MSC Pipeline, LLC v. MSC Pipeline, LLC et al

Filing 162

MEMORANDUM OPINION re 161 Order on Motion for Partial Summary Judgment. Signed by Senior Judge Neal B. Biggers on 2/6/2015. (llw)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF MISSISSIPPI
OXFORD DIVISION
MSC PIPELINE, LLC, a Mississippi
Limited Liability Company

PLAINTIFF

V.

CIVIL ACTION NO. 3:13CV152-B-A

MSC PIPELINE, LLC, an Arkansas
Limited Liability Company, now known
as LONGHORN CONSTRUCTION, LLC, et al.

DEFENDANTS

MEMORANDUM OPINION
Presently before the court is Plaintiff’s motion for partial summary judgment. Upon due
consideration of the motion, responses, exhibits, and supporting and opposing authority, the
court is ready to rule.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff, MSC Pipeline, LLC, (hereinafter “MSC Mississippi”), entered into an Asset
Purchase Agreement (“APA”) with Defendants, Longhorn Construction, LLC, Michael Simpson,
and Michael Alan Alvey.
Pursuant to the APA, Plaintiff agreed to buy all assets of Defendants’ pipeline business
including the equipment, contracts, works in progress, and goodwill. The parties agreed on an
“Estimated Purchase Price” which was to be calculated according to the book value of the assets
at the time of closing, minus any liabilities, plus one million dollars. Using this method of
calculation, Plaintiff paid Defendants $3,599,344 at closing.
The parties included a provision within the APA whereby a “true up” process would
occur within ninety days of works in progress being completed. According to this provision,
Plaintiff would provide Defendants with an adjusted final balance sheet which would include any
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increase or reduction in the book value based on any changes in the estimated profits from works
in progress. Based on any increase or reduction in the book value, Plaintiff would either owe
Defendants more money or, conversely, Defendants would return a portion of the payment
received. This provision allowed Defendants a fifteen-day time frame within which they could
make any objections to the adjusted balance sheet. Pursuant to the provision, if no objection was
made, Defendants were “deemed to have accepted” the balance sheet. If Defendants did make a
timely objection, the parties would negotiate in good faith to resolve the dispute. The parties
then agreed to submit the sheet to a mutually agreed upon neutral third-party accounting firm
whose determination would be final and binding, if negotiations proved unsuccessful.
In accordance with the terms of the APA, Plaintiff provided Defendants with an adjusted
balance sheet indicating a reduction in the book value of the assets. Specifically, calculations
revealed that Plaintiff had overpaid by $795,916. No objections were made by Defendants
within the fifteen-day time period. In fact, Defendants failed to respond at all, neither indicating
approval or disapproval. After a period of silence, Plaintiff attempted to acquire Defendants’
approval in consulting with a neutral third-party accountant. Plaintiff’s attempt failed.
The parties executed Employment Agreements simultaneously with the APA whereby
Plaintiff agreed to employ Simpson and Alvey. MSC Mississippi employed Simpson as its
President and Alvey as its Vice President. Though they were given management roles, the
Employment Agreements stipulated their employment was on an at-will basis. Simpson’s and
Alvey’s employment could thus be terminated at any time as long as they received thirty days’
notice. MSC Mississippi dismissed Alvey after only two weeks as a result of Alvey’s arrest for
driving under the influence and possession of marijuana. Simpson’s employment lasted a little
over five months. MSC Mississippi dismissed Simpson following an incident in which he

