Layne Christensen Co. v. City of Franklin

• Decision Date: 26 March 2020
• Docket Number: NO. 3:17-cv-01236,3:17-cv-01236
• Citation: 449 F.Supp.3d 748
• Parties: LAYNE CHRISTENSEN COMPANY & Layne Heavy Civil, Inc., Plaintiffs, v. CITY OF FRANKLIN, TENNESSEE, Defendant.
• Court: U.S. District Court — Middle District of Tennessee

449 F.Supp.3d 748

LAYNE CHRISTENSEN COMPANY & Layne Heavy Civil, Inc., Plaintiffs,

v.CITY OF FRANKLIN, TENNESSEE, Defendant.

NO. 3:17-cv-01236

United States District Court, M.D. Tennessee, Nashville Division.

Filed March 26, 2020

Clifton N. Miller, Henry, McCord, Bean, Miller, Gabriel & LaBar, PLLC, Tullahoma, TN, Michael S. Cargnel, Richard F. Shearer, Shook, Hardy & Bacon LLP, Kansas City, MO, for Plaintiffs.

Elaina S. Al-Nimri, John W. Dawson, IV, L. Wearen Hughes, Bass, Berry & Sims, Nashville, TN, Misty L. Foy, Delek US Holdings, Inc., Brentwood, TN, Shauna R. Billingsley, City of Franklin Law Department, William E. Squires, Kha Law Offices, Franklin, TN, for Defendant.

MEMORANDUM

WILLIAM L. CAMPBELL, JR., UNITED STATES DISTRICT JUDGE

Pending before the Court is Plaintiffs' Motion for Summary Judgment. (Doc. No. 61). Defendant filed a response (Doc. No. 69), Plaintiffs filed a reply (Doc. No. 82), and Defendants filed a sur-reply (Doc. No. 96). The parties have each filed statements of fact and responses thereto (Doc. Nos. 62, 70, 83) (together the Statement of Facts ("SOF")).

The parties in this case seek a declaration from the Court under 28 U.S.C. § 2201, as to whether one or both Plaintiffs are financially liable for the allegedly defective work performed by W.L. Hailey & Company, Inc. in 2002-04. (See Complaint, Doc. No. 1; Counterclaim, Doc. No. 17). For the reasons stated below, Plaintiffs' Motion for Summary Judgment is DENIED .

I. BACKGROUND

Layne Christensen Company is a Delaware corporation with a principle place of business in The Woodlands, Texas. (SOF, Doc. No. 83, ¶ 1). Layne Christensen is focused on water resources and related infrastructure and has business operations throughout the United States and abroad. (Id. , ¶ 2). Layne Christensen wholly-owns multiple subsidiaries, including Layne Heavy Civil, Inc. (Id. , ¶¶ 3, 4). Until its name change in 2012, Layne Heavy Civil was named Reynolds, Inc. (Id. ). Layne Heavy Civil is incorporated in Indiana, but like Layne Christensen, has a principle place of business in The Woodlands, Texas. (Id. ). Layne Heavy Civil wholly-owns W.L. Hailey & Company, Inc. ("Hailey"). (Id. , ¶ 9). Hailey is a Tennessee corporation that, like Layne Christensen and Layne Heavy Civil (together, "Layne"), has a principle place of business in The Woodlands, Texas. (Id. , ¶ 5).

In 2002, before Hailey was owned by Layne, Hailey entered into a contract with the City of Franklin to construct a gravity sewer pipeline. (Id. , ¶ 7). Hailey last worked on the project in 2003 or 2004. (Id. , ¶ 8).

In October 2009, what was then Reynolds made a cash purchase of 100% of the stock of Hailey, and Hailey became a wholly-owned subsidiary of Reynolds. (Id. , ¶¶ 9-11). In 2012, as a part of a marketing initiative branded "One Layne," Layne changed the names of both Reynolds and Hailey to Layne Heavy Civil, Inc. (Id. , ¶¶ 4, 52-53, 122-124). Reynolds, Inc.'s name was legally changed to Layne Heavy Civil, Inc., (Id. , ¶ 4) while Hailey retained the legal name W.H. Hailey & Company, Inc., but used the name Layne Heavy Civil, Inc.¹ (Id. , ¶¶ 54-56, 124).

After the name change in 2012, the Hailey name was no longer used in the market. (Id. , ¶ 125). Work previously bid under Hailey's name and licenses was bid by Layne Heavy Civil, Inc. (Id. , ¶ 126). Hailey's various state contractor licenses were not renewed beginning in 2012; its Tennessee contractor license expired on November 30, 2013. (Id. , ¶ 135).

Franklin asserts that Hailey was not, in fact, a separate entity from Reynolds, Inc. Alternatively, Franklin argues that between the acquisition in 2009 and the sale of Hailey's remaining assets in 2017, Reynolds, Inc. (after 2012, Layne Heavy Civil), and Hailey combined operations such that they were effectively one company. To be sure, distinctions between the two companies become somewhat muddied after 2012 when Layne changed the names of both Reynolds and Hailey to Layne Heavy Civil, Inc., as part of a the "One Layne" marketing initiative. (See, SOF, Doc. No. 83, ¶¶ 4, 52-53, 122-124).

