Twin Oil Company, et al v. Total Containment, et al

Filing 669

ORDER granting in part and denying in part 437 Motion for Summary Judgment; adopting 641 Report and Recommendations. Signed by Judge Joan A. Lenard on 12/30/2008. (lc1)

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UNITED STATES DISTRICT COURT S O U T H E R N DISTRICT OF FLORIDA C A S E NO. 06-20953-CIV-LENARD/TORRES C IT Y OF ST. PETERSBURG, a Florida m u n icip a lity; TWIN OIL COMPANY, a Florida corpo ration; and JE F F M O N T G O M E R Y ASSOCIATES, a sole p ro p rie to r in the State of Florida, on behalf o f themselves and all other Florida re s id e n ts similarly situated, Plaintiffs, vs. P O L Y F L O W , INC., et al., Defendants. ____________________________ _ _____/ O R D E R ADOPTING REPORT AND RECOMMENDATION (D.E. 641) AND GRANTING IN PART AND DENYING IN PART DEFENDANT P O L Y F L O W , INC.'S MOTION FOR SUMMARY JUDGMENT (D.E. 437) T H I S CAUSE is before the Court on the Report and Recommendation issued by U .S . Magistrate Judge Edwin G. Torres on November 4, 2008 ("Report," D.E. 641), w h ich recommends that this Court grant in part and deny in part the Motion for Summary J u d g m e n t filed by Defendant Polyflow, Inc. ("Polyflow") on February 7, 2008 (see D.E. 4 3 7 ). On November 24, 2008, Polyflow filed its Objections to the Report ("Objections," D .E . 659). On December 12, 2008, Plaintiffs filed their Response to the Objections (" R e sp o n s e ," D.E. 665). Having reviewed the Report, the Objections, and the Response, th e Court finds as follows: I. G e n e r a l Background A s described in the Report, this case involves thermoplastic flexible piping (" F le x P ip e " ) marketed and distributed by Defendant Total Containment, Inc. ("TCI") for u s e in underground fuel containment systems, to enable petroleum fuels to be pumped fro m underground storage tanks to above-ground fuel dispensers. (D.E. 641 at 2.) Plaintiffs purchased and installed, or otherwise used, FlexPipe at their fuel dispensing f a c iliti e s and retail gasoline stations. (Id.) A s further noted in the Report, Defendant Polyflow was formed in March 2002, a n d , through a series of financial transactions occurring on or about July 2, 2002, P o lyflo w purchased TCI's pipe production assets. (Id.) Plaintiffs allege, inter alia, that Polyflow and other Defendants designed, m a n u f a c tu re d , marketed, distributed, and sold FlexPipe to Plaintiffs which Defendants k n e w or should have known was fundamentally unsuitable for its intended purpose of c o n v e yin g and containing petroleum fuels from underground storage tanks to aboveg ro u n d fuel dispensers. (Id. at 3.) Plaintiffs further allege that Defendants engaged in a f ra u d u le n t scheme to market and sell defective FlexPipe for profit, knowing that the p ro d u c t was defective and not approved for sale by federal and state regulatory agencies. (Id.) Finally, Plaintiffs allege that as a result of Defendants' conduct, they purchased F le x P ip e that has deteriorated and/or is deteriorating, resulting in physical damage to the F le x P ip e itself and other components of Plaintiffs' fuel containment, conveyance, and 2 d e liv e ry systems, and resulting in fuel leaks that contaminate the surrounding e n v iro n m e n t. (Id.) Based on these and additional allegations, Plaintiffs assert seven (7) c la im s against Polyflow, on which Polyflow now seeks summary judgment in its favor. (See id.) II. A n a ly sis 1. D ir e c t Liability Claims A s the Report notes, Polyflow first moves for summary judgment on Plaintiffs' c la im s based upon a stipulation entered into by Polyflow and Plaintiffs, which provides, in te r alia, that Polyflow was not incorporated until after Plaintiffs purchased and installed F le x P ip e , and that, as a result, Polyflow "did not directly: (i) make any fraudulent or false sta tem e n ts to [Plaintiffs] regarding the allegedly defective pipe; or (ii) design, test, m a n u f ac tu re , warrant, advertise, market, sell, or distribute any of the allegedly defective p ip e to the named Plaintiffs." (D.E. 