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incurred a safety violation on behalf of the company. This safety violation caused Plaintiff to
lose its one and only client at the time. Neither Alvey nor Simpson were given the requisite
thirty days’ notice.
On April 26, 2013, Plaintiff filed its complaint in the Chancery Court of Lafayette
County, Mississippi, asserting a claim for breach of contract. Defendants timely removed the
case to this court. Following removal, Defendants filed a counterclaim against MSC Mississippi,
Sean Carothers, CCI Holdings, LLC, and Carothers Construction, Inc., alleging that CounterDefendants made fraudulent misrepresentations which induced them to execute the APA and
Employment Agreements. Further, Counter-Claimants assert claims of breach of the implied
covenant of good faith and fair dealing and breach of the employment agreements. They also
seek a declaratory judgment in which they ask the court to declare that Defendants are not liable
to MSC Mississippi for any alleged breach of the APA. In response to this counterclaim,
Counter-Defendants filed an amended complaint containing additional allegations against
Simpson. Plaintiffs later filed this motion for partial summary judgment on its claims and
Defendant’s counterclaims contending the only claims proper for trial are Plaintiff’s allegations
asserted against Simpson.
STANDARD OF REVIEW
A party is entitled to summary judgment “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56(c). Courts have placed the burden upon the moving party to show an
absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
Once a movant has made this showing, the burden then shifts to the non-movant. Id. at 324. The
non-movant must then demonstrate an existence of specific facts showing a genuine issue proper
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for trial. Id. The non-movant “must do more than simply show that there is some metaphysical
doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. V. Zenith Radio Corp., 475
U.S. 574, 586 (1986).
A motion for summary judgment may be granted only if the court finds “no genuine issue
of material fact” has been presented. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
“Substantive law will identify which facts are material.” Id. A fact is material if it “might affect
the outcome of the suit,” and any facts which would be irrelevant to the potential outcome are
immaterial. Id. Not only must a fact be material to avoid summary judgment, there must also be
a genuine dispute about a material fact. Id. A genuine issue exists “if the evidence is such that a
reasonable jury could return a verdict for the non-moving party.” Id. Before finding that no
genuine issue for trial exists, the court must first be satisfied that no rational trier of fact could
find for the non-movant. Matsushita, 475 U.S. at 587 (1986).
When deciding a motion for summary judgment, the court must view the underlying facts
in the “light most favorable to the party opposing the motion.” United States v. Diebold, Inc.,
369 U.S. 654, 655 (1962). As such, all reasonable inferences must be drawn in favor of the nonmovant. Id. The Supreme Court has made it clear that “at the summary judgment stage, the trial
judge’s function is not himself to weigh the evidence and determine the truth of the matter.”
Anderson, 477 U.S. at 249. The inquiry performed by the trial judge is a “threshold inquiry” of
whether a trial is needed. Id. at 250. “Summary judgment, although a useful device, must be
employed cautiously because it is a final adjudication on the merits.” Jackson v. Cain, 864 F.2d
1235, 1241 (5th Cir. 1989).
ANALYSIS
Mississippi law provides three elements that must be met for a party to establish a breach
of contract. Guinn v. Wilkerson, 963 So. 2d 555, 558 (Miss. Ct. App. 2006). Those three
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elements are “1) the existence of a valid and binding contract; 2) breach of the contract by the
defendant; and 3) money damages suffered by the plaintiff.” Id. A proven allegation of fraud in
the procurement of a contract destroys the contract, thereby allowing the aggrieved party to
avoid the purported agreement and escape being bound by its terms. Brown v. Ohman, 42 So. 2d
209, 212 (Miss. 1949).
Plaintiffs in this action allege Defendants have breached the aforementioned APA by
failing to comply with the terms of the Purchase Price provision. Defendants do not dispute they
have failed to follow the terms of the APA. Instead, Defendants have raised an affirmative
defense of fraud, arguing the APA is void and therefore no breach has occurred. Not only have
Defendants raised this as an affirmative defense, they have also filed a counter-claim against
Plaintiffs seeking damages from the alleged fraudulent inducement. Specifically, Simpson and
Alvey allege Carothers represented to them that they would remain in charge of the company
after the deal had closed. Simpson and Alvey also allege Carothers promised them that the
business would continue to run the same as it had before. According to Simpson and Alvey, they
would not have executed these agreements but for these alleged misrepresentations made by
Carothers.
Under Mississippi law, a party alleging fraudulent inducement to a contract must plead
and prove the following elements: 1) a representation,1 2) its falsity, 3) its materiality, 4) the
speaker’s knowledge of its falsity or ignorance of its truth,2 5) his intent that it should be acted
on by the hearer and in the manner reasonably contemplated, 6) the hearer’s ignorance of its
falsity, 7) his reliance on its truth, 8) his right to rely thereon, and 9) his consequent and

1

 The alleged misrepresentations “must relate to past or presently existing facts, as facts, and cannot consist of
promises.” Crystal Springs Ins. Agency, Inc. v. Commercial Union Ins. Co., 554 So. 2d 884, 886 (Miss. 1989).
2
 If a claim of fraud is predicated on a future promise, the aggrieved party must prove that the promisor intended, at
the time of making the promise, not to follow through. Crystal Springs, 554 So. 2d at 886.

