Roane v. Koch Industries, Inc.

• Decision Date: 26 June 2000
• Docket Number: No. 85-1636-SAC.,85-1636-SAC.
• Citation: 103 F.Supp.2d 1286
• Parties: Gay A. ROANE, et al., Plaintiffs, v. KOCH INDUSTRIES, INC., et al., Defendants.
• Court: U.S. District Court — District of Kansas

103 F.Supp.2d 1286

Gay A. ROANE, et al., Plaintiffs, v. KOCH INDUSTRIES, INC., et al., Defendants.

No. 85-1636-SAC.

United States District Court, D. Kansas.

June 26, 2000.

Fred H. Bartlit, Jr., Bartlit, Beck, Herman, Palenchar & Scott, Denver, CO, L. James Berglund, II, Thompson & Knight, Dallas, TX, Russell E. Brooks, Milbank, Tweed, Hadley & McCloy, Ellen A. Cirangle, Bartlit, Beck, Herman, Palencher & Scott, Denver, CO, Alex Dimitrief, Kirkland & Ellis, Chicago, IL, John T. Hickey, Jr., Kirkland & Ellis, Chicago, IL, Gregory S.C. Huffman, Thompson & Knight, Dallas, TX, Michael Paul Kirschner, Lee & Kirschner, P.L.L.C., Clifford L. Malone, Adams & Jones, Chartered, Wichita, KS, Harry L. Najim, Najim Law Offices Wichita, KS, Joseph F. Ryan, Lyne, Woodworth & Evarts, Boston, MA, Donald E. Scott, Bartlit, Beck, Herman, Palenchar & Scott, Denver, CO, Thomas E. Wright, Wright, Henson, Somers, Sebelius, Clark & Baker, LLP, Topeka, KS, for Plaintiffs.

James M. Armstrong, Foulston & Siefkin L.L.P., Wichita, KS, Donald L. Cordes, Koch Industries, Inc., Wichita, KS, Robert L. Howard, Foulston & Siefkin, L.L.P., Wichita, KS, Timothy B. Mustaine, Foulston & Siefkin, L.L.P., Wichita, KS, for Defendants.

MEMORANDUM AND ORDER

CROW, Senior District Judge.

The case comes before the court on the defendants' motion to certify a choice-of-law question to the Kansas Supreme Court. (Dk.962). The defendants specifically request the following question to be certified: "Under Kansas law, what state's law applies to non-federal fraud claims arising from the single-transaction purchase of a large block of minority stock in a Kansas corporation?" (Dk.962, p. 3). The plaintiffs oppose the motion arguing: (1) the Tenth Circuit's decision and mandate precludes the district court from revisiting or reconsidering the choice-of-law issue; (2) the defendants waived their challenge to the district court's prior ruling on this issue; (3) the defendants are unable to satisfy the required elements for certification; and (4) certification would be futile. The defendants' reply brief addresses these different arguments. Saying the defendants have cited cases incorrectly and also misstated their arguments, the plaintiffs move for leave to file a surreply. (Dk.974). The court denies the motion for leave, as the matters have been fully and adequately briefed and the plaintiffs' surreply adds nothing meaningful or substantial to the court's consideration of these matters.

PROCEDURAL BACKGROUND

Prior to the jury trial that commenced in April of 1998, the court requested certain plaintiffs to address the choice-of-law issue that appeared in the pretrial order. The court ruled on that issue in an order published at Koch v. Koch Industries, Inc., 2 F.Supp.2d 1416 (D.Kan.1998). The court considered and rejected the defendants' argument that the complexity and size of this case compels the application of one law, Kansas law, to the common-law tort claims of all plaintiffs. The court similarly was not persuaded by the defendants' contention that the Kansas Supreme Court would abandon the lex loci delicti doctrine in favor of the "most significant relationship" test set fourth in the Restatement (Second) of Conflict of Laws § 188 (1971). The court concluded that under Kansas choice-of-law principles the law of Texas would apply to the fraud claims found in Count VI of the third amended complaint.

The district court applied what it believed to be Texas law in its rulings and jury instructions on those Texas fraud claims. The district court instructed the jury defining materiality in objective terms for the plaintiffs' Kansas and Texas law claims. On appeal, the "Texas plaintiffs" (Gay Roane, Holly Farabee and Ronald Borders) argued that Texas law defines materiality subjectively. In addressing this contention, the Tenth Circuit first noted that the defendants had waived appellate review of the district court's decision on the choice-of-law decision:

Although the Defendants contend that the district court erred in its choice of law decision allowing the Texas Plaintiffs to proceed on two Texas state law claims, the Defendants nonetheless expressly waived review of that determination on appeal because they believe Kansas and Texas law do not differ on the issue.

