GQ Sand, LLC v. Conley Bulk Services, LLC et al

Filing 221

ORDER granting in part, reserving in part and denying in part 50 Plaintiff GQ Sand's Motion for Summary Judgment; denying 72 Defendant Conley Bulk Service's Motion for Summary Judgment. Signed by District Judge William M. Conley on 06/10/2016. (mfh)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
GQ SAND, LLC,
Plaintiff and Counterclaim Defendant,

OPINION AND ORDER

v.
15-cv-152-wmc
CONLEY BULK SERVICES, LLC,
Defendant, Counterclaim Plaintiff and Crossclaim Defendant ,
RANGE MANAGEMENT SYSTEMS, LLC, and
Defendant and Counterclaim Plaintiff,
and
NEJGID, LLC,
Defendant and Counterclaim/Crossclaim Plaintiff.
Plaintiff GQ Sand, LLC, brings this civil action against defendants Conley Bulk
Services, LLC (“CBS”), Range Management Systems, LLC (“RMS”) and NEJGID, LLC,
arising out of a multi-million dollar frac sand deal gone awry. Defendants have in turn
filed counterclaims against plaintiff.

Finally, defendant NEJGID has asserted a

crossclaim against defendant CBS.
Now before the court are GQ Sand’s motion for summary judgment on claims it
asserted against the three defendants, as well as CBS's motion for summary judgment on
its breach of contract counterclaim against GQ Sand. (Dkt. ##50, 72.) Save for GQ
Sand’s motion for summary judgment on negligence and misrepresentation claims againt
RMS, the court finds genuine issues of material fact preclude entry of summary judgment
on any of the parties’ claims.

UNDISPUTED FACTS1
A. The Parties
Plaintiff and counterclaim defendant GQ Sand, LLC, is a Wisconsin limited
liability company, with its principal place of business located in Mazomanie, Wisconsin.
Josh Quisling and Joe Gargano are the sole members of GQ Sand. Quisling is a citizen of
Nevada; and Gargano is a citizen of Wisconsin.
Defendant, counterclaim plaintiff and crossclaim defendant Conley Bulk Services,
LLC (“CBS”) is a Texas limited liability company, with its principal place of business
located in Weatherford, Texas. CBS’s sole member is Transportation II, Inc., which is
incorporated in Arkansas, with its principal place of business also located in that state.
Rory Conley is CBS’s President, and Brock Brockinton is its Vice President.

CBS

provides truck transportation and procurement services of hydraulic fracturing
proponents to the petroleum industry.2

In opposing GQ Sand’s motion, RMS and NEJGID propose to submit “additional findings of
fact all of those facts set forth in the Declaration of Cody Lyons.” (R-N’s Add’l PFOFs (dkt.
#105) ¶ 2.) This submission is contrary to the court’s procedures for summary judgment
(5/28/15 Order (dkt. #27) 12), and indeed, entirely undercuts the value from the court’s
perspective of the proposed findings process. Nonetheless, the court reviewed Lyon’s declaration
but has not set forth his statements below, unless RMS otherwise relied on Lyon’s declaration in
responding to plaintiff’s motion for summary judgment. The court also notes that many of his
statements extend beyond his personal knowledge. Indeed, some of his averments touch on areas
of expert opinion, and there is no indication that he has been disclosed as an expert. Moreover,
defendants RMS and NEGJID in their combined opposition brief and defendant CBS in its own
opposition, sets forth several pages of facts without any citations to the proposed findings of facts
or the record. Consistent with its practice, the court has limited its review to the proposed
findings of facts in setting forth the undisputed facts. With that aside, unless otherwise noted,
the court finds the following facts material and undisputed.
1

As previously noted, and despite the same spelling of my last name, I have no known
relationship to this entity or any of its officers.
2

2

Defendant and counterclaim plaintiff Range Management Systems, LLC (“RMS”),
is a Texas limited liability company, with its principal place of business located in Kellar,
Texas. RMS’s sole member is Cody Lyon, a citizen of Texas. RMS is in the business of
lending railcars, and then using those railcars to arrange for the transport of goods and
materials for others.
Finally, defendant and counterclaim/crossclaim plaintiff NEJGID, LLC, is a Texas
limited liability company, with its principal place of business in Austin, Texas. NEJGID’s
sole member at all times relevant to this matter was Carl Hudspeth. Hudspeth is a
citizen of Texas. RMS’s Lyon testified at his deposition that at some point in 2015,
Lyon purchased NEJGID from Hudspeth.
As such, the defendants are all citizens of different states (Texas and Arkansas)
than the plaintiff (Nevada and Wisconsin).

Moreover, the amount in controversy

exceeds $75,000.
B. GQ Sand’s and CBS’s Sand Supply Agreement
i.

Events Leading up to Agreement

On or about December 2, 2014, CBS contracted to sell to Advanced Stimulation
Technologies (“AST”), “certain types of API [American Petroleum Institute] and ISO
[International Organization for Standardization] quality sand for hydraulic fracturing
operations.” (Watt Decl., Ex. 1 (dkt. #69-1).) Specifically, the AST contract required
CBS to sell AST 10,000 tons each of frac sand with the following specifications: 20/40
grade sand of 7-K API quality; 30/50 grade sand of 8-K API quality; and 40/70 grade
sand of 9-K API quality. (Id.) The size of the sand grains determines the grade of the
3

sand. For example, 20/40 grade sand means that 90 percent of the sand is small enough
to pass through a 20 mesh screen, but large enough to be retained on a 40 mesh screen. 3
The “K value” represents the crush strength of the frac sand and is defined by the
pressure applied to the sand in thousands of pounds per square inch.
Shortly after CBS entered into the AST contract, Hudspeth, the manager of
defendant NEJGID, introduced Brockinton, CBS’s Vice President, to Quisling of plaintiff
GQ Sand, as a potential provider of sand to service the AST contract. Specifically, the
parties discussed whether GQ Sand could source the sand and railcars, as well as manage
the delivery of sand to a trans-loading facility designated by CBS. On December 19,
2014, Brockinton sent Quisling a draft contract. Over the next two to three weeks, CBS
and GQ Sand negotiated the final language of an agreement. On December 23, CBS sent
back a marked-up version highlighting “areas of concern,” including a note that the
“Account” referred to in § 1.9 must be an escrow account. (CBS’s Add’l PFOFs (dkt.
#95) ¶ 2 (quoting Salman Decl., Ex. 4 (dkt. 98-4) 8).) During these negotiations, both
parties were represented by counsel, Attorney Steven Brezinski for GQ Sand and
Attorney Matt Lindsay for CBS.
On December 29, Attorney Brezinski, on behalf of GQ Sand, stated that “[t]here
needs to be a deposit which GQ [Sand] can use to cover their costs outside of the escrow
account equal to the amount to be paid for the first and last shipments. Future payments
can be made from the escrow account.” (CBS’s PFOFs (dkt. #74) ¶ 54 (citing Lindsay
"Mesh is often used in determining the particle-size distribution of a granular material." See
https://en.wikipedia.org/wiki/Mesh_%28scale%29 (last visited June 9, 2016).
By way of
comparison, 20 U.S. mesh converts to 0.0331 inches or 0.841 millimeters, while 40 mesh
converts to 0.0165 inches or 0.4 millimeters. Id.
3

4

Aff. (dkt. #76) ¶ 4).)

On January 2, 2015, Attorney Lindsey, on behalf of CBS,

responded that it would “[p]rovide a cash payment outside of escrow of $157,000.00
within 7 days of the signing of a purchase agreement” and would “[p]lace an additional
$628,000.00 in escrow and agree to fund it as we previously set forth.” (Id. at ¶ 55
(citing Lindsay Aff., Ex. B (dkt. #76-2)).)
On January 13, 2015, Quisling and Gargano for GQ Sand met in Madison,
Wisconsin, with Brockinton and Attorney Lindsay for CBS to finalize the Sand Supply
Agreement. During that meeting, Quisling made some redlined edits to the Agreement
on his computer. The parties dispute whether CBS was aware of these changes, but this
dispute appears immaterial in light of the fact that the final version of the Agreement
incorporates those edits and Brockinton signed the Agreement on CBS's behalf.
Specifically, Quisling made the following change:
The sum of $628 157,000.00 shall be paid by Buyer to the
Account designated by Seller no later than 27 days after the
Agreement Date. Further payments shall be made to a
designated Escrow Account, and both parties shall execute the
Escrow Agreement attached hereto. This Deposit consists of
a prepayment for the first 20 rail car loads and the last 20 rail
car loads An additional $628,000 shall be paid to the Escrow
Account within 7 days of the Agreement Date.
(Quisling Decl., Ex. 1 (dkt. #56-1) § 1.9; see also Quisling Decl., Ex. 2 (dkt. #56-2) § 1.9
(signed version with redlined edits incorporated).)
ii.

Key Provisions of the Sand Supply Agreement

On January 13, 2015, GQ Sand as Seller and CBS as Buyer entered into the Sand
Supply Agreement. On behalf of their respective companies, Brockinton and Quisling

5

initialed each page of the Agreement and its incorporated Standard Terms and
Conditions, then signed the Agreement.

(Quisling Decl., Ex. 2 (dkt. #56-2).)

