Justia U.S. 6th Circuit Court of Appeals Opinion Summaries

Articles Posted in Contracts

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The defendants, exploration and production companies, contracted with landowners (plaintiffs) to drill for oil and gas on leased properties in Ohio’s Utica Shale Formation between 2010-2012. The agreements provide for royalty payments to the plaintiffs based on the gross proceeds received by the defendants from the sale of each well’s oil and gas production. The defendants sell the oil and gas extracted from the leased properties to “midstream” companies affiliated with the defendants. To calculate the price that an unaffiliated entity would have presumptively paid for the oil and gas, the defendants use the “netback method.” The plaintiffs claim the defendants underpaid their royalties because the netback method does not accurately approximate an arm’s-length transaction price, and improperly deducts post-production costs from the price. The district court granted class certification under FRCP 23(b)(3). The Sixth Circuit affirmed. While the plaintiffs have not met their burden of showing that common issues predominate with respect to a theory that the defendants sold oil and gas to midstream affiliates at below-market prices, the plaintiffs no longer pursued that theory at the class-certification stage. The plaintiffs satisfy the requirements of Rule 23(b)(3) with their liability theory based on the defendants’ deductions of post-production costs. View "Zehentbauer Family Land, LP v. Chesapeake Exploration, L.L.C." on Justia Law

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Robert was admitted to a nursing home multiple times. During his final stay, he fell out of bed, sustained a head injury, and later died. His estate sued in state court, alleging negligence, negligence per se, violations of Kentucky’s Residents’ Rights Act, KRS 216.515(26), corporate negligence, medical negligence, wrongful death, and loss of consortium. The nursing home sought to enforce an arbitration agreement in federal court. The district court held that no valid agreement covering the final visit existed. An Agreement dated January 5, 2015 displays a mark of some kind in the “Signature of Resident” block, but it is difficult to read. Bramer’s estate alleges that this scrawl is a forgery; Robert's widow stated in an affidavit that neither she nor Robert signed that form. On an Agreement dated January 26, 2015, the widow signed in the “Signature of Resident” block. The Alternative Dispute Resolution Agreements are identical, bind successors and assigns, and require arbitration of a wide range of disputes. They purport to remain in effect through discharge and subsequent readmission. Although signing the Agreement was not a condition of admission, it was presented as part of the admissions packet. The estate presented evidence that the staff implied that signing the Agreement was required. The Sixth Circuit affirmed. By requesting a second agreement on January 26, the nursing home effectively abandoned the first agreement. Lacking Robert’s consent, there was no valid agreement to arbitrate. View "GGNSC Louisville Hillcreek v. Estate of Bramer" on Justia Law

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KCP, the plaintiff, had hoped to act as a middleman in a potential distribution deal for a novel cleaning product and targeted Henkel, a large consumer products company as a potential distributor. KCP and Henkel entered into a non-disclosure agreement (NDA) to aid in the negotiations of a distribution deal. KCP provided Henkel with confidential information about the product. Following a year of exchanging information and engaging in negotiations, the NDA lapsed, and no deal was consummated. KCP asserts that Henkel’s parent company, Henkel KGaA, used confidential information it acquired through the NDA to develop the product on its own and also interfered with the potential distribution deal. The district court granted summary judgment in favor of KGaA. As to a breach of contract claim, the court found that KGaA was not a party to the NDA and could not be liable for its breach. As to a tortious interference claim, the court found that KGaA is the parent company of Henkel, so the parent-subsidiary privilege immunizes it from a tortious interference claim involving its subsidiary; the court found that the narrow “improper motive” exception to that privilege did not apply. The Sixth Circuit affirmed summary judgment in favor of KGaA, KCP has not presented sufficient evidence of any improper motive or means to pierce the parent-subsidiary privilege. View "Knight Capital Partners Corp. v. Henkel AG & Co." on Justia Law