203 F.3d at 1231 n. 18. The Tenth Circuit further concluded that a subjective materiality standard applied to the plaintiffs' Texas claims of common-law fraud and the violation of § 27.01 of the Texas Business & Commercial Code. As a result, the panel held that the district court "committed reversible error with respect to the Texas Plaintiffs' claims when it instructed the jury to determine objectively whether the Defendants' misrepresentations and omissions were material." 203 F.3d 1202, 1233 (10th Cir.2000). The Tenth Circuit affirmed the district court's judgment in this case except for "the Texas Plaintiffs' claims under state common law fraud and section 27.01 of the Texas Business & Commercial Code" and reversed and remanded for further proceedings on these two claims. 203 F.3d at 1239.

LAW OF THE CASE DOCTRINE¹

In its most common terms, the law of the case functions as a doctrine that "`posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.' This rule of practice promotes the finality and efficiency of the judicial process by `protecting against the agitation of settled issues.'" Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 816, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988) (quoting Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983) and 1B J. Moore, J. Lucas, & T. Currier, Moore's Federal Practice ¶ 0.404[1], p. 118 (1984)). "The doctrine of law of the case comes into play only with respect to issues previously determined." Quern v. Jordan, 440 U.S. 332, 347 n. 18, 99 S.Ct. 1139, 59 L.Ed.2d 358 (1979) (citation omitted).

For purposes of this case, the court is most concerned with how this doctrine operates on a district court following an appellate court decision. "The `law of the case' doctrine requires every court to follow the decisions of courts that are higher in the judicial hierarchy." Guidry v. Sheet Metal Workers Local International Association, Local No. 9, 10 F.3d 700, 705 (10th Cir.1993), modified on other grounds, 39 F.3d 1078 (10th Cir.1994), cert. denied, 514 U.S. 1063, 115 S.Ct. 1691, 131 L.Ed.2d 556 (1995). In other words, when an appellate court issues a decision and remands the case, then the district court must be obedient in carrying out the higher court's mandate. 18 Moore's Federal Practice § 134.23[1][a] (3d ed.1999). This "nondiscretionary aspect of the law of the case doctrine is sometimes called the `mandate rule.'" Id. (citing in part United States on Behalf of Dept. of Labor v. Insurance Co. of North America, 131 F.3d 1037, 1041 (D.C.Cir.1997)). This rule covers those issues that are decided explicitly or are resolved implicitly. Rishell v. Jane Phillips Episcopal Memorial Medical Center, 94 F.3d 1407, 1410 (10th Cir.1996), cert. dismissed, 520 U.S. 1152, 117 S.Ct. 1331, 137 L.Ed.2d 491 (1997); Guidry, 10 F.3d at 705. In sum, "[l]aw of the case principles do `not bar a district court from acting unless an appellate decision has issued on the merits of the claim sought to be precluded.'" Wilmer v. Board of County Commissioners of Leavenworth County, 69 F.3d 406, 409 (10th Cir.1995) (quoting United States v. Caterino, 29 F.3d 1390, 1395 (9th Cir.1994), overruled on other grounds, Witte v. United States, 515 U.S. 389, 115 S.Ct. 2199, 132 L.Ed.2d 351 (1995)). Put another way, "when further proceedings follow a general remand, the lower court is free to decide anything not foreclosed by the mandate issued by the higher court." Guidry, 10 F.3d at 706 (quotations omitted).

The Tenth Circuit has been quite careful to limit this non-discretionary rule only to those issues on which the appellate court actually decides the merits. The rule does not extend to issues decided on procedural grounds:

Thus, when a dispositive procedural deficiency has obviated or deflected consideration of the underlying merits of a claim, the law of the case doctrine does not reach through that procedural ruling to enshrine a substantive determination never in fact made. See, e.g., DeWeerth v. Baldinger, 38 F.3d 1266, 1271 (2d Cir.1994) (law of the case not implicated by denial of motion to recall mandate as procedurally unnecessary in light of adequate remedy available in district court)[, cert. denied, 513 U.S. 1001, 115 S.Ct. 512, 130 L.Ed.2d 419 (1994)]; Caterino, 29 F.3d at 1395-96 (law of the case not implicated by affirmance based on waiver of issue); Borger v. Yamaha Int'l Corp., 625 F.2d 390, 395 (2d Cir. 1980) (law of the case not implicated by affirmance of order denying JNOV motion on timeliness grounds).

Wilmer, 69 F.3d at 409; but see Martinez v. Roscoe, 100 F.3d 121, 123 (10th Cir. 1996) ("Under the doctrine of law of the case, `a legal decision made at one stage of litigation, unchallenged in a subsequent appeal when the opportunity to do so existed, becomes the law of the case for future stages of the same litigation, and the parties are deemed to have waived the right to challenge that decision at a later time.'") (quoting Capps v. Sullivan, 13 F.3d 350, 353 (10th Cir.1993) (quotation omitted)) (This holding may be distinguishable in that the rule is being applied in the appellate court based on the parties' failure to assert the issue in a prior appeal). "[T]he mere fact that [an issue] could have been decided is not sufficient to foreclose the issue on remand." United States v. Insurance Co. of North America, 131 F.3d at 1041 (quotation omitted). The Tenth Circuit did not consider and decide the merits of the choice-of-law issue simply because the defendants here could have raised the choice-of-law issue but chose to waive it.

The...