JEFFREY L. VIKEN, District Judge.
Plaintiffs Equity Partners HG, LLC and Heritage Global Partners, Inc., brought this diversity action against defendants Samson, Inc., Black Earth, LLC and Kenneth Price ("defendant Price") centered on a contract between plaintiffs, Samson and Black Earth.
Pursuant to 28 U.S.C. § 636(b)(1)(B) and the court's standing order of October 16, 2014, the court referred the motions to Magistrate Judge Veronica L. Duffy for a report and recommendation ("R&R"). (Docket 49). The magistrate judge concluded plaintiffs were entitled to summary judgment on their breach of contract claim against Samson as well as on Samson's counterclaim. (Docket 50 at pp. 15-19). She further found defendant Price was entitled to summary judgment on the tortious interference claim.
Defendants raise three factual and three legal objections to the R&R. (Docket 51). Plaintiffs did not object to the R&R but did respond to defendants' objections. (Docket 52). As summarized by the court, defendants' factual objections assert:
Defendants' legal objections argue:
The court sustains defendants' third factual and legal objections, but overrules the remainder.
Under Federal Rule of Civil Procedure 56(a), a movant is entitled to summary judgment if the movant can "show that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Once the moving party meets its burden, the nonmoving party may not rest on the allegations or denials in the pleadings, but rather must produce affirmative evidence setting forth specific facts showing that a genuine issue of material fact exists.
If a dispute about a material fact is genuine, that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party, then summary judgment is not appropriate.
In determining whether summary judgment should issue, the facts and inferences from those facts must be viewed in the light most favorable to the nonmoving party.
The magistrate judge made factual findings the court will not recite here. (Docket 50 at pp. 1-11). Defendants challenge three specific factual findings. (Docket 51 at pp. 1-5). The court sustains defendants' third factual objection but finds the contested fact does not impact the summary judgment motions. The court overrules the first and second factual objections.
Defendants assert their factual objections preclude granting summary judgment to plaintiffs. (Docket 51 at pp. 4-5). Because it overrules defendants' relevant objections, the court adopts the R&R's recommendation that summary judgment be granted in part to plaintiffs.
Defendants' first objection takes issue with the magistrate judge's finding that defendant Price began negotiating with Richard Whipp, representing OnCourse, "prior to November 4, 2017," for the sale of Samson, without plaintiffs' knowledge. (Docket 51 at p. 2). Defendants assert defendant Price began negotiations on April 13, 2016, and that plaintiffs "were aware of prior negotiations."
Defendant Price, on behalf of Samson, admitted in response to an interrogatory that his April 13 communication with OnCourse was "not regarding" the sale of Samson. (Docket 34-4 at p. 2). He also stated that "[l]awyers" communicated about the sale on or about November 7, 2017.
Furthermore, there is no evidence in the record to support a conclusion defendants and OnCourse negotiated the sale before the exclusive sale agreement took effect. Defendants point to defendant Price's deposition testimony in which he stated he "told them that we had some potential buyers already . . . there were some other companies that we exchanged emails with."
There is also no evidence to support defendants' assertions that plaintiffs knew about defendant Price's prior negotiations with OnCourse. Defendants again cite to defendant Price's deposition testimony quoted above. Defendant Price did not testify he specifically told plaintiffs he had negotiated with OnCourse to purchase Samson, at least according to the portions of his deposition filed with the court. (Docket 34-2 at p. 9). Defendant Price's statement was nonspecific and plural, referring to multiple "potential buyers" and "other companies," which leaves the court little basis to conclude he told plaintiffs about OnCourse's interest in purchasing Samson.
Defendants' first factual objection is overruled.
The magistrate judge found defendant Price agreed to sell Samson to OnCourse before plaintiffs canceled the auction of Samson's goods. (Docket 50 at pp. 6-11). She relied on this finding as a partial basis for granting summary judgment to plaintiffs on their breach of contract claim against Samson.
The most obvious problem with defendants' objection is the lack of testimony from Stanley Price. The auctioneer testified in an affidavit that Stanley Price informed him—"in advance of the auction"—that Samson was in sale negotiations. (Docket 34-10 at p. 1). He further testified that Stanley Price canceled the auction on November 7, after Samson was sold.
But in response, defendants provide only statements from defendant Price. On November 8, 2017, defendant Price wrote in an e-mail to an Equity Partners employee he "thought the auction was supposed to be held" and asserted there could have been equipment to sell at the auction.
