Court Opinion

ID: 62653
Source: CourtListenerOpinion
Date Created: 2010-04-26 04:46:27+00
Date Added: 2024-06-11T17:20:07.897127
License: Public Domain

[DO NOT PUBLISH]

               IN THE UNITED STATES COURT OF APPEALS

                        FOR THE ELEVENTH CIRCUIT            FILED
                          ________________________ U.S. COURT OF APPEALS
                                                              ELEVENTH CIRCUIT
                                                                 JUNE 6, 2008
                                No. 07-15496
                                                               THOMAS K. KAHN
                            Non-Argument Calendar
                                                                   CLERK
                          ________________________

                       D. C. Docket No. 06-00351-CV-F-E

G.F. KELLY TRUCKING, INC.,
GUY KELLY, individually,
                                                    Plaintiffs-Appellants,

                                      versus

U.S. XPRESS ENTERPRISES, INC.,

                                                    Defendant-Appellee.

                          ________________________

                   Appeal from the United States District Court
                       for the Middle District of Alabama
                         _________________________

                                   (June 6, 2008)

Before HULL, MARCUS and WILSON, Circuit Judges.

PER CURIAM:

      Plaintiffs-Appellants G.F. Kelly Trucking, Inc. (“Kelly Trucking”) and Guy

Kelly appeal the district court’s order granting summary judgment to the
Defendant-Appellee U.S. Xpress Enterprises, Inc. (“USX”) on their claims of

breach of contract, fraud and suppression. After review, we affirm.

                                 I. BACKGROUND

      Defendant USX, a transportation corporation in Tennessee negotiated the

purchase of Kelly Trucking, a short-haul trucking company in Alabama. On

August 8, 2005, Guy Kelly, president of Kelly Trucking, signed an Asset Purchase

Agreement (“APA”) in which, among other things, USX agreed to purchase Kelly

Trucking’s book of business and certain equipment, including tractors and trailers.

In exchange, Kelly Trucking gave USX an exclusive opportunity to hire its

employee drivers and contract with its owner/operator drivers. Kelly Trucking

agreed to provide a list of its drivers, to give USX access to its drivers’ records and

to “provide all reasonable cooperation and assistance” in USX’s attempts to hire

Kelly Trucking’s drivers. USX, in its sole discretion, decided whether to hire each

Kelly Trucking driver.

      As a condition to closing, the APA provided that USX: (1) would conduct a

due diligence investigation confirming Kelly Trucking’s business, assets and

financial and legal condition and (2) was to be satisfied, in its sole discretion, that

Kelly Trucking had at least 130 drivers that met USX qualifications for hiring, as

follows:

                                            2
       Section 3.6. Closing Date Drivers. Buyer shall be satisfied, in its sole
       discretion, that there will be at least one hundred thirty (130) Closing
       Date Drivers that will meet Buyer’s qualifications for hiring.1

The APA also required the parties to “cooperate and use their reasonable best

efforts to evaluate as promptly as practicable all of [Kelly Trucking’s] employee

drivers and owner-operators for purposes of the condition specified in Section 3.6

above.” As additional closing conditions, USX needed to be satisfied, in its sole

discretion, with the results of an inspection of the equipment to be transferred and

required Kelly Trucking to provide lien payoff letters from lenders financing any

of the transferred equipment and a factoring payoff letter.

       During negotiations and the due diligence investigation, Dennis Farnsworth

of USX twice guaranteed to Guy Kelly that USX would purchase Kelly Trucking

and assured Kelly that the sale would close on August 29, 2005.

       On August 12, 2005, Kelly Trucking sent USX a list of 167 Kelly Trucking

drivers, from which the 130 Closing Date Drivers could be found to satisfy Section

3.6 of the APA. Kelly Trucking also gave USX access to its drivers’ records,

although some files were incomplete or missing.

       As part of its due diligence, USX conducted a preliminary review of the

drivers’ records to determine whether at least 130 drivers would qualify as Closing

       1
       The phrase “Closing Date Drivers” is defined under the APA as “employee drivers and
owner-operators” as of the date of closing.

                                             3
Date Drivers. USX determined that 27 drivers were not qualified, leaving 140

drivers who were potentially eligible for hire by USX. On August 17, 2005, a

color-coded list of the drivers that indicated which drivers were disqualified was

forwarded to Kelly Trucking.