The

“Agreement Date” is expressly defined as January 13, 2015. Moreover, the Agreement
states that it “shall be governed by and interpreted in accordance with the law of the
State of Wisconsin.” (Id. at § 9.)
In general terms, the Agreement requires GQ Sand to supply and CBS to purchase
30,000 tons of sand at $157 per ton “CIF,” which is short for Cost, Insurance and
Freight. The sand was to be delivered to Kress, Texas. CBS’s plan was to then sell this
sand to AST pursuant to their separate contract. That contract provided that AST would
accept delivery of the sand from CBS at Kress.
More specifically, GQ Sand was to provide 10,000 tons each of 20/40, 30/50 and
40/70 grades of sand, with K-values of 7K, 9K and 9K, respectively. The Agreement gave
GQ Sand the right to source its sand from any plant of its choosing so long as the sand
met these specifications. The Agreement also requires that the sand meet minimum API
standards as provided in “Exhibit B” to the Agreement, even though there is no attached
Exhibit B. (Id. at § 1.11.) Finally, the Agreement provides that CBS, as the Buyer,
“acknowledges that it has reviewed and has accepted the specification for Sand
(‘Specifications’) and sampling procedures provided by Seller.”

(Id. at § 3(d).)

(Although at his deposition, Brockinton admitted that he did not specifically remember
requesting samples prior to entering the Agreement.)
The Agreement further binds GQ Sand to deliver the 30,000 tons of sand over
four months in fifteen separate 2,000-ton deliveries. In turn, CBS is to make fifteen
6

payments into an escrow account of $314,000 per delivery, for a total of $4,710,000.
This escrowed money, however, was only to be released as payment for the sand
shipments upon the production of a “Disbursement Direction,” which included attaching
an invoice and manifest that GQ Sand was to send to both CBS and the escrow agent.4
(Quisling Decl., Ex. 3 (dkt. #56-3) § 3.)
The “Commencement Date” for beginning scheduled deliveries is also defined as
“January 15, 2015 or upon Sellers’ receipt of the Deposit, if later.” (Quisling Decl., Ex. 2
(dkt. #56-2) § 1.5.) As described above, § 1.9 of the Agreement contains the heading
“Deposit.”5

The Agreement also allows for a “Ramp-Up Period,” beginning on the

Commencement Date and ending 15 days later.

(Id. at § 1.8.)

GQ Sand had no

obligation to sell or deliver sand during the Ramp-Up Period.
Section 3(a)(i) requires GQ Sand to “use commercially reasonable efforts to
accommodate the Delivery Date(s).” (Id. at § 3(a)(i).) If it could not meet the dates,
GQ Sand was required to “notify Buyer of the reason for such inability,” and then Seller
and Buyer were required to “attempt to resolve such matters.” (Id.) GQ Sand was also
required to “use its best efforts to specify Delivery Dates at least ten (10) days” before
delivery of the sand. (Id.)

In this context, a manifest consisted of a list of a train’s cars and their content. (CBS’s Add’l
PFOFs (dkt. #95) ¶ 4.)
4

The Agreement also states that “Section headings contained in the Agreement are for reference
only, and shall not in any way affect the meaning or interpretation of the Agreement.” (Quisling
Decl., Ex. 2 (dkt. #56-2) § 11(c).)
5

7

Finally, the Agreement sets forth the terms for termination. Under Section 7(b)
of the Standard Terms and Conditions, CBS had the ability to terminate the agreement,
but only if GQ Sand accumulated more than three “Seller Uncured Failures” within a
four month period. The Agreement further requires CBS to promptly provide written
notice of the failure to GQ Sand. In the notice itself, CBS must also “specify the nature
of such failure with particularity and in reasonable detail” and require reference to the
relevant section of the Agreement. (Id. at p.9.) GQ Sand would then have ten days to
cure the specified failure to perform.6
C. Rail Delivery Agreement
Around the same time GQ Sand and CBS were negotiating their Agreement for
delivery of frac sand, Quisling was introduced by a mutual friend to Cody Lyon, the sole
member of defendant RMS. GQ Sand needed the ability to transport 30,000 tons of frac
sand by rail, and RMS had the equipment and accounts to do so, including RMS’s
account with Union Pacific.
On December 22, 2014, Lyon sent Quisling an approximate schedule he had
created for RMS to deliver 30,000 tons of sand from Tomah, Wisconsin, to Kress, Texas,
over 15 weeks in 20-ton increments using 20 covered hopper railcars belonging to RMS.7

GQ Sand directs the court to a definition of "Force Majeure" in the Standard Terms and
Conditions, which are part of the Agreement, and in particular to a provision which states: “Seller
shall not be liable for any failure or delay in performing its obligations hereunder when such
failure or delay is primarily due to an event of Force Majeure.” (Quisling Decl., Ex. (dkt. #56-2)
pp.4, 9.) GQ Sand, however, fails to develop any argument based on this provision, perhaps out
of recognition that such clauses are generally narrowly construed and rendered unenforceable
absent language describing the specific circumstances under which it may excuse performance.
6

7

The carrying capacity of a typical covered hopper railcar is 100 to 114 tons.

8

Defendant RMS does not dispute that Lyon sent such a schedule, but claims inter alia
that: (1) it was created to “chip away at a deal”; (2) it meant “absolutely nothing”; (3) it
contained a disclaimer; and (4) it was “suggested and . . . approximate.” (RMS and
NEJGID’s Resp. to Pl.’s PFOFs (dkt. #104) ¶ 53.) Even crediting these caveats, RMS
has difficulty squaring even this very rough, approximate schedule with Lyon’s
representations about timing in his declaration submitted in opposition to GQ Sand’s
motion for summary judgment.
On January 20, 2015, RMS and GQ Sand signed the Rail Delivery Agreement.
(Quisling Decl., Ex. 4 (dkt. #56-5).)8

That Agreement required RMS to deliver 20

covered hopper railcars to Tomah, Wisconsin, by January 26, 2015, and gave GQ Sand
the right to use those cars, without limitation, on a month-to-month basis until
terminated. At his deposition, however, Lyon admitted that only 18 of the 20 railcars for
which GQ Sand contracted were operational at the time of signing of the Agreement.
By its terms, GQ Sand was to pay a $15,000 security deposit to RMS within five
days of their agreement, and an additional $15,000 per month for the use of the 20 cars.
GQ Sand actually paid the security deposit on January 20, five days early. In addition to
these payments, GQ Sand was to pay $60.01 per ton in freight charges, $4.80 per ton in
switching fees, and $1.95 per ton in waybilling9 to RMS upon the delivery of the sand to

The preamble of the Agreement contains the date January 19, 2015, but there is no dispute that
it was entered into on January 20, 2015, as confirmed by the dates next to the parties’ signatures.
In any event, the difference between the two dates does not appear to be material.
8

The waybilling fee is for administrative work of reconciling records, arranging staging/storing at
rail sites, and managing a transloading process.
9

9

Kress, Texas. It was RMS’s responsibility to pay for the fees and cost of relocating and
repositioning the railcars to their established origin and destination points.10
Under the Agreement, RMS was required to obtain a commercial insurance policy
including contractual liability coverage with limits per occurrence of $3,000,000, with
GQ Sand listed as an additional insured.

(Id. at § 6.2.)

RMS never obtained that

insurance. The Rail Delivery Agreement also requires RMS to indemnify GQ Sand for
any losses and damages GQ Sand suffers as a result of RMS’s breach of the agreement,
the negligent acts or omissions of RMS or its agents, and/or the condition or operation of
the railcars. (Id. at § 6.1.)
D. Wisconsin White Sand
On January 13, 2015, the day GQ Sand and CBS executed the Sand Supply
Agreement, GQ Sand also signed a purchase order with Wisconsin White Sand, LLC
(“WWS”), for 30,000 total tons of sand (10,000 each of the three grades required by the
Supply Agreement). CBS disputes whether GQ Sand intended to source all of that sand
to CBS or to other purchases, pointing to Quisling’s deposition testimony in which he
stated that he was planning on sending a “portion” of sand from WWS to CBS. (CBS’s
Resp. to Pl.’s PFOFs (dkt. #94) ¶ 83 (quoting 10/23/15 Quisling Depo. (dkt. #59) 4445.)

This argument seems silly in light of the fact that GQ Sand had arranged to

purchase sand from WWS exactly matching what CBS needed to fulfill its contract with
ATS. Regardless, this dispute is not material.

10

The re-positioning of cars is also referred to as an “empty car move.”

10

WWS in turn had a lease agreement with Allied Cooperative which provided
WWS with non-exclusive use of Allied’s land and premises for the receiving, staging,
switching, loading and deploying of railcars from its rail terminal in Tomah, Wisconsin.
(Brewer Decl., Ex. 4 (dkt. #55-4) § 3.) On January 18, 2015, Bob Schenken, Director of
Business Development for WWS, emailed Quisling about available origin locations to
obtain rail quotes for both Canadian Pacific Railroads, also in Tomah, and Union Pacific
Railroads.
The parties dispute when CBS, specifically Brockinton, was aware that at least
some of the sand would be supplied by WWS. CBS had previously purchased 1,000 tons
of 40/70 sand from WWS, and therefore has some familiarity with the product. On
December 1, 2014, WWS’s Schenken sent CBS’s Brockinton information with test
results for WWS’s grades. Those tests reveal that both the 30/50 and 40/70 grades had
obtained a crush value of 9K. CBS does not dispute this, but contends that the test
results also showed that the 20/40 and 30/50 grades had 6K and 7K values, respectively.
Also on December 1, Schenken emailed GQ Sand’s Quisling with the same test results,
along with an additional spreadsheet showing that the 20/40 grade had tested for a crush
value of 7K.

