BNSF Railway Company v. Toltz, King, Duvall, Anderson and Associates, Inc.
ORDER denying 64 Motion for Summary Judgment. Signed by Judge Dana L. Christensen on 6/20/2017. (ASG)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
JUN 2 0 2017
Cieri<, U S District Court
District Of Montana
BNSF RAILWAY CO.,
Plaintiff and Counter Defendant,
AND ASSOCIATES, INC.,
Defendant and Counter Claimant,
AND ASSOCIATES, INC.,
Third Party Plaintiff,
SAFE HARBOR ACCESS SYSTEMS,
LLC; SAFE HARBOR ACCESS
SYSTEMS II, LLC; SAFE HARBOR
ACCESS SYSTEM Ii, a/k/a SAFE
Third Party Defendants.
Before the Court is Third Party Defendant Safe II' s motion for summary
judgment. 1 For the reasons explained below, the Court denies the motion.
Defendant and Counterclaimant Tolz, King, Duvall, Anderson and Associates, Inc. will
be referred to as "TKDA"; Plaintiff and Counter-defendant BNSF Railway Co. will be referred to
as "BNSF"; Third Party Defendants Safe Harbor Access Systems, LLC, and Safe Harbor Access
BACKGROUND AND PROCEDURAL HISTORY
This case involves TKDA's alleged duty to indemnify BNSF for claims
arising out of an accident that occurred in 2011 involving a BNSF employee who
was injured while working on a fuel unloading dock at the BNSF railroad yard in
Whitefish, Montana. On August 23, 2001, BNSF and TKDA entered into a nonexclusive contract in which TKDA agreed to provide engineering services
necessary for the completion of work defined by BNSF (hereafter referred to as
the "2001 Agreement"). (Doc. 27-1). Pursuant to the 2001 Agreement, TKDA
was to indemnify and hold BNSF harmless for "any claims arising from the
performance ofth[e] Agreement." The contract also included the following choice
of law provision: "All questions arising under this Agreement shall be decided
according to the laws of the State in which the work is performed." (Doc. 27-1 at
11.) The 2001 Agreement was renewed in 2003, 2004, 2005, 2006, 2008, and
January 21, 2009, which was the final renewal of the 2001 Agreement. (Docs. 391, 39-2, 39-3, 39-4, 39-5, 39-6.)
In 2002, pursuant to the 2001 Agreement, TKDA agreed to engineer a fuel
Systems II, LLC, will be referred to as "Safe I" and "Safe II," respectively. Safe I and Safe II
have joined in TKDA's motion for partial summary judgment regarding the invalidity of
indemnity and release of claims provisions. (Docs. 46, 47.)
unloading facility at the BNSF railway yard in Whitefish, Montana. TKDA
contracted to provide an elevated walkway for top-unloading tank cars with
retractable gangways and new fuel unloading arms at the two tank car unloading
locations. TKDA purchased supply equipment for the two gangway platforms
from Safe I. These platforms were designed to allow BNSF employees to access
the tops of tank cars and had an integrated fall protection system that would retract
with the walkway in order to provide a safety barrier.
The remaining facts regarding the contractual relationship between BNSF
and TKDA will not be restated here, since the Court has already ruled on that issue
in its previous order on BNSF and TKDA's cross motions for summary judgment.
(See Doc. 75.) The Court found that TKDA was still liable because the indemnity
clause in the contract between BNSF and TKDA was valid and enforceable. Here,
Safe II argues that it is entitled to summary judgment on all claims because the
undisputed facts show that Safe II had no contract with TKDA and is not liable in
tort for common law contribution or indemnity as it relates to TKDA's
responsibilities to indemnify BNSF in the underlying personal injury case.
Safe I is no longer in existence because of a judicial foreclosure by one of
its creditors, National Loan Investors, L.P. ("NLI"). NLI was the successful
bidder at the sale for the assets, plant, and equipment of Safe I. NLI' s bid and
interest was then assigned and sold in 2007 to Southeastern Realty, LLC, which,
in tum, leased the assets, plant, and equipment and intangibles to Safe II after it
was formed in May 2007. Thus, TKDA and Safe II are disputing whether Safe II
assumed the contract and indemnity liabilities of Safe I.