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proximate injury. Koury v. Ready, 911 So. 2d 441, 445 (Miss. 2005). These elements must be
established by clear and convincing evidence. Mabus v. St. James Episcopal Church, 884 So. 2d
747, 762 (Miss. 2004).
A party’s intent may be inferred from the party’s subsequent acts following the
representation. Arete Partners, LP v. Gunnerman, 594 F.3d 390, 394 (5th Cir. 2010). In e-mail
correspondence between Carothers and Ray Boggs, an MSC Mississippi employee, Carothers
states “in summary we have an excuse and opportunity to push Alan where we need him in a
nice way.” (Defs.’ Ex. 4). Ray Boggs responded “we do have a great opportunity now.” Id.
This e-mail correspondence took place following Alvey’s aforementioned arrest. It could be
inferred from this correspondence that Plaintiff had been looking for a reason to dismiss Alvey
and quite possibly had intended to do so all along. Furthermore, following the purchase of
Defendants’ pipeline business, Carothers began dismissing experienced pipeline employees and
replacing them with employees who had no experience in pipeline work whatsoever. One hire in
particular, Ray Boggs, who Carothers apparently put in charge of the business’ operations,
lacked experience in the pipeline industry. Boggs, though under no executive title like Simpson
or Alvey, was allegedly given control over the company which Defendants assert Carothers had
promised to them. These acts by Carothers could be interpreted to show that at the time of
executing the APA and Employment Agreements, he neither intended to allow Simpson and
Alvey to run the business nor intended for the company to run in the same manner as it had
before.
Plaintiffs argue they are entitled to summary judgment on both their claim for breach of
contract and Defendants’ counterclaim of fraud for three reasons. First, Plaintiffs argue
Defendants cannot show that they reasonably relied on any misrepresentations because the terms

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of the APA and Employment Agreements contradict these alleged misrepresentations. Plaintiffs
are correct in asserting a party cannot reasonably rely on a representation when that
representation is contradicted by the terms of the written document. See Ballard v. Commercial
Bank of DeKalb, 991 So. 2d 1201, 1207 (Miss. 2008). The language in these agreements,
however, does not unequivocally contradict these misrepresentations.
In the Employment Agreement executed by Simpson and MSC Mississippi, Simpson was
“employed by the company as President of the business.” In a similar agreement executed by
Alvey and MSC Mississippi, Alvey was “to be employed by the company as Vice President of
Operations for the business.” These positions given to Defendants, as President and Vice
President of the company, could be interpreted as consistent with the alleged representations that
Simpson and Alvey would remain in control of the business as they had been prior to the
purchase. Further, the APA contains language requiring Defendants to “use its best efforts to
cause seller’s employees to make available their employment services to the buyer on the same
or similar terms as such employees have with seller.” This language is not inconsistent with
Defendants’ assertion that Plaintiffs represented that the business would run the same as it had
before, specifically with the same employees from the former business. A reasonable juror could
find the terms of the agreements to be ambiguous and not entirely inconsistent.
Plaintiffs next argue even if Defendants did reasonably rely on these alleged
misrepresentations, they would not be able to submit evidence to prove these alleged
representations were made. Plaintiffs point to the merger clause contained in the APA.
Plaintiffs are correct in their contention that generally merger clauses prevent introduction of
parol evidence. Grand Legacy, LLP v. Gant, 66 So. 3d 137, 145 (Miss. 2011). If parol evidence
were found to be inadmissible, then Defendants would have no chance of success as they would

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have no means of proving the alleged fraud. There is, however, an exception to this general rule:
an allegation of fraud in the inducement to make the contract. Brown, 42 So. 2d at 213. The
courts never intended the parol evidence rule to be used as a shield to prevent fraud. Id.
Accordingly, due to the aforementioned well-recognized exception to the parol evidence rule,
Defendants would be permitted to come forth with evidence to corroborate their allegations of
fraud.
Lastly, Plaintiffs assert summary judgment is appropriate because Defendants failed to
act promptly in pursuing their claim for fraud, essentially arguing waiver. This argument is
without merit. The parties executed the APA and Employment Agreements on September 30,
2012. Simpson and Alvey filed a complaint alleging fraud on April 30, 2013, in the United
States District Court for the Eastern District of Arkansas.3 Defendants thus acted on their
potential claim within seven months. Mississippi law imposes a three year limitation on claims
of fraud. Stephens v. Equitable Life Assur. Society of U.S., 850 So. 2d 78, 81 (Miss. 2003).
Because Defendants filed their counterclaim well within the limitations period provided under
Mississippi law, it can hardly be said they waived their right to sue by “failing to act promptly.”
The court emphasizes that it must view the underlying facts in the “light most favorable
to the party opposing the motion.” Diebold, 369 U.S. at 655. Therefore, though this court
seriously questions whether there has been a fraudulent misrepresentation of existing fact, the
court will permit this claim to go forward.4 Defendants, however, are put on notice that they
must be able to submit evidence establishing that these alleged representations were made and

