Opinion ID: 159203
Heading Depth: 2
Heading Rank: 1

Heading: Pine Bend Claims

Text: 15 The Plaintiffs challenge two district court rulings relating to their claims that, prior to the SPA, the Defendants withheld information about expansion plans for KII's Pine Bend Refinery. First, the Plaintiffs argue the district court improperly granted summary judgment against the Plaintiffs on their claim that the Defendants did not disclose KII's plans to expand the refinery to a crude processing capacity of 175,000 barrels per day (B/D). Second, the Plaintiffs assert the district court erred by denying their motion to amend the Pretrial Order to conform to evidence at trial indicating that just prior to the SPA, KII had plans to increase the refinery's capacity to 200,000 B/D. 16
17 In a 1993 Pretrial Order, 3 the Plaintiffs asserted the following claim: 18 As of the date of the stock sale, defendants knew but did not inform the selling shareholders that KII already was increasing, and making plans for further increasing, the crude processing capacity of the Pine Bend Refinery to approximately 145,000 B/D by June 1983; to approximately 155,000 B/D by the end of 1983; and to approximately 175,000 B/D within the next two years thereafter. 19 . . . Defendants' plans included delivering and selling the increased Pine Bend output into existing and new market territories to be accessed more effectively by the reversal of the direction of flow of the Williams Pipeline and by other means. 20 1993 Pretrial Order, 9-10 (italics added) (underline in original). The Plaintiffs sought to recover for these alleged omissions under the following legal theories: (1) breach of contractual warranty; (2) breach of fiduciary duty; (3) common law fraud; and (4) securities fraud. See id. at 16. 21 The Defendants moved for summary judgment on each of the 145,000, 155,000, and 175,000 B/D claims. The district court denied summary judgment on the 145,000 and 155,000 B/D claims, allowing those claims to go to trial, but granted the Defendants' motion on the 175,000 B/D claim. 22 In its summary judgment order, the district court first posed the issue in these terms: Is there enough evidence from which a reasonable jury could find that as of June of 1983 KII had firm plans to expand Pine Bend's capacity to 175,000 bpd within two years? Summary Judgment Memorandum and Order, July 11, 1997, at 127-28 (emphasis added). In answering this question, the district court went on to rule, 23 The court believes a reasonable jury could not find that the defendants in June of 1983 had reasonably firm or definite plans to expand Pine Bend's capacity to 175,000 bpd within two years. At most, the evidence sustains the inference that [KII] officials believed in early 1983 that the economic forecasts and other projections were sufficiently favorable that they should reconsider now increasing refinery capacity under two previously defined cases. . . . The plaintiffs do not submit any evidence from which one can reasonably infer that as of the SPA the defendants had already decided on a specific schedule for expanding refinery capacity regardless of [the engineering firm] Litwin's engineering results and cost summaries. Instead, the evidence overwhelmingly indicates that the defendants remained uncertain about the timing, amount and type of any expansion and that any decision to expand remained contingent on among other things, Litwin's results. The mere decision to consider refinery expansion and to set parameters for estimating costs is not what the plaintiffs allege in this claim. They allege that the defendants planned to expand the refinery to 175,000 bpd within two years. Quite simply, the plaintiffs do not come forth with the evidence to sustain this allegation of planned expansion. 24 Id. at 128-29 (emphasis added). 25 The Plaintiffs appeal this decision on two grounds. First, the Plaintiffs contend the district court erroneously required evidence of firm or definite plans, even though neither the Plaintiffs' claim in the Pretrial Order nor the controlling law on any of their legal theories uses those terms. Second, the Plaintiffs assert that a reasonable jury could find that the evidence supported the exact claim articulated in the Pretrial Order, i.e., KII was making plans for a 175,000 B/D expansion. 26 This court reviews a district court's grant of summary judgment de novo. See Anderson v. Coors Brewing Co., 181 F.3d 1171, 1175 (10th Cir. 1999). Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c). When applying this standard, we view the evidence and draw reasonable inferences therefrom in the light most favorable to the nonmoving party. Simms v. Oklahoma ex rel. Dep't of Mental Health & Substance Abuse Servs., 165 F.3d 1321, 1326 (10th Cir.), cert. denied, 120 S.Ct. 53 (1999). This court has held that failure of proof of an essential element renders all other facts immaterial. See Treff v. Galetka, 74 F.3d 191, 195 (10th Cir. 1996). Thus, to succeed on summary judgment on the 175,000 B/D claim, the Defendants must demonstrate that no material facts regarding this claim, or at least regarding any essential element of the claim, are in dispute and that these undisputed facts fail to prove as a matter of law any essential element of the claim. 