      On August 22, 2005, USX sent employees from its safety department to

Kelly Trucking’s home office in Wadley, Alabama to conduct, among other things,

a driver qualification process. USX’s driver qualification process included a road

test, drug testing, completing employment applications and attending an orientation

by USX’s safety department to introduce Kelly Trucking drivers to USX’s safety

policies and procedures.

      To complete the driver qualification process, Kelly Trucking’s drivers

needed to be physically present. Consequently, the driver qualification process

was disruptive to Kelly Trucking’s business. Kelly Trucking determined which of

its drivers were routed through Wadley to participate in the driver qualification

process. To minimize the disruption, Kelly Trucking did not route all of its drivers

through Wadley at once. Instead, on August 22, Kelly Trucking routed

approximately 40% of its drivers to Wadley. Although the driver qualification

process was supposed to take only one day, it did not and some of Kelly

Trucking’s drivers were still in Wadley on August 25.

                                          4
      Between August 22 and August 24, USX processed 95 Kelly Trucking

drivers and disqualified 29 of them. It is undisputed that 17 of the 29 drivers

disqualified during the driver qualification process had already been disqualified

during the drivers’ record review. Thus, in addition to the 27 drivers disqualified

during the record review, 12 other drivers were disqualified during the driver

qualification process, for a total of 39 disqualified drivers. This left 128 drivers for

USX to evaluate and try to hire.

      Fewer drivers showed up for the driver qualification process than USX

expected. There was some discussion between USX and Kelly Trucking about

conducting the driver qualification process at other Kelly Trucking locations to see

drivers who were unable to be routed through Wadley; however, USX

discontinued the driver qualification process before that could happen.

      During the week of August 22, 2005, Kelly Trucking lost 50 drivers. These

drivers left Kelly Trucking because they learned during USX’s driver qualification

process that many of USX’s safety policies and procedures were more onerous

than those of Kelly Trucking. For example, Kelly Trucking routed drivers through

their home city for weekends, but USX did not. USX also required all trucks to

have a governor so that trucks could not exceed 67 miles per hour and required

drivers to stop at scales and log all scale and fuel stops. It became apparent to

                                           5
USX employees conducting the driver qualification process that many of Kelly

Trucking’s drivers were hostile to and unwilling to comply with USX’s policies

and procedures and that many might not work for USX even if they qualified.

       During a telephone conference on August 25, these USX employees advised

USX’s senior management that they believed USX would be unable to qualify the

required 130 Closing Date Drivers. In addition, USX learned through a third-party

evaluation that the book value on Kelly Trucking’s tractors and trailers equaled the

debt outstanding on the equipment. Furthermore, during a physical inspection of

some of the trailers conducted the week of August 22, USX learned that the

trailers’ book value exceeded their actual value. The inspection revealed that many

of the trailers had substantial damage and were not up to USX’s road

specifications. Finally, as of August 25, Kelly Trucking had not provided either

the lien payoff letters or the factoring payoff letter.

       Although several conditions to closing had not been met, USX’s

determination that it would be unable to find 130 qualified drivers was

determinative. On August 25, USX discontinued its due diligence efforts and

stopped the driver qualification process, which was ongoing. USX sent a letter to

Kelly stating that “pursuant to the terms of the Asset Purchase Agreement, we have

determined that it is not in the parties’ best interest to move forward with the

                                             6
proposed business arrangement.”

      According to Kelly, Al Hingst, a USX representative, also informed Kelly in

person on August 25 that USX was not going to purchase Kelly Trucking’s assets.

Hingst told Kelly that USX had “botched this whole deal through

mismanagement.” Hingst apologized to Kelly and said that if he, Hingst, had been

brought into the due diligence investigation earlier (Hingst became involved when

he arrived in Wadley on August 24), the deal would have closed. After Hingst

informed Kelly that the deal was off, Willis Childers, the safety director at Kelly

Trucking, called the drivers together and announced that the deal had fallen

through. In response, the drivers cheered and wanted to hug Childers.

      During and after the negotiations, Kelly Trucking lost several clients either

because they did not want to contract with USX or because Kelly Trucking no

longer had adequate fleet capacity after it had lost so many drivers. In addition,

USX employees contacted several Kelly Trucking clients during the due diligence

investigation and told them that USX was acquiring Kelly Trucking. When Kelly

learned of the client contact, he asked USX not to contact his clients until after the

deal had closed. Finally, about two months after the purchase fell through, USX

offered to hire two Kelly Trucking drivers who had been rejected during the driver

qualification process.