641 at 4-5 (citing D.E. 437 at 6).) Based on the facts in the record, including this stipulation, the Report concludes that Plaintiffs have c o n c ed e d that they did not install or use Polyflow-manufactured FlexPipe; that Polyflow d id not issue to Plaintiffs any express warranties from Polyflow guaranteeing the TCI p ip in g systems; and that Polyflow did not sell any products to Plaintiffs. (D.E. 641 at 51 0 .) After analyzing the applicable law, the Report further concludes that (i) Plaintiffs la c k standing to raise direct liability claims against Defendant; (ii) Plaintiffs also lack s ta n d in g to represent putative class members who may have a claim arising out of damage 3 f ro m Polyflow pipe products; and (iii) Polyflow cannot be held liable to Plaintiffs on their b re a ch of express warranty claims. (See id.) In addition, the Report recommends that the C o u rt deny as untimely Plaintiffs' request to add to this action a class representative who d ire c tly suffered damage from Polyflow-manufactured piping, citing the April 4, 2007 d ea d lin e to amend the pleadings in this case. (Id. at 8-9.) Accordingly, the Report re c o m m e n d s that summary judgment be granted in Polyflow's favor to the extent that P la in tif f s ' claims are based upon Polyflow's direct liability to Plaintiffs. Neither party objects to the Report's factual or legal findings regarding Polyflow's a lle g e d direct liability to Plaintiffs, and upon an independent review of the record, the C o u rt finds that Plaintiffs may not recover against Polyflow based upon a theory of direct liab ility, nor may Plaintiffs recover against Polyflow on their breach of express warranty c la im . Accordingly, summary judgment is granted in favor of Polyflow on Plaintiffs' b re a ch of express warranty claim, and, to the extent that Plaintiffs' claims are based upon a theory of Polyflow's direct liability to Plaintiffs, summary judgment is likewise granted in favor of Polyflow. 2. S u c c e s s o r -in -I n te r e s t to TCI P o lyf lo w next seeks summary judgment on Plaintiffs' claim that Polyflow is liable to Plaintiffs as the successor-in-interest to TCI. (See D.E. 437 at 8-13.) As the Report n o tes , Polyflow asserts that the undisputed facts of this case show that Polyflow is not a m e r e continuation of TCI nor was its purchase of TCI's pipe production assets a 4 f ra u d u le n t effort to avoid liability of the predecessor; Plaintiffs, on the other hand, argue th a t evidence shows that Polyflow is substantially a continuation of TCI's business o p e ra tio n s , and that the series of financial transactions that took place on or about July 2, 2 0 0 2 were "sham transactions" to avoid successor liability exposure. (See D.E. 641 at 1 0 -1 1 (citations omitted).) W ith respect to this issue, the Report first notes that the "traditional corporate law ru le " does not impose the liabilities of the selling predecessor (here, TCI) upon the buying su cc esso r company (here, Polyflow) unless, inter alia, the successor is a mere c o n tin u a tio n of the predecessor, or the transaction is a fraudulent effort to avoid liabilities o f the predecessor. (Id. at 10 (citations omitted).) After analyzing the parties' arguments, th e Report concludes that the issues of whether Polyflow was a mere continuation of TCI an d whether the asset transfer to Polyflow was a fraudulent effort to avoid TCI's lia b ilitie s are issues of fact that must be resolved by the fact-finder in this case. (Id. at 1 4 .) In making this finding, the Report notes that there is evidence on the record which, if believed by the jury, could support Plaintiffs' claim that TCI and Polyflow were not tru ly independent corporate entities and that the sale of assets was designed to avoid p re d e ce ss o r liability; the Report then specifically enumerates the areas in which genuine is s u e s of disputed material fact exist, and recommends that summary judgment be denied o n the successor-in-interest issue. (Id. at 14-15.) Polyflow objects to the Report's conclusion that summary judgment is not 5 w