27 In Air-Exec Inc. v. Two Jacks Inc., this court noted that when parties to a lawsuit fail to object to or move to amend a pretrial order, that order measures the dimensions of the lawsuit both in the trial court and on appeal. 584 F.2d 942, 944 (10th Cir. 1978); see also Fed. R. Civ. P. 16(e) (the pretrial order shall control the subsequent course of the action unless modified by a subsequent order). For purposes of summary judgment, therefore, the pretrial order coupled with the governing law establish the quantum of evidence required for the Plaintiffs to survive the Defendants' summary judgment motion on the 175,000 B/D claim. 28 In the 1993 Pretrial Order, the Plaintiffs asserted KII was making plans to expand the refinery's crude capacity to 175,000 B/D by the end of 1985. As this order plots the dimensions of the Plaintiffs' claim, they must reference sufficient record evidence for this court to conclude a reasonable jury could find KII was making plans for this 175,000 B/D expansion by the end of 1985. Additionally, although each of the Plaintiffs' four legal theories impose upon the Defendants slightly different disclosure standards, 4 this court can look to the least burdensome of these standards to determine whether any of the claims should have gone to trial. Among these four slightly different disclosure standards, the least rigorous for the Plaintiffs is that flowing from their breach of warranty claim. Thus, in order for even the warranty claim to survive summary judgment, this court, viewing the evidence before the district court at summary judgment in a light most favorable to the Plaintiffs, must answer the following three questions in the affirmative. (1) Could a reasonable jury find that at the time of the SPA, KII was making plans to expand Pine Bend's crude refining capacity to 175,000 B/D by the end of 1985? (2) If so, did KII withhold this information from the Plaintiffs prior to the SPA? (3) Might knowledge of this information materially affect the valuation of KII stock by a prudent and knowledgeable investor? 29 Without needing to address the last two of these three inquires, this court concludes that a reasonable jury could not have found KII was making plans for a 175,000 B/D expansion at the time of the SPA. In reaching this determination, we have reviewed all of the record evidence which might support the Plaintiffs' claim, though this court is not obligated to locate or inspect materials not referenced by the parties in their briefs. 5 See Adler v. Wal-Mart Stores, 144 F.3d 664, 672 (10th Cir. 1998); see also Gamble, Simmons & Co. v. Kerr-McGee Corp., 175 F.3d 762, 773 n.5 (10th Cir. 1999) (In the absence of sufficient citation to record support for a party's allegations, we decline to search for the proverbial needle in a haystack.). 30 The crux of the Plaintiffs' 175,000 B/D expansion claim is this: as far as the Plaintiffs knew, at the time of the SPA the Pine Bend Refinery utilized two crude units, No. 1 having a capacity of approximately 40,000 B/D and No. 2 having a capacity of approximately 90,000 B/D, for a total capacity of approximately 130,000 B/D. Unbeknownst to the Plaintiffs, however, KII was in the process of revamping unit No. 2 to a capacity of 110,000 B/D, while also working with Litwin Engineering (Litwin) either to expand No. 1 to a 65,000 B/D capacity or to replace No. 1 with a new unit with a 65,000 B/D capacity. The Litwin project, combined with the revamp of unit No. 2, would allegedly result in a total capacity of 175,00 B/D, all of which information the Plaintiffs claim the Defendants hid from them prior to the SPA. 31 In opposing summary judgment on the 175,000 B/D claim, the Plaintiffs also rely heavily upon evidence that KII had struck a deal with the Williams Pipeline Company to reverse the flow of the Williams pipeline, but failed to inform the Plaintiffs of that agreement. The Plaintiffs maintain that the Williams reversal provided KII access to new markets for gasoline, thus indicating a plan to increase crude production capacity to 175,000 B/D. Evidence of general market expansion, however, does not specifically support the Plaintiffs' discrete claims for crude production expansion to 145,000; 155,000; 175,000; or 200,000 B/D. Indeed, to succeed on each of these claims, the Plaintiffs must direct this court to evidence of distinct plans to expand production capacity to each specifically alleged number of barrels per day, independent of evidence demonstrating efforts to expand