Additional material from WWS to Quisling and Brockinton similarly

showed crush values of 7K for the 20/40 grade and 9K for the 40/70 grade. CBS persists
in maintaining, however, that some of the materials showed values of 6K for the 20/40
grade and 7K for the 30/50 grade.

11

E. Post-Agreement Problems
Over the next month, GQ Sand encountered an escalating set of problems with
both its Sand Supply Agreement with CBS and its Rail Delivery Agreement with RMS.
With the benefit of hindsight, these problems were inevitable. Starting in mid- to lateJanuary 2015, the number of open hydrofracking sites in Texas dropped rapidly. Within
three weeks of the signing of the Sand Supply Agreement, the number of operational
fracking sites in Texas dropped from approximately 740 to a little over 600, and by May
2015, the number of sites dropped by almost 50% percent, to 375. As a result, the
supply of frac sand exceeded demand and prices for frac sand began to fall. Brockinton
plausibly opined at his deposition that this market decline explained AST’s decision not
to honor its contract with CBS despite the fact that the contract between the parties
contemplates fluctuating prices and allows for adjustments.

To appreciate the death

spiral in which the parties’ business deal was caught, the court details the problems
encountered in chronological order, as did the parties, while interspersing developments
in their efforts to procure both the sand and railcars.
After depositing $157,000 into GQ Sand’s operating account on January 20,
2015, as required by the Sand Supply Agreement, CBS asked GQ Sand to verify receipt
of the “deposit.” (CBS’s Reply to its PFOFs (dkt. #123) ¶ 24 (citing Salman Decl., Ex. 5
(dkt. 77-5) 2).) That same day, GQ Sand responded “[g]ot deposit…Rail cars moving
today need to get escrow info to the bank today to get that process moving.” (Id. at ¶ 25
(citing Salman Decl., Ex. 5 (dkt. #77-5) 2).)

12

Also on January 20, shortly after signing the Rail Delivery Agreement, RMS’s
Lyon informed GQ Sand’s Quisling that he was starting the empty railcar move from
Colorado to Tomah, Wisconsin. Despite this communication, Lyon learned on the same
day from his Union Pacific contact that it did not serve the Allied Terminal in Tomah “at
this time.”

(Pl’s Add’l PFOFs (dkt. #107) ¶ 230.)

Based on Lyon's original

communication, however, Quisling informed CBS that the railcars were moving. Quisling
also confidently sent WWS the railcar numbers, which it could use to track the cars
through a computer system. Finally, on January 20, Brockinton informed GQ Sand that
CBS’s customer AST was “balking at taking the product for which it contracted with
[CBS].” (Pl.’s PFOFs (dkt. #51) ¶ 92.)
On January 22, GQ Sand’s Quisling informed RMS’s Lyon that there was trouble
tracking the railcars. According to an email exchange, despite knowing of the Union
Pacific problem, Lyon told Quisling that he would not be able to track the railcars “until
the destination is opened by the checkoffs” and that Lyon would take care of it, stating
“a word to the wise, let me do my end.” (Pl.’s PFOFs (dkt. #51) ¶ 100 (quoting Quisling
Decl., Ex. 7 (dkt. #56-7) 1).)11 On January 23, WWS’s Schenken emailed Quisling to
inform him that the railcars leased to GQ Sand by RMS were not appearing in the Union
Pacific computer system. That same day, Lyon informed Quisling that the cars were in
Alomsa, Colorado. Also on January 23, Brockinton called Quisling to let him know that
CBS’s customer AST would only be willing to take 5,000 tons of sand, rather than the
The parties’ raise several hearsay objections in responding to proposed findings of facts. Here,
as is true for the most part throughout, the claimed hearsay is a statement of a party opponent,
which is not hearsay at all under Federal Rule of Evidence 801(d)(2).
11

13

30,000 tons promised. Quisling offered to slow down the railcars so that CBS would
have time to work things out with its customer or find another buyer; he also asked
CBS’s V.P. Brockinton to keep him apprised of any developments.
The parties dispute whether CBS agreed to GQ Sand's offer to slow down the
shipments. On January 26, Quisling and Brockinton spoke again, and Brockinton said
that CBS had to get litigators involved with its customer. Quisling again agreed to work
with CBS and to wait for an alternative to emerge, at least until GQ Sand started to incur
additional fees on the railcars. CBS does not directly dispute this version of events, but
again asserts that it never agreed to slow down shipments. (See Brockinton Decl. (dkt.
#97) ¶ 8.)
On January 28, the escrow agreement was signed. On January 29, Brockinton
texted Quisling asking him to send sand samples. Quisling responded that it may take a
day or two to obtain the samples.

Brockinton texted Quisling again with the same

inquiry on February 2nd, 4th and 5th.

On or about February 5, Quisling sent

Brockinton samples via overnight delivery.
On February 6, Brockinton received the samples. That same day, CBS deposited
$628,000 into the escrow account as required by the Supply Agreement.

GQ Sand

maintains that after receipt of these samples, Quisling heard nothing from Brockinton.
Although Brockinton testified at his deposition that he “believed” they had multiple
phone conversations, he does not state that they discussed sand quality during any of
those conversations. (Pl.’s Reply to Pl.’s PFOFs (dkt. #128) ¶ 125.) Also on February 6,
RMS’s Lyon informed Quisling that the railcars were in “Iowa somewhere,” despite the
14

Agreement requiring that the railcars be in Tomah, Wisconsin, by January 26. (Pl.’s
PFOFs (dkt. #51) ¶ 113 (quoting Quisling Decl., Ex. 7 (dkt. #56-7) 2).)
Around this same time, WWS informed Quisling that despite its contract with
Allied, Union Pacific had not yet granted WWS permission to load and ship out of
Allied’s terminal.

Without Union Pacific’s permission, GQ Sand was not allowed to

receive the 20 covered hopper railcars being sent by RMS. During this time period,
Schenken of WWS continued to press his contact at Union Pacific for approval. Because
of this concern as well as RMS’s vague responses about the cars’ locations, GQ Sand
began to explore alternative sources for railcars and alternative locations to stage them.
On February 23, Union Pacific finally approved WWS for service one day a week,
but only allowed it to move up to 10 cars per week in and out of the Allied facility. As of
that date, RMS had still not produced railcars at the Allied terminal as required by the
Rail Agreement. At the request of CBS, Hudspeth of defendant NEJGID sent Quisling a
proposed release from the Supply Agreement that same evening (February 23) and
proposed settlement stating in the email that “[t]his existing contract just does not make
s[e]nse for anyone.” (Quisling Decl., Exs. 9, 10 (dkt. ##56-9, 56-10).)12
Hudspeth reports asking Quisling to sign the release and settlement documents,
and then return them to him the next morning. Material to the contract interpretation
dispute between the parties, however, CBS points out that the release refers to GQ Sand

CBS objects that this email and release is not admissible under Rule 408. The court does not
view the release as a settlement offer of a claim, and therefore it falls outside the scope of Rule
408. Moreover, CBS itself relied on this document in its proposed findings of facts, while
opposing GQ Sand’s Rule 408 objection.
12

15

“returning payment of a security deposit” in the amount of a $137,000 (note, the deposit
was $157,000) and releasing any claim to the $628,000 held in escrow. (CBS’s Add’l
PFOFs (dkt. #95) ¶ 19 (citing Quisling Decl., Ex. 10 (dkt. #56-10) ¶ 4).) On February
24, Hudspeth texted Brockington:

“BTW [your] release is coming.

We had a

conversation last night. Try not to notice the Kotex in his ass,” to which Brockinton
replied, “Ha. Josh just tried to call me.” (Pl.’s PFOFs (dkt. #51) ¶ 128.)
On the afternoon of February 24, Quisling responded to Hudspeth that he would
not sign the release, detailing sunken expenses, including rail car fees and legal fees, but
stating that he was “willing to work towards an amicable resolution.” (Pl.’s PFOFs (dkt.
#51) ¶ 132 (citing Quisling Decl., Ex. 12 (dkt. #56-12)).) Hudspeth responded the next
day that he was “done being hel[d] hostage on accounts I bring you.” (Pl.’s PFOFs (dkt.
#51) ¶ 136 (citing Quisling Decl., Ex. 12 (dkt. #56-12)).)
Also on February 24, Hudspeth forwarded to Quisling test results from the
samples of sand Quisling had sent CBS earlier in February. CBS had received the test
results on February 14, and had sent them to Hudspeth on February 17. According to
CBS, the test results showed that some of the sand samples did not meet the
specifications under the Sand Supply Agreement. GQ Sand challenges the results on the
basis that the test results do not identify the lab, the source of the material being tested,
the procedures used, or otherwise indicate that certain standard tests were conducted. 13
Also on February 24, Quisling asked Lyon whether it would be possible to switch
the origin point of the railcars to the Canadian National line in Hixton, Wisconsin. Lyon

13

GQ Sand also points out that the lab that conducted the testing is not API or ISO certified.