Posted in: Business Law, Contracts

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Fifth Third Bank’s “Early Access” program is a short-term lending option for certain customers who hold eligible checking accounts. Fifth Third deposited Early Access loans straight into borrowers’ accounts, then paid itself back automatically, with a 10% “transaction fee,” after a direct deposit posted or 35 days elapsed, whichever came first. The contract governing the program disclosed the annual percentage rate (APR) as 120% in all cases. Plaintiffs obtained Early Access loans, which were paid back fewer than 30 days later. They contend that the 120% figure is false and misleading. Calculated using a more conventional method, in which the APR is tied to the length of the loan, plaintiffs assert that the APR was actually as high as 3650%. The district court rejected an Ohio law breach-of-contract claim, holding that the contract unambiguously disclosed the method for calculating APR despite admitting that the result “may be misleading.” The Sixth Circuit reversed. The contract was ambiguous because it provided different descriptions of “APR” that cannot be reconciled. The first was a definition, lifted verbatim from a federal regulation, that describes the APR as being “expressed as a yearly rate”; the second was the method used to calculate it, which is not based on any time period. The ambiguity raises a question of fact that should be resolved on remand. View "Laskaris v. Fifth Third Bank" on Justia Law

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Rotondo was the sole owner of Apex, which wholly owned four limited liability companies (Directional Entities). Apex and the Directional Entities provided services, such as human resources, to different clients. Rotondo sold the Directional Entities’ key asset, customer lists, to AES, which agreed to pay Rotondo a share of its gross profits in the form of “Consulting Fees.” Two entities sought to collect Rotondo’s Consulting Fees: Akouri loaned money to one of Rotondo’s other companies and had a security interest in Apex’s assets and a judgment against Rotondo and Apex for $1.4 million. Rotondo also owes the IRS $3.4 million. The IRS filed several notices of tax liens against Rotondo, Apex, and the Directional Entities. AES filed an interpleader action. The Sixth Circuit affirmed summary judgment in favor of the IRS. The timing of a federal tax lien is measured by when the IRS gave notice of its lien, 26 U.S.C. 6323(a), (f); the timing of state security interests, like Akouri’s, is measured by when they become “choate”—i.e., complete or perfected. Akouri’s interest would be choate as of 2019, but the IRS’s tax liens date to before 2019. The court rejected Akouri’s attempt to recategorize the customer list assets as originally belonging to Apex rather than the Directional Entities. View "AES-Apex Employer Services, Inc. v. Rotondo" on Justia Law

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Economy Linen and Towel Service faced a shortfall of qualified truck drivers and subcontracted with another firm to provide the necessary drivers. The union filed a grievance on the ground that the new drivers earned a higher hourly rate than the union-represented employees. An arbitrator ruled for the union. The district court and Sixth Circuit affirmed, noting that in reviewing arbitration awards, courts do not ask whether the arbitrator interpreted the contract correctly; “the parties bargained for an arbitrator’s interpretation of the contract, not a federal judge’s interpretation of it.” The court noted that this situation did not involve any allegations of fraud and that the arbitrator did not decide any issue outside of his authority but only determined which contractual provision controlled. View "Economy Linen & Towel Service, Inc. v. International Brotherhood of Teamsters" on Justia Law

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Dimond was hired by a Chinese manufacturer to “rig, dismantle, wash, and pack,” and ship used automotive assembly-line equipment to China. Dimond, which lacked experience in international shipment, hired BDP. Dimond asserted that BDP did not disclose that it was not a licensed Ocean Transport Intermediary by the Federal Maritime Commission. In May 2011, BDP informed Dimond that it had obtained a ship and sent a booking note to Dimond. Between May and October 2011, Dimond dismantled and weighed the equipment and prepared a “preliminary" packing list. BDP allegedly provided the preliminary packing list when it obtained quotes from third-party contractors to load the Equipment. In October 2011, BDP notified Dimond that the ship was no longer available. Dimond asserted that BDP “without Dimond’s knowledge, consent or approval” hired Logitrans to perform BDP’s freight forwarding duties. BDP and Logitrans hired a ship. As a result of many ensuing difficulties, Dimond became involved in multiple lawsuits, including suits with its Chinese customer and the stevedores. Dimond sued BDP in July 2013 but never served BDP with the complaint. When the summons expired, the district court dismissed without prejudice. In August 2017, Dimond filed a Motion to Amend and Praecipe for Issuance of Amended Summons for its 2013 suit. The Sixth Circuit affirmed the denial of the motion. The suit was not timely filed within the one-year statute of limitations set forth in the Carriage of Goods by Sea Act. View "Dimond Rigging Co. v. BDP International, Inc." on Justia Law