general markets. When the Plaintiffs' stated claims so discretely reference 145,000 B/D, 155,000 B/D, and 175,000 B/D and further include anticipated dates of accomplishment for each expansion, they must provide evidence differentiating between the three claims. With respect to the 175,000 B/D claim, therefore, the Plaintiffs need to demonstrate evidence of the alleged plan through Litwin to expand Pine Bend's crude production capacity to 175,000 B/D. 6 32 Viewing the relevant evidence in a light most favorable to the Plaintiffs, this court concludes that a reasonable jury could not find that prior to the SPA KII was making plans to expand Pine Bend's crude production to 175,000 B/D. At most, KII was merely contemplating this expansion possibility. Although the evidence does not reveal definitively whether KII ever contracted with Litwin to conduct design and cost studies for this possible expansion, this court concludes that a reasonable jury could infer such a contract existed and even that Litwin performed this work. What a reasonable jury could not find, however, is that KII's contracting with Litwin to perform preliminary design and cost studies rises to the level of KII's making plans for this expansion. According to Merriam-Webster's Collegiate Dictionary, to make plans is synonymous with to plan, which is defined as to devise or project the realization or achievement of. Merriam-Webster's Collegiate Dictionary (10th ed., 1993) (emphasis added). To study, however, merely means to consider attentively or in detail. Id. (emphasis added). Resort to dictionaries thus confirms that which common parlance indicates: studying is not planning, and, in this case, the term making plans connotes a higher level of commitment to the expansion than mere evidence of initial cost and design studies indicate. 33 Moreover, the totality of the remainder of the evidence provides an even stronger sense that KII's approach to this potential 175,000 B/D expansion was rather tentative, at least at the time of the SPA. In November of 1983, five months after the SPA, KII announced plans for a more aggressive expansion to over 200,000 B/D, a plan predicated on an entirely different technical approach than the ones studied by Litwin to effectuate the 175,000 B/D expansion. This approximately 200,000 B/D expansion envisioned adding a third crude processing unit, as opposed to the options studied by Litwin of either replacing or upgrading existing unit No. 1. Despite the 200,000 B/D expansion announcement, one month later KII was still merely considering the lesser, intermediate step of expanding to 175,000 B/D, as evidenced by an announcement at the December 1983 Board of Directors Meeting that KII was continuing to analyze the technical and economic feasibility of the 175,000 B/D expansion options studied by Litwin. It was only in February 1984, eight months after the SPA, that KII apparently committed in any way to an approximately 175,000 B/D expansion. 7 In sum, the evidence before the district court at summary judgment, viewed in a light most favorable to the Plaintiffs, shows at most that KII was considering an expansion to 175,000 B/D when the parties signed the SPA, but it does not demonstrate that KII was actually making plans for this expansion, as the Plaintiffs alleged in the Pretrial Order. Thus, this court affirms the district court's grant of summary judgment for the Defendants on the 175,000 B/D expansion claim. 34 Alternatively, the evidence in no way establishes KII had firm plans for a 175,000 B/D expansion at the time of the SPA and, although the district court erred in requiring evidence of such firm plans, the Plaintiffs invited this error and thus cannot appeal it. This court has long recognized the equitable doctrine of invited error. See United States v. Johnson, 183 F.3d 1175, 1179 n.2 (10th Cir. 1999); Air Exec., 584 F.2d at 944. The Invited Error doctrine prevents a party from inducing action by a court and later seeking reversal on the ground that the requested action was error. Johnson, 183 F.3d at 1178-79 n.2. 35 Here, the Plaintiffs induced the district court at the summary judgment stage to view their claim as asserting KII had made firm plans for a 175,000 B/D expansion. Both the Plaintiffs' expert witness, in his report, and their Brief in Opposition to the Defendants' Motion for Summary Judgment stated KII had firm plans for this expansion in June of 1983. One important purpose of written briefs and expert opinion evidence is to focus the court's attention on the specific nature of the legal theories and factual allegations at issue in a case. By claiming these firm plans, the Plaintiffs themselves induced the district court to focus on whether KII had made such firm plans. Cf. Air Exec., 584 F.2d at 944 (holding defendants could not appeal an inferential admission they had made in the Pretrial Order, as the Pretrial Order measures the dimensions of the lawsuit). 