16

responded via text, “if we go to Wyeville (Allied) that’s cool, if we go to [Canadian
National] that’s cool too. Whichever. I’m good. Send the wire I guess.” (Pl.’s PFOFs
(dkt. #51) ¶ 134.) In response to this change of plans, RMS requested a rider to the Rail
Delivery Agreement. On February 25, Quisling sent Lyon a draft of an amendment to
the Rail Delivery Agreement which replaced Tomah with Hixton as the origin point. On
February 26, RMS responded that the “Rider is coming. I nearly had to pull teeth to get
it,” but GQ Sand never received the rider, and no rider has been produced during the
course of discovery.

(Pl.’s Reply to Pl.’s PFOFs (dkt. #128) ¶¶ 166-67.)

Also on

February 26, at RMS’s urging, Quisling paid the $15,000 payment for February despite
the railcars not being used in February.
On February 25, CBS sent a right to cure letter to GQ Sand, stating that (1) it
failed to deliver sand on five occasions and (2) attempted to deliver a product that did
not meet specifications. (Pl.’s PFOFs (dkt. #51) ¶ 139 (citing Quisling Decl., Ex. 15
(dkt. #59-15)).)14 The next day, on February 26, GQ Sand responded in writing to
CBS’s letter by challenging its claim of default, specifically pointing out deficiencies in
the testing and that CBS had admitted in January that it was having issues with its
customer AST. (Pl.’s PFOFs (dkt. #51) ¶ 158 (citing Quisling Decl., Ex. 16 (dkt. #5916)).)

Nonetheless, GQ Sand reiterated its ability to perform under the contract,

representing that the railcars would be loaded and ready to depart within seven to ten
days. With respect to the quality issue, GQ Sand also stated that it made arrangement

GQ Sand also points out that CBS sent the letter to Hudspeth three hours before sending it to
Quisling.
14

17

with a different supplier, Northern Frac, with sand that “will meet or exceed
expectations.” (Id.)
That same day, GQ Sand emailed Northern Frac to confirm that it was sending 20
covered hopper railcars to the Canadian National terminal in Hixton. In response to GQ
Sand’s request, Northern Frac sent test results confirming that its sand met the
specifications. While pursuing improved performance, GQ Sand also sent an email on
February 26, seeking a negotiated resolution and agreeing to put together the expenses
GQ Sand had incurred to date. (CBS’s Add’l PFOFs (dkt. #95) ¶¶ 23-24 (Quisling
Decl., Ex. 17 (dkt. #56-17)).)15 The letter also asked CBS to put “on hold” the notice of
default and cure period, and sought written confirmation that the notice had been put on
hold.
On February 28, Lyon informed Quisling via text message that the Canadian
National locomotive was in Davenport, Iowa, and that he could arrange for it and the
railcars to be in Merrillan, Wisconsin by March 3, 2015. (Pl.’s PFOFs (dkt. #51) ¶ 78
(quoting Quisling Decl., Ex. 7 (dkt. #56-7) 5).)16 In response to Quisling’s question, “So
if I’m understanding you correctly the cars could be there by Tuesday [March 3]?,” Lyon
texted back the following, “Right.

And the move is free to Merri[llan] by way of

Wisconsin Rapids. No switch fees.” (Id.) Lyon later confirmed that all he had to do was
file a release, which Quisling approved. At his deposition, Lyon, however, testified that
On February 27, Brockinton asked formally that GQ Sand send a breakdown of its expenses, so
that they could discuss a resolution.
15

From Google Maps, it appears that Merillan, Wisconsin is approximately 10 miles northeast of
Hixton.
16

18

“[y]ou cannot get cars overnight moved up to Hixton on a [Canadian National] versus a
[Union Pacific]. That mine is 48.1 miles away. It’d take 10 days minimum.” (CBS’s
Resp. to Pl.’s PFOFs (dkt. #94) ¶ 179 (quoting 11/19/15 Lyon Depo. (dkt. #62) 87).)
On March 2, Quisling sent a letter to CBS listing GQ Sand’s expenses. (Quisling
Decl., Ex. 18 (dkt. #56-18).) CBS took issue with several of the categories of expenses on
the basis that GQ Sand did not incur the expense (e.g., empty car move) or that the
number stated exceeded the amount actually incurred (e.g., $60,000 rather than $45,000
for railcars). In that letter, Quisling also acknowledged that CBS had not withdrawn its
notice of default and reiterated that it “continued to make arrangements to provide [] the
material according to the contract,” and included excerpts from the Northern Frac tests
showing his access to sand that met CBS’s specifications. (Id.) Finally, the letter stated
that it would accept $185,000 to terminate the Sand Supply Agreement. (Id.)
On March 2, RMS’s Lyon also reiterated the need for GQ Sand to make its March
lease payment, conveying again that RMS would execute a rider to the original Rail
Agreement, and that Lyon would work to get the track agreement in place. On March 2,
Lyon stated that “[Canadian National] will switch [Union Pacific] at 1500 1st north.
CN rep. will get us in system there.” (Pl.’s PFOFs (dkt. #51) ¶ 187 (quoting Quisling
Decl., Ex. 7 (dkt. #56-7) 10).)
On March 2, GQ Sand also emailed CBS a letter, which acknowledged that: (1)
CBS had not withdrawn its notice of default; and (2) it was continuing to make
arrangements. On March 4, GQ Sand, through counsel, sent a letter to CBS, explaining
its view that GQ Sand had no obligation to deliver sand until February 23, 2015, and
19

therefore GQ Sand did not have three uncured failures to trigger CBS’s right to cure
notice. (Pl.’s PFOFs (dkt. #51) ¶ 193 (citing Quisling Decl., Ex. 19 (dkt. #56-19)).)
That same day, Hudspeth emailed Quisling to “put your seat belt on the ride is going to
get [rough] from here.” (Pl.’s PFOFs (dkt. #51) ¶ 194 (quoting Quisling Decl., Ex. 20
(dkt. #56-20)).) On March 4, CBS responded, through counsel, stating its position that
the Commencement Date under the Supply Agreement was January 20, 2015, and,
therefore, GQ Sand had failed to make three timely deliveries. (Id. at ¶ 195 (quoting
Quisling Decl., Ex. 21 (dkt. #56-21)).) The court addresses this dispute below.
Despite having no railcars, on March 3, GQ Sand proceeded to repay the $15,000
monthly leasing fee for March to RMS. The railcars did not arrive in Hixton on March 3
or at any other time. Quisling asked Lyon about the status of the cars on March 3, but
received no response. On March 4, Quisling inquired again, and Lyon responded: “I
have fax confirmed Railcar numbers associated with new insurance binder. I will be [o]n
it first thing.” (Pl.’s PFOFs (dkt. #51) ¶ 192 (quoting Quisling Decl., Ex. 7 (dkt. #56-7)
13).)
On March 5, Quisling again sent Lyon a text, this time inquiring about the status
of the railcars. Lyon responded that Quisling should check his email. Lyon also sent a
letter to Quisling, CBS, and NEJGID, in which he required GQ Sand to pay RMS $3,510
in lost waybilling revenue, $2,016 in demurrage fees, $42,374 as a contribution for the
empty car move and an additional $62,900 to make whole the terms of the Rail Delivery
Agreement. (Pl.’s PFOFs (dkt. #128) ¶¶ 201-02 (citing Quisling Decl., Ex. 22 (dkt. #56-

20

22)).)

The letter also required GQ Sand and RMS to draft a new Rail Delivery

Agreement.
On March 6, Quisling asked if the cars would arrive that day. Lyon responded via
text, “$100,000 deposit required” and that he did not “[t]rust the stability and remains
of the [CBS] contract.” (Id. at ¶ 204 (quoting Quisling Decl., Ex. 7 (dkt. #56-7) 14).)
Later on that same day, Lyon texted Quisling that he had spoken with Conley and
Hudspeth and that “they want me to send the money to them.” (Id. at ¶ 205 (quoting
Quisling Decl., Ex. 5 (dkt. #56-5) 14.)17 Brockinton averred in a declaration that CBS
never requested Lyon to send it the money. (CBS’s Resp. to Pl.’s PFOFs (dkt. #94) ¶
205 (citing Brockinton Decl. (dkt. #97) ¶ 8).)
On March 7, CBS sent an email to GQ Sand stating that it had failed to cure, at
which point, CBS considered the Sand Supply Agreement null and void. (Pl.’s PFOFs
(dkt. #51) ¶ 212 (citing Quisling Decl., Ex. 25 (dkt. #56-25)).) CBS also asked the
escrow agent to hold the money, and stated it would call Monday to discuss return of the
funds.18

Lyon clarified at his deposition that he was referring to the $15,000 lease payment GQ Sand
paid in March.
17

Also in early March, GQ Sand was arranging purchase of sand from Muskie Proppants. On
Sunday March 8, Muskie sent GQ Sand a document called “Manifest,” which indicated that the
loading of the sand would not take place until March 18 and March 20. (Conley’s Add’l PFOFs
(dkt. #95) ¶¶ 33-34 (citing Salman Decl., Ex. 7 (dkt. #77-7) 5).) Because of this timing, Conley
contends that GQ Sand could not have used Muskie to cure its previous defaults. (Id. at ¶ 36.)
18

21

F. Relationship between Defendants
In addition to some of the facts described above, plaintiff proposes additional facts
supporting its claims for tortious interference with a contract, fraud and conspiracy; the
latter two, however, are not yet before the court at summary judgment. (Dkt. #218.)
Nonetheless, for the sake of completeness, the court sets forth these facts as well.
At some point, Hudspeth, the sole member of defendant NEJGID, and Conley,
the President of defendant CBS, spoke about the location of GQ Sand’s railcars.
Hudspeth then provided Conley with contact information for Lyon, defendant RMS’s
sole member.
On or about February 25, Conley telephoned Lyon. Before that call, Lyon had
never spoken with Conley. In that phone call, Lyon and Conley discussed the “legal
letters to cure [and the] frustrating phone calls between parties.” (Conley’s Resp. to Pl.’s
PFOFs (dkt. #128) ¶ 149 (quoting 11/19/15 Lyon Depo. (dkt. #62) 74-75)).) Conley
learned from Lyon that GQ Sand had contracted for 20 railcars, which Brockinton did
not, in his limited knowledge, believe to be enough. At some point, but not necessarily
during the February 25 call, Conley mentioned the possibility of working with Lyon on a
Fort Stockton deal.