This record is insufficient for the court to conclude a genuine dispute exists as to the timing of the auction cancellation. Plaintiffs produced an affidavit of the auctioneer and e-mails from the auctioneer team showing the auction was canceled on November 7 at the request of Stanley Price. (Dockets 34-10 & 34-15). Defendants produced only hearsay testimony from defendant Price as to the statements of his son.
Defendants' second factual objection is overruled.
Defendants' third objection concerns the magistrate judge's statement that defendant Price personally received and kept the $1 million proceeds of the Samson sale. (Docket 51 at p. 4). They assert defendant Price only received $400,000 of the sale price and the remaining $540,000 was secured by a note.
The Samson sale contract provided that OnCourse would pay $1 million to Samson for the sale of its assets. (Docket 34-12 at p. 1). Defendant Price testified in his deposition he received $400,000 of the sale price personally in cash. (Docket 34-2 at p. 7). He also agreed the remaining amount— $600,000—was initially secured by a seven-year note.
Defendant Price's testimony shows he did not receive the full $1 million sale proceeds, as the magistrate judge found. (Docket 50 at p. 11). Plaintiffs did not produce any facts contesting defendant Price's testimony. The court sustains defendants' third factual objection and modifies the R&R consistent with this ruling. However, as discussed below, the amount of the Samson sale proceeds defendant Price personally received has no bearing on the damages plaintiffs are entitled to as a result of Samson's breach of contract.
The magistrate judge recommended granting summary judgment to plaintiffs on their breach of contract claim because Samson breached the contract first, excusing plaintiffs' decision to cancel the auction.
Setting the timing of the sale versus the cancellation of the auction aside, the record also clearly indicates Samson breached the contract by negotiating for its sale without plaintiffs' knowledge or input.
"Under South Dakota law, a material breach is one that `would defeat the very object of the contract.'"
In this case, however, there is no genuine factual dispute as to breach or materiality of that breach to submit to a jury. Defendants admitted negotiating to sell Samson during the exclusivity period.
Samson's decision to circumvent the contractual process and negotiate its sale without plaintiffs' involvement clearly breached the contract and defeated its object. Plaintiffs were retained to negotiate and sell Samson. The contract expressly forbade defendants from independently negotiating a sale. In defiance of the contract, Samson independently negotiated and sold itself, cutting plaintiffs out. Under these circumstances, the court finds the evidence as to the materiality of Samson's breach is "so one-sided" that plaintiffs are entitled to summary judgment.
Having determined plaintiffs are entitled to summary judgment on their breach of contract claim, the court turns to damages.
A review of the contract illustrates defendants' objections. The contract established two phases. In Phase I, lasting for 60 days between August 8, 2017 and October 7, plaintiffs were to attempt to sell Samson as a going concern, referred to as an "entirety sale." (Docket 34-1 at p. 1). If Phase I ended without an entirety sale, plaintiffs were to arrange an auction for Samson's assets within 45 to 60 days of the end of Phase I.
Defendants first object to the magistrate judge's conclusion that the sale of Samson to OnCourse was an "entirety sale" for the purposes of determining plaintiffs' fee. (Docket 51 at p. 5). They assert the sale did not include the real property, owned by Black Earth, upon which Samson's facility was located.
The contract defines an entirety sale as the sale "of all or a substantial portion or portions of the Assets in bulk[.]" (Docket 34-1 at p. 1). "Assets" are defined in the contract's exhibit A as:
The magistrate judge determined the Samson sale was an entirety sale because it involved "substantially all" of Samson's assets sold "in bulk," as required by the contract. (Docket 50 at pp. 22-23). Upon de novo review, the court agrees. In South Dakota, "[w]hen the language of a contract is plain and unambiguous, it is [the court's] duty to interpret it and enforce it as written."
Defendants' argument conflates Samson and Black Earth, two separate entities that independently agreed to the contract with plaintiffs. Samson engaged in an unauthorized entirety sale of its assets to OnCourse, regardless of whether Black Earth retained its real estate asset. The magistrate judge did not err in finding Samson's sale was an entirety sale, as defined by the contract. Defendants' first legal objection is overruled.
Defendants' second legal objection contests the magistrate judge's finding that plaintiffs were entitled to an entirety sale commission if the sale was concluded "at any time within the . . . exclusive period[.]" (Docket 51 at p. 6). In their view, an entirety sale commission was only available if the sale took place in the 60 days of Phase I.