36 This court acknowledges that it is the Pretrial Order which measures the dimensions of a lawsuit, and not a summary judgment brief or an expert's testimony, and therefore the district court erred in requiring evidence of firm plans rather than making plans. Nonetheless, the Plaintiffs induced the district court into making this error, and thus they cannot challenge this heightened evidentiary requirement on appeal. Because the evidence before the district court on summary judgment, viewed in a light most favorable to the Plaintiffs, provides no indication whatsoever that KII had made firm plans to expand Pine Bend to 175,000 B/D at the time of the SPA, this court affirms the district court's grant of summary judgment. 37 2. The Motion to Amend the Pretrial Order to Add a 200,000 B/D Expansion Claim 38 At the close of their case, the Plaintiffs moved to amend the Pretrial Order to conform to the evidence, asserting the Defendants had impliedly consented to the trial of a new claim: that the Defendants failed to disclose KII's pre-SPA plan to expand Pine Bend's capacity to 200,000 B/D. The district court denied that motion for several reasons. First, it resolved that the evidence at trial presented no new issues at all, but instead was the same evidence the Defendants presented at summary judgment to show the Plaintiffs always knew about KII's ideas for expansion. The district court thus concluded the Defendants did not consent to the trial of a new claim. Second, the district court reasoned that because the subject evidence was also relevant to the claims already being tried, the Plaintiffs could not rely on that evidence to amend the Pretrial Order in conformity with the evidence. Third, the district court determined its reasoning for granting the Defendants summary judgment on the 175,000 B/D claim applied with equal force to any possible 200,000 B/D claim. Finally, the district court concluded that forcing the Defendants to defend this new claim would unfairly disadvantage them. This court reviews the district court's denial of the motion to amend for an abuse of discretion. See Trierweiler v. Croxton & Trench Holding Corp, 90 F.3d 1523, 1543 (10th Cir. 1996). 39 During defense counsel's cross-examination of William H. Hanna, the President of KII at the time of trial, Hanna stated the following: 40 We really wanted very badly to do this, to be able to reverse [the Williams] pipeline, because we could see as you've heard earlier, starting in '76 there was more product, more product, more product. We weren't naive. We knew we were heading to 200,000 barrels a day so we were looking for every outlet. 41 Later in the trial, the following exchange occurred between defendant David Koch and Plaintiffs' counsel during their direct examination: 42 Q: Did you know in the fall of 1982 that the Pine Bend Refinery was heading to 200,000 barrels a day? 43 A: Yes, Bernie Paulson had been talking about expanding the refinery to that number for many years. 44 Q: This was the Paulson starting talking about this 45 A: Yeah, in the 1970[s]. 46 Q: in the 1970[s]. '70s. He'd advocated 200,000. Right? 47 A: Well, it was a long-term objective, yes. 48 . . . 49 Q: That you, David Koch, then did know in the fall of 1982 that the company was heading to 200,000 barrels a day? 50 A: Yes, at some distant point in the future. I mean, we were trying to get there eventually. 51 . . . 52 A: The 200,000 barrels a day was in the future. Now, I don't think we had any idea of during the early 80s at what point we were going to reach 200,000 barrels a day, but it was almost certain that sooner or later we were going to get there. 53 In addition, Plaintiffs' counsel questioned both Bernard Paulson and William Koch about this alleged 1982 plan for expansion to 200,000 B/D. 54 The Plaintiffs contend that by eliciting Hanna's testimony and failing to object to the other testimony, the Defendants impliedly consented to the trial of a new claim, i.e., that the Defendants failed to disclose to the Plaintiffs KII's 200,000 B/D expansion plan. Because of this implied consent, the Plaintiffs argue, the district court erred by denying them leave to amend the pretrial order to include this additional claim. 55 Federal Rule of Civil Procedure 15(b) provides: 56 When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment . . . . 57 Fed. R. Civ. P. 15(b). A party impliedly consents to the trial of an issue not contained within the pleadings either by introducing evidence on the new issue or by failing to object when the opposing party introduces such evidence. See Hardin v. Manitowoc-Forsythe Corp., 691 F.2d 449, 457 (10th Cir. 1982). 