Two days prior to this call, Brockinton and Hudspeth had also

texted about a Fort Stockton deal.
On February 26, Lyon sent Hudspeth a draft of a letter addressed to Quisling, one
of GQ Sand’s two members. Hudspeth, in turn, forwarded the draft letter to CBS the
next day. In the letter, Lyon purported to alter some of the terms of the Rail Delivery
Agreement, shifting the cost of repositioning the railcars to GQ Sand and requiring
22

payments in excess of $125,000, including a $100,000 deposit. (Watt Decl., Ex. 7 (dkt.
#57-7).) Lyon also noted that “the contracted parties are wavering on completing of
implementation of the project and overall contract,” and that it was “not true” Allied was
prepared to receive the railcars, and therefore “based on delays not by any fault of my
own, I was not able to bill my regular wages . . . .” (Id.)
Immediately after sending the letter to Hudspeth, Lyon left the following
voicemail for Conley at CBS:
Mr. Conley, this is Cody Lyon in Dallas. I did strike up a
letter to Josh [Quisling]. It’s in draft format. It’s in pdf
format so it can’t be changed. Carl [Hudspeth] has a copy of
it. You need Carl to send it to Brock [Brockinton] and Brock
can forward it to you. But it is hot off the press. It’s ready to
go. I will not send it out until you guys tell me to send it out.
Okay? So that’s how I operate. We’ll go from there. So it’s
done. It’s ready to go. You guys can proofread it. You can
make changes to it, do whatever you want to do. I won’t
send it out until you guys give me direction. Okay. Bye.
(Pl.’s PFOFs (dkt. #51) ¶ 172 (quoting Watt Decl., Ex. 6 (dkt. #57-6)).)
On February 27, Conley responded through a text message, “Don’t send it [until]
we get back to you. Thanks. Rory Conley.” (Pl.’s PFOFs (dkt. #51) ¶ 173 (quoting
Watt Decl., Ex. 8 (dkt. #57-8)).) Lyon sent a follow-up text to Conley on February 28,
but he never responded. Neither Quisling, nor anyone else at GQ Sand, ever received the
letter until it was produced during discovery, though Quisling did receive a March 5
letter from Lyon as detailed above.
Later in March, in a text message to Brockinton, Lyon described the February 25
phone call with Rory Conley as: “Mr. Rory Conley contacted me, he called me (I didn’t
call him), Carl [Hudspeth] was listening on the same call, and Rory asked ‘that my
23

Railcars not make it to Josh [Quisling]’ . . . .” (Pl.’s PFOFs (dkt. #51) ¶ 154 (quoting
Watts Decl., Ex. 9 (dkt. #57-9) 3).) Lyon confirmed this account at his deposition,
though Conley submitted a declaration in opposition to GQ Sand’s motion for summary
judgment in which he avers, “I never told Cody [Lyon] not to send the rail cars to GQ
Sand.” (Conley’s Resp. to Pl.’s PFOFs (dkt. #128) ¶ 154 (quoting Rory Conley Decl.
(dkt. #96) ¶ 13).)19
In text exchanges between Lyon and Brockinton, Lyon also represented that
Hudspeth had told him that without the [CBS] deal, GQ Sand “couldn’t pay for
anything.” (Pl.’s PFOFs (dkt. #51) ¶ 156 (quoting Watt Decl., Ex. 9 (dkt. #57-9) 3).)
Lyon further stated in a separate text that “when [CBS] got involved it was about not
helping Josh cure [by] any means. Even curing by a percentage.” (Pl.’s PFOFs (dkt.
#51) ¶ 157 (quoting Watt Decl., Ex. 9 (dkt. #57-9) 3).)
Also in late February, Lyon and Conley exchanged text messages in which Conley
offered Lyon a “soft deal,” specifically mentioning that he was meeting with the owners
of rented warehouses in Plainview, Texas. (Pl.’s PFOFs (dkt. #51) ¶¶ 219-20 (quoting
Watt Decl., Exs. 8, 9 (dkt. ##57-8, 57-9)).) On March 9, 2015, Brockington and Lyon
texted about forming a corporation with three members -- defendants CBS, RMS and
GQ Sand objects to Conley’s declaration and others as “not substantially in the form required
by 28 U.S.C. § 1746. Conley declares under penalty of perjury and the declaration is dated and
signed, thus satisfying the requirements of § 1746. Still, in its reply brief, GQ Sand argues that
“the substantive statement regarding the statement being ‘under penalty of perjury’ and the
information being ‘true and correct’ is detached from the date and signature,” thus raising
questions as to whether the declarant read and understood the consequences of signing the
declaration. (GQ Sand’s Reply (dkt. #127) 30.) The court does not read § 1746 to require such
an exacting obligation, and assumes that CBS’s counsel insured Conley intended to aver to the
truth of everything in his declaration. If not, the consequences would be dire for anyone
involved.
19

24

NEJGID -- to work on a deal in Plainview involving shipping frac sand to warehouses in
Plainview for easy distribution at nearby sites in Texas.

On March 10, Lyon even

emailed Hudspeth and Conley a flow chart of a proposed ownership structure and ideas
on how the business would operate.
In yet another text message among defendants sent on March 26, Lyon stated, “If
you are not going to do anything let me know? You folks called me, asking me for
assistance, I help, now getting info. from you is difficult and challenging? If you are not
planning a business concept, please advise?” (Pl.’s PFOFs (dkt. #51) ¶ 216 (quoting
Watt Decl., Ex. 9 (dkt. #57-9) 2.) Brockinton testified at his deposition that he was not
sure what Lyon was talking about in his text message.

Regardless, in response,

Brockinton advised that Lyon “tread softly,” and Lyon pressed that he would not give up
this deal without having another in place. (Id.)

G. Nominal Defendant
Plaintiff GQ Sand filed the present lawsuit on March 9, 2015. In June 2015,
upon stipulation of all parties, nominal defendant Associated Trust Company, N.A. paid
the $627,000 held in escrow into the court and was relieved of any further participation
in this suit. (Dkt. #30.)

OPINION
Since plaintiff GQ Sand seeks summary judgment on claims for which it bears the
burden of proof, it “must lay out the elements of the claim, cite the facts [that] it believes

25

satisfies these elements, and demonstrate why the record is so one-sided as to rule out the
prospect of a finding in favor of the non-movant on the claim.” Hotel 71 Mezz Lender
LLC v. Nat’l Ret. Fund, 778 F.3d 593, 601 (7th Cir. 2015); see also Reserve Supply Corp. v.
Owens-Corning Fiberglas Corp., 971 F.2d 37, 42 (7th Cir. 1992) (“[B]ecause OwensCorning and CertainTeed also have the burden at trial of establishing good faith, they
must establish affirmatively the lack of ‘sufficient evidence favoring the nonmoving party
for a jury to return a verdict for that party.’” (quoting Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 249-50 (1986))). “If the movant has failed to make this initial showing, the
court is obligated to deny the motion.” Hotel 71 Mezz Lender LLC, 778 F.3d at 601; see
also Johnson v. Hix Wrecker Serv., Inc., 651 F.3d 658, 662 (7th Cir. 2011) (“A party
opposing summary judgment does not have to rebut factual propositions on which the
movant bears the burden of proof and that the movant has not properly supported in the
first instance.”). Given this high burden, it is perhaps unsurprising that plaintiff’s motion
will be denied for all but its claims of negligence and misrepresentation against RMS, and
a grant of partial summary judgment on its claim that RMS breached the Rail Service
Agreement by failing to secure insurance. Defendant CBS’s burden is obviously low with
respect to its motion for summary judgment on on GQ Sand’s claims. CBS is entitled to
summary judgment if no rational jury or trier of fact could find for GQ Sand as the nonmoving party, even when all inferences are drawn in the non-moving party’s
favor. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 599 (1986). Even
so, CBS’s motion will also be denied.