                                           7
       Kelly Trucking and Guy Kelly filed this action in Alabama state court

alleging that USX: (1) had breached the APA by not completing the purchase, (2)

had fraudulently represented that it would close on the purchase, and (3) had

suppressed the fact that it was using the due diligence process to steal Kelly

Trucking’s customers and drivers and to drive Kelly Trucking out of business.

       USX removed the action to federal court based on diversity jurisdiction and,

after discovery, moved for summary judgment. The district court granted USX

summary judgment on all claims. This appeal followed.

                                     II. DISCUSSION 2

A.     Breach of Contract

       To establish a claim of breach of contract under Tennessee law, the plaintiff

must show: (1) the existence of an enforceable contract; (2) nonperformance

amounting to a breach of the contract; and (3) damages caused by the breach of the

contract. ARC LifeMed, Inc. v. AMC-Tennessee, Inc., 183 S.W.3d 1, 26 (Tenn.

Ct. App. 2005).3 However, if the contract contains a condition precedent, no

       2
         We review a district court’s grant of summary judgment de novo, applying the same
legal standards used by the district court. Sierra Club v. Leavitt, 488 F.3d 904, 911 (11th Cir.
2007). Summary judgment is proper when the evidence, viewed in the light most favorable to
the non-moving party, presents no genuine issue of material fact and the moving party is entitled
to judgment as a matter of law. Id.
       3
          As a federal court sitting in diversity, we apply the choice of law rules of the forum
state, in this case, Alabama. See Grupo Televisa, S.A. v. Telemundo Comms. Group, Inc., 485
F.3d 1233, 1240 (11th Cir. 2007). Alabama law first looks to the contract to determine which

                                                8
liability arises under the contract until the condition precedent is fulfilled.

Strickland v. City of Lawrenceburg, 611 S.W.2d 832, 837 (Tenn. Ct. App. 1980).4

       Tennessee law implies a duty of good faith and fair dealing in every

contract. Wallace v. Nat’l Bank of Commerce, 938 S.W.2d 684, 686 (Tenn. 1996).

Whether a party has acted in good faith in performing the terms of the contract is

judged “against the intent of the parties as determined by a reasonable and fair

construction of the language of the instrument.” Id. However, where the contract

provides one party with the unilateral exercise of discretion, the other party cannot

reasonably expect that discretion not to be exercised and “[p]erformance of a

contract according to its terms cannot be characterized as bad faith.” Id. at 687

(concluding that bank’s raising of fees did not breach the duty of bad faith because

the contract gave the bank the unilateral discretion to do so).

       Under the APA, USX’s obligation to purchase Kelly Trucking’s assets did

not arise unless Section 3.6, the Closing Date Drivers provision, was fulfilled.

Under Section 3.6, USX needed to be satisfied, in its sole discretion, that there

law applies. Stovall v. Universal Constr. Co., Inc., 893 So. 2d 1090, 1102 (Ala. 2004). Here, the
APA provides that Tennessee law governs its construction and enforcement. Thus, we apply
Tennessee contract law.
       4
         A “condition precedent” under Tennessee law is “a condition which must be performed
before the agreement of the parties shall become a binding contract” or “a condition which must
be fulfilled before the duty to perform an existing contract arises.” Strickland, 611 S.W.2d at
686.

                                               9
were at least 130 Closing Date Drivers that met USX’s qualifications for hiring.

Thus, USX’s satisfaction with regard to the Closing Date Drivers was a condition

precedent to its duty to perform under the APA and, if the condition precedent was

not fulfilled, USX’s failure to perform would not constitute a breach of the APA.

      Plaintiffs argue that they presented evidence creating a genuine issue of

material fact as to whether USX breached Section 7.12 of the APA, which required

the parties to “cooperate and use reasonable best efforts” to evaluate Kelly

Trucking’s drivers as promptly as practicable for the purpose of the condition in

Section 3.6 and also that USX breached the duty of good faith in determining that

the Closing Date Drivers condition could not be met.

