Lafarge North America v. Discovery Group L.L.C.

• Decision Date: 27 July 2009
• Docket Number: No. 08-2210.,08-2210.
• Citation: 574 F.3d 973
• Parties: LAFARGE NORTH AMERICA, INC., formerly known as Lafarge Corporation, Plaintiff-Appellant, v. DISCOVERY GROUP L.L.C.; Explorer Investments 1 L.L.C.; Steven J. Tharpe; Douglas E. Pope, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

574 F.3d 973

LAFARGE NORTH AMERICA, INC., formerly known as Lafarge Corporation, Plaintiff-Appellant, v. DISCOVERY GROUP L.L.C.; Explorer Investments 1 L.L.C.; Steven J. Tharpe; Douglas E. Pope, Defendants-Appellees.

No. 08-2210.

United States Court of Appeals, Eighth Circuit.

Submitted: January 16, 2009.

Filed: July 27, 2009.

James L. Moeller, argued, Barrett Jay Vahle, on the brief, Kansas City, MO, for appellant.

Richard H. Kuhlman, argued, Geoffrey Gerald Gerber, Jill W. Lens, on the brief, St. Louis MO, for appellee.

Before BYE, COLLOTON, and GRUENDER, Circuit Judges.

BYE, Circuit Judge.

Lafarge North America, Inc. ("Lafarge") appeals from the district court's order granting summary judgment in favor of Discovery Group L.L.C. ("Discovery Group"), Explorer Investments 1 L.L.C. ("Explorer"), Steven Tharpe, and Douglas Pope (collectively, the "Defendants") on its claims for breach of contract, negligent and fraudulent misrepresentation, breach of fiduciary duty, negligence, and rescission. We reverse.

I

This case arises from a transaction in which Lafarge hired the Defendants to assist with the relocation of its Missouri Division Headquarters, which prior to March 2001 had been located in Kansas City, Missouri. Lafarge found it necessary to relocate because the headquarters was situated on a very active floodplain. In July 1999, Robert Diakiw, then Vice President and General Manager of Lafarge's Missouri operation, began discussions with Discovery Group concerning its ability to assist Lafarge with the relocation.

In July 1999, Discovery Group submitted a Real Estate Services Proposal (the "Proposal") to Lafarge, which stated Discovery Group would "provide an initial profile of the project objectives." The Proposal included wording as to Discovery Group having already begun "to identify the key players in terms of Owners, Brokers Government authorities and general resources to assist with the site/building selection phase of our work." The Proposal further stated it would be Discovery Group's "goal to essentially serve as an extension of the Lafarge real estate department function," and Discovery Group would serve as "[a] single source for all Kansas City relocation activities," offer "[a] strategic approach to the relocation process," and integrate "the research, capital, economic, planning, design, construction, transaction and consulting functions."

Thereafter, Discovery Group and Lafarge entered into an Exclusive Representation Agreement ("ERA") effective as of August 1, 1999. Discovery Group agreed to assist Lafarge with site selection for the relocation of its headquarters. They also agreed upon selection of a site, it was Lafarge's intentions to have an entity related to Discovery Group, i.e., Explorer, purchase the selected property and enter into a triple net operating lease with Lafarge. Relevant to this appeal, the ERA provided:

Discovery will undertake it best efforts to represent [Lafarge] in prospecting for and identifying prospective real estate sites. ... Discovery will search for sites and/or buildings and review each prospective real estate location with regard to its ability to achieve the objectives of [Lafarge] with respect to the Representation Agreement.

The ERA also stated that Lafarge "confirms its review and acknowledgment of the Attached Exhibit `A' Agency Disclosure and Representation Provisions required by the Missouri Real Estate Commission." Exhibit A was Missouri Revised Statute § 339.730, which sets forth various disclosures and responsibilities of a real estate agent; it includes, among other things, a requirement for the agent to exercise reasonable care and skill and to disclose to the client all adverse material facts known by the agent.

As Discovery Group began prospecting for and analyzing various potential sites for Lafarge's Missouri headquarters, it periodically sent Lafarge updates on its progress. On September 16, 1999, Discovery Group sent its first progress report to Lafarge, which listed one of the priority objectives of Phase One as "Understand Local Government Policies." The report stated Discovery Group was "In Process" with respect to this objective, noting it has "met with officials in Blue Spring and Independence to discuss economic and site concerns." On October 1, 1999, Discovery Group sent Lafarge another progress report indicating it was "In Process" with respect to the objective of "[f]urther understand[ing] land values and government incentives at each of the locations." On October 15, 1999, a third progress report once again affirmed that Discovery Group was "In Process" with respect to "understand[ing] land values and government incentives at each of the locations."