26

I. GQ Sand’s Contract Claim against RMS
“The elements for a breach of contract in Wisconsin are familiar; the plaintiff
must show [1] a valid contract that [2] the defendant breached and [3] damages flowing
from that breach.” Matthews v. Wis. Energy Corp., 534 F.3d 547, 553 (7th Cir. 2008)
(citing Nw. Motor Car, Inc. v. Pope, 51 Wis.2d 292, 296, 187 N.W.2d 200 (1971)).
There appears no dispute that the Rail Services Agreement is a valid contract, nor could
there be given the undisputed facts here. As such, GQ Sand’s claims turn on whether
RMS breached that contract. GQ Sand maintains that RMS breached the Rail Services
Agreement in two respects: (1) by failing to secure the required insurance policy; and (2)
by failing to supply railcars as required under the Agreement.
As for the first breach, RMS does not dispute that it failed to purchase the
required insurance. In his declaration, however, Cody Lyon offers a rambling explanation
for failing to do so. (Lyon Decl. (dkt. #120) ¶ 33.) Even if credited, his explanation
does not constitute a defense to GQ Sand’s breach of contract claim.
The more interesting question, although not briefed by the parties, is whether
RMS’s breach was material or just a technical breach, since the latter only opens the door
to nominal damages. See generally II Michael B. Apfeld et al., Contract Law in Wisconsin §
12.18 (4th ed. 2013). While the court will grant GQ Sand partial summary judgment as
to this claim, whether the breach is material and, if so, the appropriate relief for the
breach will have to await trial. Epic Sys. Corp. v. Tata Consultancy Servs. Ltd., No. 14-CV748-WMC, 2016 WL 845341, at *21-22 (W.D. Wis. Mar. 2, 2016) (granting summary
judgment to plaintiff on certain breach of contract claims, but leaving questions of any
27

injury and resulting damages for jury trial); Ralph Gentile, Inc. v. State Div. of Hearings &
Appeal, 2011 WI App 98, ¶ 5, 334 Wis. 2d 712, 800 N.W. 2d 555 (“Whether a party to
a contract has committed a ‘material breach’ of that contract, however, is a question of
fact.”).
Understandably, the parties’ focus is on the second alleged breach -- that RMS
failed to provide the railcars as required by the contract.

As an initial matter, it is

undisputed that railcars were never delivered to GQ Sand for its use. Still, RMS pursues
a counterclaim for breach of contract, which could also be a defense to GQ Sand’s claim,
positing two core arguments: (1) GQ Sand breached first by failing to perform; and (2)
even if RMS breached, GQ Sand could not have performed. The latter would at least call
into question GQ Sand’s entitlement to damages.
As for the first defense, GQ Sand’s only obligation under the contract was to pay
money, which it did. In fact, GQ Sand paid the initial $15,000 security deposit on
January 20, 2015, the same day the parties entered into that Agreement and five days
before it was due. Nor is it disputed that GQ Sand paid $15,000 in both February and
March as called for by the contract to cover the monthly service fees of “$750.00 per
month per rail car,” assuming the provision of 20 railcars, despite RMS failure to provide
such railcars. Finally, GQ Sand’s other payment obligations were all tied to the transport
of sand (e.g., freight charges, waybilling and switching fees), and since no transport ever
occurred, there is also no dispute that none of the payment obligations accrued either.
In the face of this seemingly overwhelming and undisputed evidence, RMS first
appears to argue that GQ Sand also had an obligation to secure the origin location.
28

RMS, however, fails to direct the court to any provision requiring GQ Sand to secure
such a location. While the Allied Rail Terminal in Tomah, Wisconsin, is identified in the
Agreement, RMS was in the best position to determine whether that location was
workable. Indeed, RMS learned the very day it signed the contract that Union Pacific
did not serve the Allied Terminal in Tomah at the time.20 In contrast, there is nothing in
the record to indicate that Lyon informed GQ Sand that this location would pose a
significant problem. Instead, the record reflects that when GQ Sand’s Quisling sought
additional information about the location of the railcars, Lyon informed him in a text
message that he should “let me do my end.” (Pl.’s PFOFs (dkt. #51) ¶ 100 (quoting
Quisling Decl., Ex. 7 (dkt. #56-7) 1).) Indeed, Quisling apparently was not aware of the
difficulties at the Allied Terminal until February 6 when he was informed of the issue by
his contact at WWS.

Accordingly, not only does the contract contain no express

obligation on GQ Sand to secure the origin location, the parties’ course of conduct
demonstrates that it was RMS who had taken responsibility for the location, and despite
knowledge of a problem, still informed GQ Sand that RMS was responsible for placing
the railcars in position at the origin location.
Even assuming GQ Sand breached a duty to provide an origin location, there
would still be fact issues regarding whether that failure caused RMS’s alleged inability to
RMS asserts a counterclaim against GQ Sand for “misrepresentation/negligence/breach.”
(RMS’s Answer & Counterclaim (dkt. #24) ¶¶ 124-28.) GQ Sand also moved for summary
judgment on this counterclaim. (GQ Sand’s Opening Br. (dkt. #52) 7.) RMS failed to respond
to the misrepresentation or negligence claim. Even if it had responded, any misrepresentation or
negligence on the part of GQ Sand based on the availability of the Allied Terminal is interwoven
with the contract, and therefore would be barred by the economic loss doctrine. See Kaloti Enters.,
Inc. v. Kellogg Sales Co., 2005 WI 111 at ¶ 42, 283 Wis.2d 555, 699 N.W.2d 205 (2005).
20

29

perform. In support of RMS’s apparent position, that GQ Sand’s breach excused its
performance, RMS claims in its opposition brief to have “had its rail cars in position to
move them to Tomah, Wisconsin, if the restrictions on the rail yard would have been
cleared.” (RMS’s Opp’n (dkt. #101) 16.) Even so, RMS cites no factual support for this
contention. If anything, the undisputed facts demonstrate that the railcars were not even
in Wisconsin. On February 6, 2015 -- eleven days after the railcars were to have been in
position in Tomah -- Lyon informed Quisling that the railcars were in “Iowa somewhere.”
(Quisling Decl., Ex. 7 (dkt. #56-7) 2.) Moreover, on February 23, 2015, when Union
Pacific approved ten railcars at the Allied Terminal, RMS still failed to place those 10
railcars in position at the Tomah station, though, by that point, the parties were
considering changing the location to Hixton. In light of this evidence, RMS’s position
that it was ready to perform, but simply could not do so because of issues at the Allied
Terminal in Tomah is suspect at best.
RMS also argues that the demand for a change of the origin location from Tomah
to Hixton constituted a breach of the Agreement or otherwise excused RMS’s
performance. Even assuming that RMS was in a position to perform, and would have
performed, but for problems with the origin location, the record demonstrates that RMS
acquiesced to GQ Sand’s request for a change in that location. In response to GQ Sand’s
inquiry about switching the original location to Hixton, Wisconsin, Lyon responded in a
text message: “[i]t sounds like if we go to Wyeville [Allied Terminal,] that’s cool, if we
go to [Canadian National,] that’s cool too. Whichever. I’m good.” (Quisling Decl., Ex.
7 (dkt. #56-7) 3.) On February 25, RMS further indicated that it would sign a rider
30

amending the Rail Delivery Agreement, and on February 28, RMS told GQ Sand that the
cars would be in Hixton on March 3.21
Finally, RMS contends that GQ Sand was not injured by any breach by RMS,
because it cannot demonstrate that it “could have timely performed its obligations but
for RMS being prevented from delivering the Railcars.” (RMS’s Opp’n (dkt. #101) 18.)
In essence, RMS is arguing that its performance should be excused because GQ Sand
could not have performed its obligations under a separate contract, the Sand Supply
Agreement. In particular, RMS asserts that GQ Sand did not have frac sand ready for
delivery to Texas under the Sand Supply Agreement. Assuming this was so, GQ Sand’s
damages as the result of RMS’s breach would be less (really, just the payments made
under their contract), but RMS cites no case that would relieve it of performance simply
because a chain of later events would not occur consistent with a separate contractual
arrangement. To the contrary, the cases cited by RMS illustrate that the proper inquiry
is whether, in the absence of a breach, the party allegedly injured by the breach could
perform its obligation under the parties’ own contract. (See RMS’S Opp’n (dkt. #101)
18 (citing cases all concerning whether party could perform under the contract at
issue).)22

In the March 5 letter, RMS appears to change positions, demanding additional money to
provide the promised railcars, but plaintiff has significant evidence to support a finding that
defendants CBS and NEJGID were behind this new demand.
21

Perhaps, GQ Sand’s ability to perform under the Sand Supply Agreement will be material to
GQ Sand’s damages claim. In other words, if the jury were to find that GQ Sand could not have
performed under the Sand Supply Agreement due to sand quality issues, than GQ Sand’s injury
would be unrelated to RMS’s breach and, therefore, RMS would have no duty to indemnify GQ
Sand for its damages.
22

31

Critically, GQ Sand need not have delivered any sand to meet its obligations
under the Rail Delivery Agreement. As described above, there is no dispute that GQ
Sand could perform -- and indeed, did perform -- under the Rail Delivery Agreement
simply by providing the promised payments. If anything, RMS’s reliance on GQ Sand’s
ability to perform under the Sand Supply Agreement lends support to its motivation not
to perform, as well as GQ Sand’s tortious interference with a contract claim, and perhaps
its related fraud and conspiracy claims.
Despite the record evidence pointing strongly in favor of GQ Sand’s position that
RMS breached the contract by failing to place railcars in position as required under the
Agreement, there remains at least an arguable issue of material fact as to whether the
problems with the Allied location somehow excused RMS’s performance, which could
conceivably turn on credibility. Although this court is dubious of even that possibility,
the jury will have to hear all of these facts for purposes of deciding GQ Sand’s tortious
interference claim, as well as deciding its damages for breach of contract. Given the
somewhat muddled record, and the lack of any efficiency in deciding the issue before
trial, the court is inclined to deny judgment on this breach of contract claim, although it
will hear further oral argument on this claim at the Final Pretrial Conference. Moreover,
the jury will need to determine whether RMS’s failure to secure insurance constitutes a
separate, material breach.