A party is entitled to summary judgment if it can demonstrate 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). Summary judgment is warranted where
the documentary evidence produced by the parties permits only one conclusion.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). Only disputes over
facts that might affect the outcome of the lawsuit will preclude entry of summary
judgment; factual disputes that are irrelevant or unnecessary to the outcome are
not considered. Id. at 248. In ruling on a motion for summary judgment, a court
must view the evidence "in the light most favorable to the opposing party." Tolan
v. Cotton, 134 S. Ct. 1861, 1866 (2014) (quoting Adickes v. S.H Kress & Co., 398
U.S. 144, 157 (1970)). "[T]he evidence of the nonmovant is to be believed, and
all justifiable inferences are to be drawn in his favor." Id. at 1863 (quoting
Anderson, 477 U.S. at 255).
Because jurisdiction over this action is founded upon diversity of
citizenship, the Court applies the substantive law of Montana, the forum state.
Medical Laboratory Mgmt. Consultants v. American Broadcasting Cos., Inc., 306
F.3d 806, 812 (9th Cir.2002). "The task of a federal court in a diversity action is
to approximate state law as closely as possible in order to make sure that the
vindication of the state right is without discrimination because of the federal
forum." Gee v. Tenneco, Inc., 615 F.2d 857, 861 (9th Cir.1980). Federal courts
"are bound by the pronouncements of the state's highest court on applicable state
law." Appling v. State Farm Mutual Auto. Ins. Co., 340 F.3d 769, 778 (9th
Cir.2003) (quoting Ticknor v. Choice Hotels Int 'l, Inc., 265 F .3d 931, 939 (9th
In its opening brief, Safe II argues that (1) Safe II and TKDA never
contracted together so there can be no breach of contract, (2) there is no proof by
TKDA that Safe II ever assumed the contractual liabilities of Safe I, (3) Safe II
cannot be a joint tortfeasor for any underlying tort action because Safe II was not
in existence at the time the gangways were installed, and (4) Safe II cannot be
liable because of the statute of repose. In its response, TKDA contends that Safe
II impliedly assumed the contract-based liabilities of Safe I and is therefore liable
for indemnification. Even if Safe II did not assume the contractual liabilities of
Safe I, TKDA asserts that Safe II is liable under agency and identity theories and
also liable for successor liability based on the continuity of enterprise theory.
Finally TKDA argues that the statue of repose does not apply because of the
existence of a written contract between Safe I and TKDA.
The Court will address each theory of liability separately below.
Whether Safe II Impliedly Assumed Contractual Liabilities of Safe I
TKDA first argues that fact issues exist as to whether Safe II impliedly
assumed the contract liabilities of Safe I. TKDA contends that because ( 1) Safe II
assumed and completed pending Safe I work orders, (2) Safe II paid the obligation
of Safe I's vendors over time, (3) Safe II assumed customer complaints and
warranty issues of Safe I, (4) Safe II accepted Safe I's contract receivables, ( 5)
Safe II assumed responsibility for responding to BNSF's service call about the Fox
incident, and (6) Safe II paid an insurance deposit to restore the Safe I plant
facility building that was damaged in a tornado, that Safe II impliedly assumed all
contract liabilities of Safe I. Safe II maintains that because no contract existed
between Safe I and Safe II, and Safe II never explicitly or impliedly assumed the
contract liabilities of Safe I, that Safe II cannot be liable for breach of contract.
"[T]he assignee of a contract [is] generally not held liable for the assignor's
breach of contract." Cuchine v. H.O. Bell, Inc., 682 P.2d 723, 725 (Mont. 1984)
(citations omitted). "Under certain circumstances an assignee has been held to
have impliedly assumed the contractual obligations of the assignor." MasseyFerguson Credit Corp. v. Brown, 567 P.2d 440, 443 (Mont. 1977). If there "is no
express assumption of the underlying agreement, a consideration of all the facts
[may] compel the inference that the defendant assumed the conditions of the
[assignor]." Id. The obligation can be expressly assumed in writing, or by
implication where the assignee's conduct manifests an intent to become bound.