Following the acquisition, Layne exercised control over Hailey in the following ways: (1) Hailey sought approval and authority from Layne to bid work (SOF, Doc. No. 83, ¶ 108); (2) Hailey's finances were managed in the centralized Layne accounting system (id. , ¶ 109); (3) Layne's corporate personnel managed Hailey's financial reporting for corporate accounting, SEC reporting, and tax preparation (id. ); (4) Layne closed Hailey's bank account and managed Hailey's cash flow "as part of its corporate treasury function" (id. , ¶ 111); and (5) Layne consolidated its acquired companies, including Hailey, into Layne's statements of income and filed consolidated tax returns and SEC filings (id. , ¶¶ 118-21). Layne stated that the finances of its subsidiaries were kept separately within its accounting system and that Layne's system tracked and reported revenue, income, and expenses belonging to Hailey. (Id. , ¶21 114).

Layne frequently referred to the companies as one, stating that the certain companies acquired by Layne, including Hailey, "have merged into Reynolds." (Id. , ¶¶ 101, 102 (Layne's former Controller and CEO, Andy Atchison, testified that the statement about companies having merged into Reynolds was accurate with respect to the "operational combination" of the companies)). Hailey's former President, Don Ackerman, testified that after the 2009 acquisition, "Hailey [ ] didn't exist." (Id. , ¶ 117).

By 2012, the officers and directors of Hailey also served as officers and directors of Layne Heavy Civil, Inc. (Id. , ¶ 11). Layne's legal department made decisions about Hailey's board of directors membership and Layne Heavy Civil, as sole shareholder of Hailey, appointed the members of the Hailey board of directors. (Id. , ¶¶ 11, 189). Les Archer, Layne Heavy Civil's former President, who was identified in places as President of Hailey, testified he was never an officer or employee of Hailey and was not aware Hailey even had officers. (Id. , ¶ 41).

In April 2017, Layne Christensen sold substantially all of the fixed assets of its Heavy Civil division, including assets owned by Hailey. (Id. , ¶ 62). The asset purchase agreement was signed by Michael Anderson on behalf of Layne Christensen, Layne Heavy Civil, Hailey, and other selling entities. (Id. , ¶ 20, 63). The asset sale closed on April 30, 2017, and resulted in approximately $3.5 million in total proceeds, which was not separately allocated to the selling companies. (Id. , ¶ 63).

On May 9, 2017, Franklin notified Plaintiffs by letter of alleged defects in the project performed by Hailey in 2002-04. (Id. , ¶¶ 66-68). The May 9, 2017 letter was the first notice provided to Plaintiffs of any purported defect or deficiency in Hailey's work on the project. Plaintiffs did not accept responsibility for the sewer pipe failure or participate in the repairs. (Id. , ¶ 198). Plaintiffs filed this case on September 7, 2017, seeking a declaratory judgment that Layne could not be held liable for any judgment Franklin might receive against Hailey. (Id. , ¶ 199; Compl., Doc. No. 1). On November 2, 2017, Franklin filed a Counterclaim also seeking a declaration as to whether one or both Plaintiffs are liable based on piercing the corporate veil or successor liability with respect to any liability Hailey might have to Franklin. (Doc. No. 17). Franklin brought suit in Tennessee state court against Hailey, the project engineer, and the pipe manufacturer on November 17, 2017. (Doc. No. 83, ¶ 200).

Plaintiffs filed a motion for summary judgment arguing that neither Layne Christensen nor Layne Heavy Civil can be held financially liable for the work performed by Hailey in 2002-04 when Hailey was unaffiliated with Plaintiffs. Plaintiff contend the legal theories presented by Franklin—piercing the corporate veil, successor liability, and fraudulent transfer—fail as a matter of law. (Doc. No. 61).

II. STANDARD OF REVIEW

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The party bringing the summary judgment motion has the initial burden of informing the Court of the basis for its motion and identifying portions of the record that demonstrate the absence of a genuine dispute over material facts. Rodgers v. Banks, 344 F.3d 587, 595 (6th Cir. 2003). The moving party may satisfy this burden by presenting affirmative evidence that negates an element of the non-moving party's claim or by demonstrating an absence of evidence to support the nonmoving party's claims. Id.

In evaluating a motion for summary judgment, the court views the facts in the light most favorable for the nonmoving party and draws all reasonable inferences in favor of the nonmoving party. Bible Believers v. Wayne Cty., Mich. , 805 F.3d 228, 242 (6th Cir. 2015) ; Wexler v. White's Fine Furniture, Inc. , 317 F.3d 564, 570 (6th Cir. 2003). The Court does not weigh the evidence, judge the credibility of witnesses, or determine the truth of the matter. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Rather, the Court determines whether sufficient evidence has been presented to make the issue of material fact a proper question of fact. Id. The mere scintilla of evidence in support of the nonmoving party's position is insufficient to survive summary judgment; instead, there must be evidence of which the trier of fact could reasonably find for the nonmoving party. Rodgers, 344 F.3d at 595.

In ruling on a motion for summary judgment, "[a] district court is not ... obligated to wade through and search the entire record for some specific facts that might support the nonmoving party's claim." InterRoyal Corp. v. Sponseller , 889 F.2d 108, 111 (6th Cir. 1989) ; see also , Shorts v. Bartholomew , 255 F. App'x 46, 50 (6th Cir. 2007) ("[W]e need not scour...