32

II.

GQ Sand and CBS’ Respective Breach of Contract Claims
GQ Sand and CBS assert cross-claims for breach of contract. GQ Sand alleges

that CBS breached the Sand Supply Agreement by purporting to find GQ Sand in
default, then serving a notice of right to cure letter without the grounds to do so, and
finally terminating the contract based on GQ Sand’s claimed failure to cure. For its part,
CBS contends that GQ Sand breached the Agreement by failing to deliver sand and by
failing to meet sand specifications set forth in the Agreement.
A. Meaning of “Deposit”
As described above, the Agreement contemplates that GQ Sand will deliver sand
on a weekly basis following the payment of a deposit and a fifteen-day ramp-up period.
CBS’s February 25th right to cure defect letter listed as grounds for default (1) GQ
Sand’s failure to deliver sand on five occasions and (2) its attempt to deliver a product
that did not meet specifications.
The parties’ dispute over GQ Sand’s claimed failure to deliver frac sand timely
centers on what constitutes a “deposit,” thus triggering GQ Sand’s performance. There is
no dispute that the Agreement defines the “Commencement Date” as “January 15, 2015
or upon Sellers’ receipt of the Deposit, if later,” and that it further provides for a “RampUp Period,” defined as “[t]he period beginning on the Commencement Date and ending
on 15 days thereafter, subject to extension by Seller as provided in the Standard Terms.”
Instead, CBS argues that its January 20th, $157,000 payment to GQ Sand constituted
the “deposit,” which then triggered GQ Sand’s performance; while GQ Sand contends

33

that the “deposit” consists of both the $157,000 payment and the February 6th,
$628,000 deposit into the escrow account.
Wisconsin applies familiar rules of contract interpretation to determine the intent
of the parties. See Town Bank v. City Real Estate Dev., LLC, 2010 WI 134, ¶ 33, 330 Wis.
2d 340, 793 N.W. 2d 476 (“[T]he best indication of the parties’ intent is the language of
the contract itself[.]”) In reviewing this language, the court must strive “to give meaning
to every word, ‘avoiding constructions which render portions of a contract meaningless,
inexplicable or mere surplusage.’” Maryland Arms Ltd. P’ship v. Connell, 2010 WI 64, ¶
45, 326 Wis.2d 300, 786 N.W.2d 15 (citation omitted).

“[A] contract provision is

ambiguous if it is fairly susceptible of more than one construction.”

Mgmt. Comput.

Servs., Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis. 2d 158, 178, 557 N.W.2d 67 (1996)
(citations omitted). In that case, the provision “must be construed by the use of extrinsic
evidence [and] the question is one of contract interpretation for the jury.” Id. Such
extrinsic evidence may include “the conduct of the parties and negotiations which took
place, both before and after the execution of the documents, and . . . all related
documents of the parties.” Smith v. Osborne, 66 Wis. 2d 264, 272, 223 N.W.2d 913, 917
(1974).
The only reference to “Deposit,” other than its use in the definition of
“Commencement Date,” is the heading of § 1.9. The actual language of that section,
however, does not contain the word “deposit,” but rather it describes the two payments
referenced above -- the $157,000 payment to GQ Sand and the $628,000 payment to
the escrow account. Still, given the reference to “Deposit” in the heading of § 1.9, the
34

court would be inclined to interpret the Agreement to mean that both payments
constitute the “deposit.” The Agreement, however, also states that “Section headings
contained in the Agreement are for reference only, and shall not in any way affect the
meaning or interpretation of the Agreement.” (Quisling Decl., Ex. 2 (dkt. #56-2) p.11.)
Without relying on this heading reference, the court is hard-pressed to find
sufficient intrinsic evidence to interpret the meaning of “Deposit” in the Commencement
Date provision. Moreover, the plain meaning of “deposit,” specifically a security deposit,
as “money placed with a person as earnest money or security for the performance of a
contract,” Black’s Law Dictionary (9th ed. 2009) (definition of Deposit), does not resolve
the issue either. Accordingly, the term is susceptible to more than one construction and,
therefore, it is ambiguous.
The parties point to certain extrinsic evidence in support of their respective
constructions as well, but that evidence also is inconclusive, or at least not so one-sided
as to allow the court to conclude that a reasonable jury would necessarily adopt one of
the two positions. The pre-contract evidence appears to support GQ Sand’s position. In
an earlier draft, the “deposit” was expressly defined as a $628,000 payment from CBS
directly to GQ Sand. The change from that earlier draft -- requiring payment into an
escrow account -- apparently was made to address CBS’s concern about paying that large
sum of money directly to GQ Sand in advance of performance. GQ Sand agreed to this
change, conditioned on an additional payment of $157,000 payment directly to GQ
Sand to allow it access to immediate funds to cover upfront costs.

Certainly, these

changes do not appear to modify the parties’ apparent intent that CBS would pay a large
35

sum of money at the commencement of the agreement to cover the first and last
shipments. As such, the pre-contract extrinsic evidence supports GQ Sand’s position that
the deposit consists of both payments.
The post-contract extrinsic evidence, however, arguably paints a different picture.
After the January 20th payment of $157,000 to GQ Sand, CBS asked GQ Sand to verify
receipt of the “deposit.” (CBS’s Reply to its PFOFs (dkt. #123) ¶ 24 (citing Salman
Decl., Ex. 5 (dkt. 77-5) 2).) GQ Sand responded the same day with, “[g]ot deposit…Rail
cars moving today need to get escrow info to the bank today to get that process moving.”
(Id. at ¶ 25 (citing Salman Decl., Ex. 5 (dkt. #77-5) 2).) From this, a reasonable jury
might find that the GQ Sand viewed the $157,000 payment as the deposit, triggering its
obligations under the contract. While this still seems a stretch, especially since GQ Sand
also referenced the required escrow account payment in that same communication, a jury
will need to consider the extrinsic evidence in resolving the parties’ dispute as to the
appropriate construction of “deposit.” See Mgmt. Computer Servs., Inc., 206 Wis. 2d at
178.
B. Other Issues with Notice
Even if the jury were to adopt CBS’s less plausible interpretation of “deposit,” GQ
Sand contends that CBS’s notice of right to cure default was defective because there was
no default.

Assuming that the $157,000 payment on January 20, 2015, triggered

performance, and taking into account the 15-day ramp-up period which would have
ended on February 4, 2015, GQ Sand argues that it only missed three deliveries: (1) for
the week of February 5-11, (2) for the week of February 12-18, and (3) for the week of
36

February 19-25.23 In contrast, CBS’s February 25 letter asserts that GQ Sand had missed
five deliveries. If GQ Sand’s count were correct, the failure to timely deliver could not
serve as a basis for CBS’s termination of the Agreement. This factual dispute is also
unfortunately one for the jury to resolve.
GQ Sand also argues that even the breach of five untimely deliveries would not
have been material since time was not of the essence. See Wauwatosa Realty Co. v. Bishop,
6 Wis. 2d 230, 237, 94 N.W.2d 562, 566 (1959) (explaining that delay in performance
justifies rescission of the contract only when time is of the essence) (quoting Zuelke v.
Gergo, 258 Wis. 267, 271, 45 N.W.2d 690, 692 (1951)).

This latter argument is

contradicted by the language of the Agreement itself, the Agreement’s schedule of
deliveries, and the provision permitting termination of the Agreement if GQ Sand fails to
meet its obligations under the contract. See II Michael B. Apfeld et al., Contract Law in
Wisconsin § 12.15(c) (4th ed. 2013) (“That the contract sets a specific time or date for
performance is not conclusive, absent a further provision concerning the effect of
nonperformance at the time stated.”) (citing Haislmaier v. Zache, 25 Wis. 2d 376, 381,
130 N.W.2d 801 (1964)).
Again, however, even the language of the Agreement does not resolve fully this
issue. This is because the provision permitting termination may be waived by the party
benefited by it. See M & I Marshall & Ilsley Bank v. Pump, 88 Wis. 2d 323, 330, 276
N.W.2d 295, 298 (1979). Here, a reasonable jury could find that CBS waived any “time

The schedule contemplates delivery within a seven day period, so plaintiff’s construction of the
delivery occurring on the last day of that seven day period is reasonable.
23

37

is of the essence” requirement by (1) notifying GQ Sand that its customer was balking at
the planned 30,000 ton delivery and (2) not requesting delivery at any time after that
date (even if it did not expressly agree to GQ Sand’s offer to slow down).
Similarly, if the jury finds GQ Sand missed just three deliveries, that is not enough
to find GQ Sand in default under the Agreement, which specifically requires that GQ
Sand have “more than three Seller Uncured Failures” before CBS would have the right to
terminate the contract. (See Quisling Decl., Ex. 2 (dkt. #56-2) 9 (emphasis added).) As
such, CBS must rely on assertion of defects in sand quality to bring the number of
failures up to four, and thus justify its termination of the Agreement. The right to cure
letter provides that GQ Sand breached the contract by “attempt[ing] to provide a
product that does not meet the API requirements set forth in the agreement.” (Quisling
Decl., Ex. 15 (dkt. #56-15) 2.) The letter does not set forth a specific provision of the
contract, as required by the relevant failure to perform provision in the Agreement.
Moreover, an attempt to source a non-conforming product does not constitute a breach of
the agreement here since, as GQ Sand points out, the warranty section of the contract
provides that “seller warrants only that the sand will comply with the specifications in all
material respects at the time of tender of delivery to buyer.” (Quisling Decl., Ex. 2 (dkt.
#56-2) 13 (all capitalizations omitted).)24
In addition, GQ Sand has raised genuine issues of material fact as to: whether
CBS’s testing was legitimate; whether CBS acquiesced to GQ Sand sourcing the product
through WWS based on CBS’s prior experience with that sand (or by failing to secure
Perhaps this could be construed as a finding of “anticipatory breach,” except for the fact that
GQ Sand could only breach if it were unable to cure. See discussion infra, III.C.
24