a rra n ted on this issue on the grounds that, according to Polyflow, the undisputed facts e sta b lish that Polyflow was created, and functioned as, a completely different entity in f o rm and substance from TCI. (D.E. 659 at 3-4.) In support of its contention, Polyflow e n u m e r a te s the undisputed facts which, in its view, foreclose any conclusion that P o lyf lo w was the mere continuation of TCI; notably, however, Polyflow does not argue th a t the facts presented by the Magistrate Judge in the Report or presented by Plaintiffs in su p p o rt of their position are inaccurate or disputed. (Id. at 4-7.) After an independent review of the record and applicable law, and after reviewing th e nature of Polyflow's disagreement with the Report's conclusions, the Court agrees w ith Plaintiffs that Polyflow "ignores the applicable standard on a motion for summary ju d g m e n t" in its Objections. (See D.E. 665 at 3-4.) Although the Court's function at this ju n c tu re is not "to weigh the evidence and determine the truth of the matter but to d e te rm in e whether there is a genuine issue for trial," see Anderson v. Liberty Lobby, Inc., 4 7 7 U.S. 242, 249-50 (1986), a review of the Objections reveals that Polyflow is e ss e n tia lly asking this Court to do just that - i.e., weigh the evidence set forth by Polyflow in its Objections and determine on summary judgment that Polyflow is not liable as TCI's su c c e ss o r-in -in ter e st as a result of the weight of the evidence. Moreover, in its O b jectio n s, Polyflow also appears to ignore the fact that, on a motion for summary ju d g m e n t, the Court is required to construe "the evidence and factual inferences arising th e r e f r o m in the light most favorable to the nonmoving party." See Adickes v. S.H. Kress 6 & Co., 398 U.S. 144, 157 (1970). Here, as the Magistrate Judge accurately noted, su m m a ry judgment on the issue of Polyflow's successor-in-interest liability is inap p rop riate because, although the record reveals material facts that may support P o lyf lo w 's position, the record also contains material facts which, if believed by the factfin d er in this case, could likewise support Plaintiffs' claim that TCI and Polyflow were n o t truly independent corporate entities and that the sale of TCI's pipe assets was d esig n ed to avoid predecessor liability. Accordingly, for the reasons stated in the Report a n d as further stated herein, summary judgment on the issue of whether Polyflow is liable to Plaintiffs as a successor-in-interest to TCI is denied. 3. F r a u d u le n t Transaction and the Bankruptcy Proceeding Finally, the Report addresses Polyflow's request that certain allegations regarding th e manner in which Polyflow is allegedly liable to Plaintiffs in the Second Amended C o m p la in t be stricken because the basis for such allegations is the property of the b a n k ru p tc y estate (and a bankruptcy proceeding remains pending). (See D.E. 641 at 151 6 .) The Report recommends that the Court not strike such allegations, given that P la in tif f s have indicated on the record that they are not making a stand-alone claim for f ra u d u le n t conveyance or seeking avoidance of the underlying transaction, namely, the tra n sf e r of TCI's pipe-making operation to Polyflow. (See id.) Polyflow does not object to the Report's recommendation in this regard, and after an independent review of the re c o rd , the Court denies Polyflow's request that such allegations be stricken from the 7 S e c o n d Amended Complaint. B a s e d on the above, it is: O R D E R E D AND ADJUDGED that 1. T h e Report and Recommendation issued by U.S. Magistrate Judge Edwin G . Torres on November 4, 2008 ("Report," D.E. 641), is ADOPTED. 2. T h e Motion for Summary Judgment filed by Defendant Polyflow, Inc. on F e b r u a r y 7, 2008 (D.E. 437) is GRANTED in part and DENIED in part a s described in this Order. DONE AND ORDERED in Chambers at Miami, Florida, this 30th day of D e c em b e r, 2008. JOAN A. LENARD U N I T E D STATES DISTRICT JUDGE 8

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