Houston, Texas location.
Defendant. Bankruptcy stay in effect.
Escrow agent and freight forwarder for deal. (ECF 91, ¶ 41.)
New Jersey corporation. Principal place of business in New Jersey.
Defendant. Bankruptcy stay in effect.
Principal and owner of L.A.D.
Eckerd went to grade school with Kiger's wife. (ECF No. 190-1, PageID 6744.) Many years later, Eckerd and Kiger connected to discuss a possible investment in an OTR tire deal. (ECF No. 190-1, PageID 6744-46.) Kiger asked O'Connor to conduct financial due diligence about the proposal. (ECF No. 190-1, PageID 6746-6747; ECF No. 175-1, PageID 1814.) Neither Kirby nor O'Connor had any prior experience with OTR tires and the corresponding market.
O'Connor spoke with Eckerd via telephone at the end of September 2015. (ECF No. 195-2, PageID 9576.) Eckerd followed-up on that conversation by e-mailing O'Connor several documents on October 26, 2015 ("October Documents"). (ECF No. 195-3.) The October documents included: (1) Midwest Coal's balance sheet as of September 1, 2015 (ECF No. 195-3, PageID 9578); (2) an accountant's report for Midwest Coal showing a nearly $5 million profit for 2014 but stating "the owner has elected to omit substantially all of the disclosures ordinarily included in financial statements" (ECF No. 195-3, PageID 9581); (3) articles about the OTR industry (ECF No. 195-3, PageID 9584, 9617); (4) a description of typical OTR transactions (ECF No. 195-3, PageID 9618-9620); (5) a sample OTR procurement agreement (ECF No. 195-3, PageID 9621); and (6) a sample warehouse receipt, bill of sale, and warehouse release letter (ECF No. 195-3, PageID 9634-40). O'Connor reviewed the documents but did nothing to verify the information contained within them, other than to Google prices for OTR tires. (ECF No. 195-1, PageID 9497-99.)
Kiger alerted Riggs to the opportunity. Although Riggs did not review the October Documents, he was interested. (ECF No. 196-1, PageID 10511; ECF No. 196-1, PageID 10512.) Kiger also asked Cunningham to learn more about the deal. So O'Connor, Cunningham, Riggs, Adkins, and Eckerd met at a Cracker Barrel restaurant ("first meeting") in Pennsylvania on October 29, 2015 to discuss the potential deal. (ECF No. 194-1, PageID 9140, 9143; ECF No. 195-4, PageID 9641; ECF No. 175-1, PageID 1816.) This meeting enabled Eckerd to introduce Adkins to the Kirby representatives and allowed Adkins to explain the opportunity. (ECF No. 175-1, PageID 1817; ECF No. 194-1, PageID 9149.) Adkins described the OTR industry and how Kirby could make money buying and re-selling OTR tires. (ECF No. 175-1, PageID 1817-1818.) Adkins pitched the deal as Kirby loaning Midwest Coal money so that Midwest Coal could buy OTR tires and quickly resell them to an Australian buyer within three to six months at a forty percent profit. (ECF No. 175-1, PageID 1818; ECF No. 196-1, PageID 10518.) Eckerd and Adkins mentioned that XPO's Houston location was where they preferred to store the tires. (ECF No. 195-1, PageID 9504; ECF No. 175-1, PageID 1820.)
The Kirby team left the meeting interested in the opportunity and determined to do more research about the offer. (ECF No. 175-1, PageID 1818; ECF No. 196-1, PageID 10514.) Kiger was "not in the business of loaning money," so he and Riggs decided that if the deal was to proceed, Kirby would buy and own the tires. (ECF No. 175-1, PageID 1819; ECF No. 195-1, PageID 9504.) Additionally, the team was comfortable with using XPO as storage facility because it was a large public company that Kiger had done business with in the past. (ECF No. 175-1, PageID 1820; ECF No. 190-1, PageID 6756.)
All of the original Kirby representatives but Riggs met with Adkins and Eckerd again on November 11, 2015 (the "second meeting") at a Cracker Barrel.[4](ECF No. 175-6, PageID 1987.) The Kirby contingent proposed Kiger's alternative structure for the deal. Eckerd and Adkins agreed to the change. The Kirby representatives left this meeting "more comfortable with the deal and how it was going to be structured." (ECF No. 175-1, PageID 1820.)
Later that evening, O'Connor informed Adkins via e-mail that "everyone is on board" and that O'Connor would have Cunningham get started on a draft agreement. (ECF No. 195-1, PageID 9643.) O'Connor further asked Adkins to provide him with copies of: (1) Midwest Coal's 2014 tax return; (2) a list of all tires, with serial numbers, that were to be involved in the transaction; (3) proof of purchase for the tires; (4) documents from L.A.D. (the freight forwarder); and (5) XPO's contact information. (ECF No. 195-1, PageID 9643.)
On November 12, 2015, Adkins provided his personal 2014 tax returns and Midwest Coal's financials to O'Connor. (ECF No. 195-5, PageID 9643.) The unsigned tax return showed that Adkins owed $2 million to the IRS. (ECF No. 195-5, PageID 9647-9648.) The financials indicated that Midwest Coal had $2 million as of September 1, 2015. (ECF No. 195-5, PageID 9647-9648.) Adkins also sent O'Connor a list ("List") of tire sizes, brands, models, and costs for the fifty-four OTR tires ("Initial Tires") Midwest Coal would contribute to the deal and the 146 OTR tires Midwest Coal and Kirby would buy for the deal.[5] (ECF No. 195-1, PageID 9508; ECF No. 195-10, PageID 9672; ECF No. 195-11, PageID 9675.) Serial numbers for the tires were not included.
That same day, O'Connor e-mailed Cunningham and Riggs detailing the source of funds for the proposed deal. (ECF No. 195-13, PageID 9678.) Specifically, Midwest Coal would contribute $600, 000 cash plus the Initial Tires (valued at $2, 784, 000); O'Connor would contribute $1 million; Kiger, on behalf of Kirby, would contribute $2, 845, 500; and Riggs, on behalf of Kirby, would contribute $2, 845, 500. (ECF No. 196-1, PageID 10516; ECF No. 194-1, PageID 9165; ECF No. 196-12, PageID 10646-10657.) O'Connor included the List from Adkins in the e-mail. Id. No one from Kirby saw pictures of the Initial Tires or attempted to inspect them. (ECF No. 195-1, PageID 9509.)
O'Connor and Cunningham spoke with Baltagi on November 13, 2015. (ECF No. 195-1, PageID 9510-11; ECF No. 175-1, PageID 1832.) Baltagi identified himself as XPO Houston's branch manager. (ECF No. 195-1, PageID 9510-11; ECF No. 175-1 PageID 1832.) He gave an overview of the documents XPO would complete for the transaction. (ECF No. 195-1, PageID 9510-11; ECF No. 175-1, PageID 1832.) He said XPO would check the tires upon arrival. (ECF No. 195-1, PageID 9510-11; ECF No. 175-1, PageID 1832.) After...
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