      Plaintiffs point to evidence that, during the August 22 driver qualification

process, USX evaluated 17 drivers it had already disqualified during the

preliminary review of the drivers’ files. Plaintiffs complain that USX’s safety

department employees sent to Wadley “[u]nexplainably . . . spent valuable time

taking applications, conducting driving tests and drug tests” on these 17 already

disqualified drivers. However, it is undisputed that it was Kelly Trucking, and not

USX, that routed the drivers through Wadley to participate in the driver

qualification process and that Kelly Trucking knew the identity of the already

disqualified drivers at that time. Therefore, this evidence does not suggest that

                                          10
USX failed to cooperate and use reasonable best efforts to evaluate the drivers

promptly.

       Plaintiffs also emphasize that USX had not completed the driver

qualification process when it decided not to go through with the purchase.

Plaintiffs note that USX’s Hingst testified that at the time he expected between 60

and 100 additional drivers to show by the end of the week for evaluation.

       However, the undisputed facts show that, as of August 25, Kelly Trucking

did not have enough drivers from which USX could find 130 Closing Date Drivers.

Of the original pool of 167 Kelly Trucking drivers, 39 had already been

disqualified, leaving only 128 potentially eligible drivers. Even if all 128 drivers

were deemed qualified to USX’s satisfaction, Kelly Trucking still would have been

2 drivers short of the 130 needed to meet the Closing Date Drivers condition.

Thus, it was not unreasonable for USX to halt the driver qualification process

before it was completed.5

       Furthermore, although Hingst estimated that between 60 and 100 drivers still

needed to be evaluated as of August 25, he did not testify that there were enough

drivers left in the pool to permit USX to find at least 130 qualified drivers.

       5
        Based on these undisputed facts, there also is no jury issue as to whether the condition
precedent (Section 3.6 Closing Date Driver condition) to USX’s duty to perform under the APA
was not met. See Strickland, 611 S.W.2d at 837.

                                               11
Further, Hingst testified that even if 130 drivers passed the driver qualification

process, he believed that many of them would be unwilling to work for USX and

that he passed this information on to his superiors.

      Finally, Plaintiffs point to Kelly’s testimony that Hingst admitted to him on

August 25 that USX had “botched the whole deal through mismanagement.”

Although Hingst denies making this statement, for summary judgment purposes we

must construe all facts in favor of the plaintiffs. However, this one conclusory and

vague statement is insufficient to support a jury finding that USX acted in bad faith

or failed to use reasonable best efforts. See Allen v. Tyson Foods, 121 F.3d 642,

646 (11th Cir. 1997) (“A mere ‘scintilla’ of evidence supporting the [nonmoving]

party’s position will not suffice; there must be enough of a showing that the jury

could reasonably find for that party.” (quotation marks omitted)).

      Even if Hingst made the statement, it is not supported by any other evidence

that USX did not use reasonable best efforts to promptly evaluate Kelly Trucking’s

drivers. Kelly Trucking provided files for its 167 drivers on August 9 and by

August 17 USX had reviewed them all and provided Kelly Trucking with a color-

coded chart indicating, among other things, which drivers were disqualified. By

August 22, USX was at Kelly Trucking’s Wadley location performing its driver

qualification process. Within three days it became apparent that USX would be

                                          12
unable to find the required 130 qualified drivers from the remaining pool of

eligible drivers. At that point, USX immediately informed Kelly Trucking. Given

these undisputed facts, Hingst’s statement to Kelly does not create a genuine issue

of material fact as to whether USX failed to use reasonable best efforts to evaluate

Kelly Trucking’s drivers as promptly as practicable or whether USX acted in bad

faith in evaluating the drivers.

B.     Promissory Fraud

       To prove a claim of promissory fraud under Alabama law, the plaintiff must

show: “(1) a false representation (2) of a material existing fact (3) reasonably relied

upon by the plaintiff (4) who suffered damage as a proximate consequence of the

misrepresentation . . . . (5) proof that at the time of the misrepresentation, the

defendant had the intention not to perform the act promised, and (6) proof that the

defendant had an intent to deceive.” Waddell & Reed, Inc. v. United Investors Life

Ins. Co., 875 So. 2d 1143, 1160 (Ala. 2003).6

       Plaintiffs’ promissory fraud claim arises out of Dennis Farnsworth’s two

alleged verbal guarantees to Guy Kelly that USX would purchase Kelly Trucking.