Consistent with the ERA, Discovery Group presented Lafarge with fifteen possible site locations. Based on Discovery Group's advice, Lafarge selected a parcel referred to as the "Chapel Ridge" site located in Lee's Summit, Missouri. Lafarge received no economic incentives for relocating to the Chapel Ridge site other than standard state tax credits. Discovery Group next contacted Chapel Development L.L.C. ("Chapel Development") about having an entity related to Discovery Group (Explorer) purchase the property. Involved in the transaction were two representatives of Chapel Development, Michael Atcheson and Larry Haas.¹ Chapel Development eventually agreed to acquire the Chapel Ridge property and sell it to Explorer.

Around this same time, Chapel Development and other entities owned by or associated with Atcheson and Haas brought a petition in the Circuit Court of Jackson County, Missouri, for the formation of the Strother Transportation Development District (the "Strother District"). The Strother District sought to impose an additional 1/2 percent sales tax on all transactions occurring within the district, the proceeds of which would fund a proposed interchange and other infrastructure improvements. The Chapel Ridge site is located within the Strother District. Shortly before closing on the property, Discovery Group learned of the proposed Strother District. Despite knowledge of the proposed Strother District — and its tax consequences for those located therein — Discovery Group/Explorer completed the purchase of the Chapel Ridge property on December 3, 1999, without informing Lafarge of the Strother District.

The Strother District was formed on January 21, 2000. On March 30, 2000, Lafarge and Explorer executed a lease of the Chapel Ridge property. The Strother District was approved on April 25, 2000.

Throughout this process, Lafarge did not, consistent with its past practice, intend to collect sales tax from its Missouri headquarters regardless of its location. Lafarge believed that, because the vast majority of its sales were made by mobile sales associates, its responsibility was to collect sales tax applicable to the plant from which the material being sold originated. Lafarge first learned of the Strother District in March 2001 when representatives contacted Lafarge regarding collection of the 1/2 percent sales tax. Lafarge claimed it did not owe sales tax to the Strother District because it did not conduct any sales from its headquarters in Chapel Ridge. Lafarge then sent a letter to the Missouri Department of Revenue seeking clarification. The Department of Revenue disagreed with Lafarge and concluded it must collect sales tax at its headquarters in Chapel Ridge, which in turn made Lafarge liable for the sales tax imposed by the Strother District. Shortly thereafter, Lafarge once again relocated its headquarters, choosing a location outside of the Strother District and for which it received governmental incentives based on sales tax revenue.

Lafarge brought this diversity action against the Defendants in the Western District of Missouri for (1) breach of the ERA, (2) fraudulent misrepresentation, (3) negligent misrepresentation, (4) breach of fiduciary duty, (5) negligence, and (6) rescission of the lease agreement. Lafarge contended the Defendants had an obligation, both in contract and tort, to disclose the existence of the Strother District. Defendants moved for summary judgment, which the district court granted. The court concluded Lafarge's breach of contract claim failed because the ERA did not impose an obligation on Discovery Group to investigate or disclose economic incentives and tax obligations. It likewise granted summary judgment on Lafarge's fraudulent misrepresentation, negligent misrepresentation, and breach of fiduciary duty claims because it determined the existence of the Strother District was not a material fact, and the court further concluded the negligence claim failed because Defendants did not owe a duty to disclose the Strother District. Finally, the court granted judgment on Lafarge's rescission claim because it determined the lease was not based on any fraudulent misrepresentation, misapprehension, or mistake. Lafarge appeals each of the district court's conclusions.

II

We review the district court's grant of summary judgment de novo. Urban Hotel Dev. Co., Inc. v. President Dev. Group, L.C., 535 F.3d 874, 877 (8th Cir.2008). "Summary judgment is appropriate if the evidence, viewed most favorably to the nonmoving party, establishes that no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law." Id. In a diversity action such as this, we are required to apply Missouri law. See id.

Breach of Contract

In Missouri, a party seeking to establish a breach of contract claim must prove: "(1) the existence of a valid contract; (2) the rights and obligations of each party; (3) breach; and (4) damages." Evans v. Werle, 31 S.W.3d 489, 493 (Mo. Ct.App.2000). Though the parties agree the ERA is a valid contract, they dispute the rights and obligations of each party under the contract.² Specifically, Lafarge asserts the ERA obligated Discovery Group to investigate economic incentives and...