There is no dispute that a contract did not exist between Safe II and TKDA.
Thus, Safe II could not have explicitly assumed the contract liabilities of Safe I.
However, Safe II has presented six different situations that may be sufficient to
prove that Safe II implicitly assumed the contract liabilities of Safe I. Safe II did
not respond to this argument. Consequently, the facts and circumstances here
surrounding Safe II' s actions-especially since TKDA alleges that Safe II
assumed Safe I's work orders, contract receivables, and vendor warranties-could
put Safe II in a position of more than a mere purchaser of Safe I's assets.
However, this is fact-intensive inquiry for the jury. Thus, there still exists a
genuine issue of material fact as to whether Safe II implicitly assumed the contract
liabilities of Safe I. In regards to this theory of liability, Safe H's motion will be
Whether Safe II is Liable Under Agency and Identity Theories
Next, TKDA contends that Safe II is the "agent" or "alter ego" of Safe I, and
thus Safe II remains liable for Safe I's negligence. Safe II argues that it cannot be
an agent or alter ego of Safe I because they never existed at the same time, and
were not principal and agent corporations or parent and subsidiary corporations.
"An agent is one who represents another, called the principal, in dealings
with third persons." Mont. Code Ann. § 28-10-101 (2015). Agency is either
actual or ostensible. Mont. Code Ann.§ 28-10-103 (2015). "An agency is actual
when the agent is really employed by the principal. An agency is ostensible when
the principal intentionally or by want of ordinary care causes a third person to
believe another to be the principal's agent when that person is not really employed
by the principal." Id. Agency can also be created "by a precedent authorization or
a subsequent ratification." Fitterer Sales Montana, Inc. v. Mullin, 358 P.3d 885,
889 (Mont. 2015) (quoting Mont. Code Ann.§ 28-10-103).
Further, if corporation is controlled by another, it may be considered to be
an alter ego of the parent corporation and a principal-agent relationship may exist.
"A subsidiary corporation may be the mere agent of a parent company for a
particular transaction if the parent company exercises control over the conduct and
activities of the subsidiary so that in effect the subsidiary is merely acting on
behalf of the parent." Hando v. PPG Indus., Inc., 771 P.2d 956, 960 (Mont. 1989).
"[T]he corporate cloak will not be cast aside under either an agency or an alter ego
theory unless it appears 'not only that the corporation is controlled and influenced
by one or a few persons, but, in addition ... that the corporate cloak is utilized as a
subterfuge to defeat public convenience, to justify wrong, or to perpetrate fraud."'
Thornock v. Pack River Mgmt. Co., 740 P .2d 1119, 1121 (Mont. 1987) (quoting 18
C.J.S., Corporations, sec. 6, p. 378).
The Court finds that neither a principal-agent nor a parent-subsidiary
relationship existed between Safe I and Safe II. The timing of the formation of
these two companies defeats this theory of liability. Safe I and Safe II were never
in existence at the same time. It is undisputed that Safe II was not operational
until after the judicial foreclosure of Safe I in 2007. Safe I could never have acted
on behalf of Safe II because Safe II did not exist at any point in time when Safe I
was in business. Therefore, there is no way Safe II could be in control as a
principal or parent company over Safe I as the agent or subsidiary company.
Therefore, TKDA's theory of liability through a principal-agent or alter ego
relationship is unavailing.
Whether Safe II has Successor Liability Under the Continuity of
Third, TKDA argues that Safe II was a mere continuation of Safe I and thus
the continuity of enterprise theory of liability applies. Safe II contends that
because Safe II only purchased the assets of Safe I, and Safe II has different
owners than Safe I, this theory does not apply.
The general rule is that an entity that purchases only the assets of another
corporation is not responsible for the debts and liabilities of the company unless
the purchasing company expressly assumed those debts. In case of mere purchase
or acquisition ofanother company's property-In general, 15 Fletcher Cyc. Corp.