3

  Defendants initially filed a complaint against Plaintiffs in the Eastern District of Arkansas. Upon learning of the
complaint filed by Plaintiffs in Mississippi, Defendants voluntarily dismissed their claims pending in the Eastern
District of Arkansas without prejudice, choosing to instead file their claims as counterclaims in this court.
4
As mentioned previously, under Mississippi law, to establish fraud, the purported misrepresentations “must relate
to past or presently existing facts, as facts, and cannot consist of promises.” Crystal Springs, 554 So. 2d at 886.
Mississippi courts, however, recognize an exception to this requirement when a “contractual promise is made with
the present undisclosed intention of not performing it.” Id.

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that Plaintiffs, at the time of making these alleged representations, had no intention of
complying.
The court now addresses Defendants’ counterclaim for breach of the implied covenant of
good faith and fair dealing encompassed within the APA and Employment Agreements.
Defendants contend Plaintiffs acted in bad faith and breached the implied covenant within the
APA by “interfering with the operations and management” of the pipeline company by
terminating Simpson and Alvey and by reducing the compensation of employees. Defendants
further contend that Plaintiffs violated the implied covenant within the Employment Agreements
by “hindering and preventing the performance” of Simpson and Alvey.
“All contracts contain an implied covenant of good faith and fair dealing in performance
and enforcement.” Cenac v. Murry, 609 So. 2d 1257, 1272 (Miss. 1992). Mississippi, however,
does not recognize an implied duty of good faith and fair dealing in employment contracts.
Cothern v. Vickes, Inc., 759 So. 2d 1241, 1248 (Miss. 2000). A party acts in good faith when he
is faithful to “an agreed purpose between two parties, a purpose which is consistent with justified
expectations of the other party.” Id. A party may demonstrate bad faith by showing “some
conduct which violates standards of decency, fairness or reasonableness.” Id. (quoting
Restatement (Second) of Contracts § 205, 100 (1979)). Bad faith requires more than a mere
“showing of bad judgment or negligence; rather, ‘bad faith’ implies some conscious wrongdoing
‘because of dishonest purpose or moral obliquity.’” Lambert v. Baptist Memorial Hosp. NorthAmerica, Inc., 67 So. 3d 799, 803 (Miss. Ct. App. 2011). Further, a party will not be found to
have breached the covenant when he “took only those actions which were duly authorized by the
contract.” Id. at 804.

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Defendants’ counterclaim alleging breach of the implied covenant of good faith and fair
dealing contained in the Employment Agreements must be dismissed. Mississippi does not
recognize the claim, and it is, therefore, not viable.
The court points out that Defendants are alleging a breach of the very agreements which
they contend are invalid due to fraud. The court will assume, arguendo, that the APA is valid for
the purpose of evaluating the bad faith claim. Plaintiffs have not engaged in any activity which
is prohibited by the agreement. Specifically, the APA provides, “the Buyer may offer
employment to those employees of the Seller as it may determine upon such terms and
conditions as it may determine, all in its sole and absolute discretion.” (Emphasis added.)
Nothing therefore required Plaintiffs to employ anyone; nor were they obligated to compensate
employees a specific amount. Pursuant to the APA, these decisions were left solely to the
discretion of Plaintiffs. This is undisputed.
Because the actions taken by Plaintiffs were in accordance with the express terms of the
APA and because Defendants cannot show any “conscious wrongdoing” on behalf of Plaintiffs,
this court cannot find that Plaintiffs have breached the implied covenant of good faith and fair
dealing. Accordingly, the court finds Plaintiffs’ motion for summary judgment, as it pertains to
this claim, should be granted.
CONCLUSION
For the foregoing reasons, the court finds that Plaintiffs’ motion for partial summary
judgment as it pertains to Plaintiffs’ claim for breach of contract and Defendants’ claim for
fraudulent inducement should be denied. Furthermore, the court finds Plaintiffs’ motion for
partial summary judgment as it pertains to Defendants’ claim for breach of the implied

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covenant of good faith and fair dealing is well taken and should be granted. A separate order in
accord with this opinion shall issue this day.
This, the 6th day of February, 2015.
/s/ Neal Biggers
NEAL B. BIGGERS, JR.
UNITED STATES DISTRICT JUDGE

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