Defendants conflate the contract's phase and fee structures. The contract divides the exclusivity period into Phase I, during which plaintiffs agreed to seek out an entirety buyer, and Phase II, during which plaintiffs were to conduct an asset auction. (Docket 34-1 at p. 1). The contract's expenses provision tracks the phase structure, referring to expenses incurred during the "Entirety Sale phase" and the "Auction Phase," indicating that the parties knew how to link payment to the phase structure when desired.
In their summary judgment briefing, defendants argued any ambiguity in the fee provision should be construed in their favor, since plaintiffs drafted the contract. (Docket 40 at pp. 6-7). No party informed the court who drafted the contract. Even taking defendants' assertion as true, "[a]mbiguity requires more than mere disagreement: . . . . [A] contract is ambiguous only when it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement."
Defendants' second legal objection is overruled. Plaintiffs are entitled to an entirety sale commission, as defined by the contract, as damages.
Defendants' final legal objection argues the magistrate judge erred when she held, in the alternative, that the parties mutually modified the contract to permit plaintiffs to conduct an entirety sale during Phase II. (Docket 51 at pp. 6-7) (citing Docket 50 at pp. 25-28). They assert the record does not show evidence of their consent to modify the contract.
"[C]ontractual rights and remedies may be modified or waived by . . . conduct" subsequent to the execution of the original contract.
The R&R pointed to record evidence showing plaintiffs explained in weekly reports that scheduling an auction could motivate potential entirety sale buyers. (Docket 50 at pp. 25-27). In an e-mail response to plaintiffs' sixth weekly report, defendant Price agreed to "set[] up an auction timeline" but also stated "[a] sale is preferred[.]" (Docket 34-9 at p. 3). The R&R does not discuss any other action by a defendant which could be construed as consenting to a contract modification.
The record is not nearly one-sided enough for the court to find as a factual matter that the parties modified the contract to allow for a Phase II entirety sale. While defendant Price certainly consented to an auction, the contract expressly envisioned that an auction would take place during Phase II if necessary. The court cannot say defendant Price's preference for an entirety sale—expressed in a single e-mail that contains no reference to the contract—constitutes consent to modification. A fact finder would be entitled to make that inferential leap, but the court cannot do so in summary judgment proceedings.
In any event, the court already found plaintiffs are entitled to an entirety sale commission.
Defendants did not object to the magistrate judge's findings that plaintiffs were entitled to $23,853.03 in expenses under the contract. (Docket 50 at p. 19). The court adopts the R&R on this point. As noted above, plaintiffs are also entitled to an entirety sale commission.
Plaintiffs also request pre- and post-judgment interest. (Docket 35 at p. 8). A federal statute authorizes the court to award post-judgment interest. 28 U.S.C. § 1961(a). Interest shall begin to accumulate when the court enters judgment after resolving the remaining claims.
In South Dakota, an entity "entitled to recover damages . . . is entitled to recover interest thereon from the day that the loss or damage occurred, except during such time as the debtor is prevented by law, or by act of the creditor, from paying the debt." SDCL § 21-1-13.1. "Prejudgment interest is mandatory[.]"
Plaintiffs did not demonstrate that their loss or damage occurred on the date of breach.
The magistrate judge recommended denying plaintiffs' motion for summary judgment on their breach of contract claim against Black Earth and on their unjust enrichment claims against Samson and Black Earth. (Docket 50 at pp. 14, 19). She also recommended granting summary judgment to defendant Price on plaintiffs' tortious interference with contract claim.
Accordingly, plaintiffs' unjust enrichment claims against Samson and Black Earth, as well as their breach of contract claim against Black Earth, survive summary judgment. Given the multiple remaining claims, the court will not enter final judgment on the resolved claims under Federal Rule of Civil Procedure 54(b) at this time.
For the reasons given above, it is
ORDERED that defendants' objections to the report and recommendation (Docket 51) are sustained in part and overruled in part.
IT IS FURTHER ORDERED that the report and recommendation (Docket 50) is adopted as modified by this order.
IT IS FURTHER ORDERED that defendant Kenneth Price's motion for summary judgment (Docket 36) is granted.
IT IS FURTHER ORDERED that plaintiffs' motion for summary judgment (Docket 33) is granted in part and denied in part.