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Innovation sold 5-Hour Energy. In 2004, it contracted with CN to manufacture and package 5-Hour. Jones, CN's President and CEO, had previously manufactured an energy shot. When the business relationship ended, CN had extra ingredients and packaging, which Jones used to continue manufacturing 5-Hour, allegedly as mitigation of damages. The companies sued one another, asserting breach of contract, stolen trade secrets or intellectual property, and torts, then entered into the Settlement, which contains an admission that CN and Jones “wrongfully manufactured” 5-Hour products and forbids CN from manufacturing any new “Energy Liquid” that “contain[s] anything in the Choline Family.” CN received $1.85 million. CN was sold to a new corporation, NSL. Under the Purchase Agreement, NSL acquired CN's assets but is not “responsible for any liabilities ... obligations, or encumbrances” of CN except for bank debt. The Agreement includes one reference to the Settlement. NSL, with Jones representing himself as its President, took on CN’s orders and customers, selling energy shots containing substances listed in the Choline Family definition. Innovation sued. Innovation was awarded nominal damages for breach of contract. The Sixth Circuit affirmed the rejection of defendants’ antitrust counterclaim, that NSL is bound by the Settlement, and that reasonable royalty and disgorgement of profits are not appropriate measures of damages. Jones is not personally bound by the Agreement. Upon remand, Innovation may introduce testimony that uses market share to quantify its lost profits. The rule of reason provides the proper standard for evaluating the restrictive covenants; Defendants have the burden of showing an unreasonable restraint on trade. View "Innovation Ventures, LLC v. Nutrition Science Laboratories, LLC" on Justia Law

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FAMC and UNB entered into a 2005 Correspondent Loan Purchase Agreement: FAMC would purchase mortgage loans from UNB; UNB made representations and warranties, including that there would be no fact or circumstance that would entitle a subsequent purchaser to demand repurchase of a loan. UNB agreed to repurchase any loans if a representation or warranty turned out to be false or if a subsequent buyer required that FAMC repurchase the loan. UNB promised to indemnify FAMC for losses due to any misrepresentation or breach of the Agreement. UNB later agreed to perform underwriting for loans it sold to FAMC. The 2006 “Salvino Loan” and the 2007 “Turner Loan” were underwritten by UNB. FAMC resold both to Wells Fargo. In 2010, Wells Fargo notified FAMC that it had identified defects in the underwriting for both loans and demanded that FAMC repurchase the Salvino Loan and indemnify with respect to the Turner Loan. FAMC paid Wells Fargo $231,225.33. UNB refused to repurchase or indemnify. To cut its losses, FAMC resold the Salvino Loan. In 2013, FAMC sued. The district court granted FAMC summary judgment, awarding $188,858.71 in damages. The Sixth Circuit affirmed. The repurchase and indemnification provisions created independent contractual obligations, so the claims did not accrue until 2010 and 2011, when FAMC incurred its losses; the 2013 complaint was timely. FAMC produced sufficient evidence of breach and causation and its mitigation efforts were reasonable. View "Franklin American Mortgage Co. v. The University National Bank of Lawrence" on Justia Law

Posted in: Banking, Contracts

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Ritzen Group contracted to buy a piece of property from Jackson Masonry. The sale never went through. Ritzen claimed Jackson breached by providing error-ridden documentation on the eve of the closing deadline, while Jackson claimed Ritzen breached by failing to secure funding by that deadline. After the deal failed, Ritzen sued Jackson for breach of contract in Tennessee state court. The case progressed for nearly a year-and-a-half until Jackson filed for bankruptcy. As a result of the bankruptcy, the litigation was automatically stayed. Ritzen moved to lift the stay, which the bankruptcy court denied. Ritzen did not appeal, instead, brought a claim against the bankruptcy estate. The bankruptcy court found that Ritzen, not Jackson, breached the contract. Ritzen subsequently filed two appeals to the district court. The first targeted the bankruptcy court’s order denying relief from the automatic stay. The second targeted the breach-of-contract determination. The district court found that the first appeal was untimely and rejected the second on the merits. Ritzen appealed again. Finding no reversible error in the district or bankruptcy courts' judgments, the Sixth Circuit affirmed. View "Ritzen Group, Inc. v. Jackson Masonry" on Justia Law

Posted in: Bankruptcy, Contracts