58 Contrary to the Plaintiffs' characterization of Hanna's and David Koch's testimony, the Defendants neither introduced evidence on a new issue nor failed to object to that type of evidence. Indeed, this testimony presented anything but a new issue. Both before and during the course of this litigation, the Plaintiffs were fully aware that beginning in 1977, KII President Bernard Paulson had lobbied to expand Pine Bend to a capacity of 200,000 B/D. The Defendants presented evidence at summary judgment demonstrating the Plaintiffs possessed knowledge of Paulson's aspiration to expand Pine Bend's capacity to 200,00 B/D. See 6A Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure § 1527, at 287-89 (1990) ([I]f the evidence or issue was within the knowledge of the party seeking modification [of the pretrial order] at the time of the [pretrial conference] . . . then it may not be allowed.) Moreover, in both the 1993 and 1998 Pretrial Orders, the Defendants attempted to refute the Plaintiffs' non-disclosure claim by contending that the Plaintiffs were aware of KII's engagement in a process for expansion. Thus, this longstanding objective to expand Pine Bend to a 200,000 B/D capacity was both known by the Plaintiffs and raised in the pleadings. 59 The Plaintiffs now argue that prior to the early 1980's, KII had abandoned Paulson's idea for expansion, and therefore, the trial testimony pointed to some new 200,000 B/D expansion plan first proposed in 1982 and about which the Defendants were not informed. The only fair, contextual reading of the testimony, however, does not support the Plaintiffs' interpretation. Both Hanna and David Koch unequivocally stated that this 1982 200,000 B/D expansion objective had originated with Paulson back in 1976. Therefore, the district court did not abuse its discretion in concluding that the Defendants had not consented to the trial of an issue not raised in the pleadings. 60 In addition, Hanna's and David Koch's testimony about the 200,000 B/D expansion plan was relevant to issues already being tried. When the evidence claimed to show that an issue was tried by consent is relevant to an issue already in the case, and there is no indication that the party presenting the evidence intended thereby to raise a new issue, amendment may be denied in the discretion of the trial court. Hardin, 691 F.2d at 457; see also Dole v. Mr. W Fireworks, Inc., 889 F.2d 543, 547 (5th Cir. 1989) (The evidence that [plaintiff] alleges to have shown implied consent was also relevant to the other issues at trial and cannot be used to imply consent to try the present issue. (emphasis in original)). The Plaintiffs' awareness of all KII's ideas for expanding Pine Bend was relevant to whether the Plaintiffs were unaware of the purported 145,000 and 155,000 B/D expansions, claims that were being tried. Undoubtedly, that is why defense counsel elicited this testimony, not because the Defendants intended to raise a new issue. The Defendants were merely attempting to demonstrate that KII embraced a healthy corporate philosophy to act aggressively, move ahead, and increase market share, a philosophy of which the Plaintiffs were aware. The evidence regarding the 200,000 B/D expansion goal was introduced simply to illustrate the Plaintiffs' knowledge of that philosophy and thus of the two lesser expansions, not to inject evidence of a specific or discrete plan, as argued by the Plaintiffs. The district court, therefore, did not abuse its discretion in denying the Plaintiffs' motion to amend the Pretrial Order. 61 Alternatively, the Plaintiffs argue that even if the Defendants did not consent to trial of a 200,000 B/D expansion claim, the district court still should have granted the Plaintiffs' motion to amend the Pretrial Order because the Defendants failed to show that they would be prejudiced by the trial of the new claim. 8 This argument, however, relies on an incorrect interpretation of the district court's reasoning. The district court did not conclude merely that the Defendants failed to consent, but also that the evidence at issue presented no new claim. Although Rule 15(b) does allow a court, under certain circumstances, to amend pleadings to conform to evidence even when the opposing party objected to that evidence, application of any portion of Rule 15(b) is appropriate only when an issue not raised by the pleadings has, in fact, been presented. Fed. R. Civ. P. 15(b). As discussed above, the district court did not abuse its discretion in concluding the testimony about the longstanding aspiration to expand Pine Bend to 200,000 B/D presented no issues not raised in the pleadings, both because the Plaintiffs were previously aware of this evidence and because this evidence was relevant to other issues already being tried. Rule 15(b), therefore, does not apply at all to this testimony, and this court need not undertake a Rule 15(b) prejudice analysis with respect to that testimony. Thus, we affirm the district court's denial of the Plaintiffs' motion to amend the pleadings to conform to the evidence.