       6
        Alabama choice of law rules apply the doctrine of lex loci delicti to tort claims, which
means that the law of the state in which the injury occurred governs the substantive rights of the
injured party. Colonial Life & Accident Ins. Co. v. Hartford Fire Ins. Co., 358 F.3d 1306, 1308
(11th Cir. 2004). Here, because the alleged fraudulent misrepresentations occurred in Alabama,
we apply Alabama law.

                                                13
The first time was on July 22, 2005 at Kelly Trucking in Wadley, before the APA

was signed. However, that statement on July 22 was made before the parties

entered into the APA. Any pre-contract guarantees Farnsworth made that USX

could close on the deal were vitiated by the APA, which imposed conditions

precedent to closing. See Tyler v. Equitable Life Assurance Soc’y, 512 So. 2d 55,

57 (Ala. 1987) (“[F]raud or misrepresentation cannot be predicated upon a verbal

statement made before execution of a written contract when a provision in that

contract contradicts the verbal statement.”).

      The second time was on August 20, 2005. Kelly had sent Farnsworth an

email telling USX to either “piss or get off the pot” because USX had pushed back

the original closing date target of July 15 and Kelly Trucking’s customers and

drivers were getting nervous. In response, Farnsworth called Kelly and apologized

for the delays. Farnsworth said, “Guy, I guarantee you and promise you we are

going to buy your company” and further promised, “we are going to close on

August the 29th.” Farnsworth told Kelly that a USX team would be coming to

Wadley on August 22 to “start the process.” Farnsworth also told Kelly not to

worry about Section 3.6’s Closing Date Drivers condition because “they would

work out the deal with the drivers through safety.”

      Plaintiffs argue that it was reasonable for Kelly to believe, based on

                                          14
Farnsworth’s verbal assurances, that the Closing Date Drivers condition in Section

3.6 of the APA had been met or would be met at closing. However, under

Alabama law, a contracting party cannot as a matter of law reasonably rely on

verbal statements that are inconsistent with the written terms of a contract.

Foremost Ins. Co. v. Parham, 693 So. 2d 409, 421 (Ala. 1997). Here, the written

terms in Section 3.6 of the APA explicitly stated that USX had to be satisfied that

there were 130 Closing Date Drivers that would meet its hiring qualifications

before USX would close on the purchase of Kelly Trucking’s assets. The APA

also included a clause prohibiting any of its conditions from being waived verbally,

as follows:

      Section 11.6. Amendments. This Agreement shall not be changed or
      terminated orally and no waiver of compliance with any provision or
      condition hereof and no consent provided for herein shall be effective
      unless evidenced by a written instrument duly executed by the party to
      be charged therewith.

Kelly signed the APA and is presumed to have known its contents. See Massey

Automotive, Inc. v. Norris, 895 So. 2d 215, 218-20 (Ala. 2004) (explaining that

when a contracting party who is able to read signs a written contract, the

contracting party is bound by the contract and cannot reasonably rely upon verbal

statements that are inconsistent with the contract’s terms).

      Moreover, it is undisputed that USX had not completed its evaluation of

                                          15
Kelly Trucking’s drivers when Farnsworth made the second statement on August

20. At that time, Kelly knew that 27 drivers had been disqualified in the

preliminary review of the drivers’ files and that the driver qualification process

would begin at the Wadley location two days later on August 22. And even Kelly

stated that Farnsworth told him that a USX team was coming to Wadley to start the

driver qualification process. Thus, it was unreasonable for Kelly to believe, based

on Farnsworth’s statements, that the condition had already been met or that the

condition would necessarily be met or that the closing was guaranteed.

Furthermore, because the APA expressly provided that conditions could only be

waived in writing, Kelly could not have reasonably believed based on

Farnsworth’s statements that USX would buy Kelly Trucking’s assets even if the

condition was not met.7

       For these reasons, the district court did not err in granting summary

judgment to USX on plaintiffs’ breach of contract and fraud claims.

       AFFIRMED.

       7
         On appeal, Plaintiffs do not appear to challenge the district court’s summary judgment
on their claim of fraudulent suppression. In any event, we note that that claim fails for the same
reason that the promissory fraud claim fails. See Crowder v. Memory Hill Gardens, Inc., 516
So. 2d 602, 605 (Ala. 1987) (stating that claims for both misrepresentation and suppression
require a showing of reasonable reliance).

                                                16