§ 7122 (2017). Under the continuity of enterprise exception, "[a] successor
corporation can be liable for the debts of its predecessor, if it is merely a
continuation or reincarnation of the first corporation." Buck v. Billings Montana
Chevrolet, Inc., 811P.2d537, 543 (Mont. 1991). "[H]owever, before a
corporation can be deemed a successor, certain showings must be made. Id.
(citing 19 Am. Jur. 2d § 2711). This "require[s] evidence of one or both of the
following factual elements: (1) a lack of adequate consideration for acquisition of
the former corporation's assets to be made available to creditors, or (2) one or
more persons were officers, directors, or shareholders of both corporations."
Katzir 's Floor & Home Design, Inc. v. M-MLS.com, 394 F .3d 1143, 1150 (9th Cir.
2004); Buck, 811 P.2d at 543 ("For example, it is generally required that the
plaintiff establish that insufficient consideration ran from the new company to the
old and that only one corporation existed at the completion of the transfer.").
TKDA contends that Safe II only paid $1.5 million for the assets of Safe I
but that Safe I had been encumbered by $7.5 million in debt, which raises a fact
question about the adequacy of consideration paid. (Doc. 85 at 18.) Safe II claims
that this argument fails because during a regularly conducted foreclosure sale, the
highest bidding price is considered a "fair price" received for the property so long
as the state's requirements for conducting a foreclosure sale were met. (Doc. 92 at
5, n. 1); see also BFP v. Resolution Trust Corp., 511 U.S. 531, 541-542 (1994).
TKDA has not established that there is a genuine issue of material fact regarding
the price paid for Safe I's assets at the foreclosure sale. TKDA's assumption that
the price paid versus the debt encumbered is somehow unfair is not enough to
overcome summary judgment. Thus, there is no factual dispute regarding
insufficient consideration for the purchase of Safe I's assets.
Although Montana has not explicitly accepted the second element for
determining successor liability, the Ninth Circuit and many other jurisdictions
have done so. 2 Thus, out of abundance of caution, the Court will also analyze this
factor. This element requires that one or more persons were officers, directors, or
shareholders of both corporations. There is no dispute that William Calloway and
Bert Montague own Safe II and that neither were owners, directors, or
shareholders of Safe I. They were merely business consultants of Safe I during the
foreclosure process. Thus, because Safe I and Safe II have no commonality of
owners, directors or officers, Safe II cannot be a considered a mere continuation of
Safe I based on this element.
Consequently, TKDA's theory of liability under the continuity of business
enterprise exception is without merit.
Statue of Repose
Finally, Safe II argues that regardless of the theory of liability, Safe II
cannot be liable because of the statute of repose. Under Montana Code Annotated
§ 27-2-208, actions for damages arising out of work on improvements to real
property may not be commended more than 10 years after the competition of the
See, e.g., Katzir's, 394 F.3d 1143; Leannais v. Cincinnati, Inc., 565 F.2d 437, 440 (7th
Cir. 1977) ("The key element of a 'continuation' is a common identity of the officers, directors
and stockholders in the selling and purchasing corporations."); Harris v. TI, Inc., 243 Va. 63,
70, 413 S.E.2d 605, 609 (1992) ("A common identity of the officers, directors, and stockholders
in the selling and purchasing corporations is the key element of a 'continuation."').
improvement. Mont. Code Ann. § 27-2-208 (2015). However, this statute does
not apply to an action upon "any contract, obligation, or liability founded upon an
instrument in writing." Mont. Code Ann. § 27-2-208(1). There is no dispute that
TKDA and Safe I had a written contract regarding the parts that Safe I
manufactured and sold to TKDA for the gangway. Thus, because the Court found
above that there still exists a genuine issue of material fact as to whether Safe II
implicitly assumed the contractual obligations of Safe I, the statute of repose
would not apply since a written contract existed between Safe I and TKDA.
Accordingly, IT IS ORDERED that Safe II's motion for summary judgment
(Doc. 64) is DENIED.
20~ay of June, 2017.
Dana L. Christensen, Chief Judge
United States District Court
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