38

samples prior to executing the Agreement); and whether CBS’s withholding of its test
results for over two weeks renders the notice untimely (i.e., not “prompt”) under the
relevant provision of the Agreement. GQ Sand also raises other procedural challenges
with respect to the February 25th notice of right to cure:

whether the notice was

defective because CBS “stacked” the various violations into one notice, rather than
detailing them in separate notices; whether CBS’s failure to detail each delivery failure in
a separate notice means that the notice was not “prompt”; and whether CBS’s failure to
reference specific provisions of the Agreement also undermines the effectiveness of the
notice.
All of these issues are more properly addressed by a jury in the first instance.
C. GQ Sand’s Ability to Perform
Similar to RMS’s defense above, CBS argues that even if its notice of right to cure
default was premature, its termination of the Agreement was justified because GQ Sand
was not capable of performing under the Agreement. In order to rely on a repudiation or
anticipatory breach claim, there must be a “definite and unequivocal manifestation of
intention on the part of the repudiator that he will not render the promised performance
when the time fixed for it in the contract arrives.” Carnes Co. v. Stone Creek Mech., Inc.,
412 F.3d 845, 854 (7th Cir. 2005) (citing Wis. Dairy Fresh, Inc. v. Steel & Tube Prods. Co.,
20 Wis. 2d 415, 122 N.W.2d 361, 367 (1963)).

Mere doubts or questions about

whether a party will perform are not sufficient to justify an anticipatory breach. Wis.
Dairy Fresh, Inc., 20 Wis. 2d at 427.

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Here, the record does not demonstrate that GQ Sand expressly repudiated the
Agreement. To the contrary, the record reflects GQ Sand’s extensive efforts to secure
both sand that met the specification and railcars to transport that sand. Moreover, any
finding of repudiation would necessarily require the jury to consider CBS’s actions during
the same period of time, including (1) communication that its customer AST was
balking, (2) silence in the face of its view that GQ Sand missed four deliveries, only
providing notice of default after CBS’s claimed fifth delivery failure, and (3) sitting on
testing showing concerns with WWS’s sand quality for over two weeks. These, too, raise
material factual disputes as to whether GQ Sand repudiated the contract by manifesting
an intent not to perform or whether CBS manufactured the repudiation.
Whether GQ Sand would have been able to perform under the contract also turns
on the meaning of “default,” and the required timeline for that performance. There are
also factual disputes as to the length of time required to transport frac sand from
Wisconsin to Texas, and whether a round trip could occur in a one-week period, not to
mention factual disputes with respect to whether the WWS sand met the specifications,
or whether GQ Sand could still have acquired sand that met the specifications within the
required time.

On top of these factual issues, if the jury were to find that CBS

contributed to GQ Sand’s difficulty by either tortuously interfering with GQ Sand’s
contract with RMS (or even committing fraud), then any repudiation theory would be
unavailable. See II Michael B. Apfeld et al., Contract Law in Wisconsin § 12.35 (4th ed.
2013) (“[T]he nonrepudiating party must have clean hands before relying on
repudiation.”).
40

III. GQ Sand’s Breach of Duty of Good Faith and Fair Dealing Claim Against CBS
GQ Sand also asserts a breach of duty of good faith and fair dealing claim. In
many ways, this claim is more straight-forward than GQ Sand’s breach of contract claim,
but nonetheless turns on material factual disputes. Under Wisconsin law, the duty of
good faith and fair dealing is implied in every contract and amounts to a guarantee by
each party to the contract that he or she “will not intentionally and purposely do
anything to prevent the other party from carrying out his or her part of the agreement, or
do anything which will have the effect of destroying or injuring the right of the other
party to receive the fruits of the contract.” Tang v. C.A.R.S. Prot. Plus, Inc., 2007 WI App
134, ¶ 41, 301 Wis. 2d 752, 734 N.W.2d 169 (quoting Metro. Ventures, LLC v. GEA
Assocs., 2006 WI 71, ¶ 35, 291 Wis. 2d 393, 717 N.W.2d 58); see also Wis. Stat.
§ 401.203 (Wisconsin U.C.C. codification of requirement).

Moreover, “conduct that

might not rise to the level of fraud may nonetheless violate the duty of good faith in
dealing with one’s contractual partners and thereby give rise to a remedy under contract
law.” Mkt. St. Assocs. Ltd. P’ship v. Frey, 941 F.2d 588, 594-95 (7th Cir. 1991).
GQ Sand argues that CBS breached this duty by lulling it into believing that there
was no rush to receive the shipments in light of AST balking at delivery, but then
suddenly requiring GQ Sand to cure multiple missed delivery deadlines quickly. There is
support in the caselaw for this legal theory of a breach of duty of good faith and fair
dealing claim. See LDC-728 Milwaukee, L.L.C. v. Raettig, 2006 WI App 258, ¶ 13, 297
Wis. 2d 794, 727 N.W. 82 (affirming trial court’s finding of breach of duty when party
exercised right of first refusal knowing there was no reasonable likelihood party could
41

meet financial contingency and actually complete the transaction); Wis. Nat. Gas Co. v.
Gabe’s Const. Co., 220 Wis. 2d 14, 24, 582 N.W.2d 118, 122 (Ct. App. 1998) (reversing
trial court’s grant of summary judgment on breach of duty of good faith and fair dealing
claim, finding sufficient evidence that party was “lulled . . . into a false sense of security
and prevented it from attempting to mitigate its liability”).

Nonetheless, whether

conduct is consistent with good faith and fair dealing necessarily depends on the facts of
the case and, therefore, is ordinarily an issue for the finder of fact. See Peddie v. Sterling
Jewelers, Inc., 282 F. Supp. 2d 947, 952 (E.D. Wis. 2003) (citing 23 Richard A. Lord,
Williston on Contracts § 63.21 (4th ed. 2002)). Stated another way, while there is
sufficient (arguably overwhelming) evidence for the jury to find in GQ Sand’s favor, the
evidence is not so one-sided as to permit entry of judgment as a matter of law.
IV. GQ Sand’s Intentional Interference with Contract Claims
To prove intentional interference with an existing or prospective contract under
Wisconsin law, a party must demonstrate that: “(1) the plaintiff had a contract or
prospective contractual relationship with a third party; (2) the defendant interfered with
the relationship; (3) the interference was intentional; (4) a causal connection exists
between the interference and the damages; and (5) the defendant was not justified or
privileged to interfere.” Burbank Grease Servs., LLC v. Sokolowski, 2006 WI 103, ¶ 44, 294
Wis. 2d 274, 717 N.W.2d 781.
GQ Sand moves for summary judgment on its claim that CBS interfered with GQ
Sand’s Rail Delivery Agreement with RMS. CBS opposes this motion on the basis that
there are factual disputes as to whether it interfered with this contract. Specifically, Rory
42

Conley denies directing Lyon not to deliver the railcars under the contract in order to
hinder GQ Sand’s ability to perform under the Sand Supply Agreement.

The court

agrees with CBS that these factual disputes render summary judgment inappropriate.
Finally, GQ Sand also alleged tortious interference claims against (1) defendant
RMS for its interference with GQ Sand’s Supply Agreement with CBS; and (2) defendant
NEJGID for its interference with both the Sand Supply Agreement and the Rail Delivery
Agreement. The same fact issues preclude summary judgment on these claims as well.
There are factual disputes as to Hudspeth’s role with respect to both contracts that
prevent the court from entering judgment in plaintiff’s favor at this time.25

ORDER
IT IS ORDERED that:
1) Plaintiff and counter-defendant GQ Sand’s motion for summary judgment
(dkt. #50) is GRANTED as to defendant Range Management System LLC’s
negligence and misrepresentation claims, RESERVED as to summary judgment
on its claims of breach of contract by RMS pending oral argument by the
parties at the Final Pretrial Conference, and DENIED in all other respects.
2) Defendant Conley Bulk Services, LLC’s motion for summary judgment (dkt.
#72) is DENIED.

GQ Sand is correct in pointing out that NEJGID only responded to the tortious interference
claim premised on the Sand Supply Agreement and failed to respond to GQ Sand’s claim that
NEJGID also interfered with the Rail Delivery Agreement. (GQ Sand’s Reply (dkt. #127) 32.)
Still, this oversight does not warrant entry of summary judgment in plaintiff’s favor. See Johnson v.
Hix Wrecker Serv., Inc., 651 F.3d 658, 662 (7th Cir. 2011) (“A party opposing summary judgment
does not have to rebut factual propositions on which the movant bears the burden of proof and
that the movant has not properly supported in the first instance.”).
25

43

3) Going forward, the parties and the clerk’s office should amend the caption of
this case as set forth in the caption at the outset of this Opinion and Order.
Entered this 10th day of June, 2016.
BY THE COURT:
/s/
__________________________________
WILLIAM M. CONLEY
District Judge

44