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Norfolk Southern Railway Co. v. Boatright Railroad Products Inc.

United States District Court, N.D. Alabama, Southern Division

May 21, 2018




         Norfolk Southern Railway Company brings this action pursuant to the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-68, against multiple corporate and individual defendants.[1] Norfolk Southern also asserts claims of fraud and civil conspiracy against all defendants, and breach of contract and negligence against the two corporate defendants, Boatright Railroad Products, Inc. and Boatright Railroad Products, LLC.[2] The Defendants have now moved to dismiss all claims, aside from the breach of contract claim asserted against the corporate defendants, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, docs. 35 and 37. Those motions are fully briefed and ripe for review. See Docs. 36; 38; 44; 45; 46; and 47. After careful consideration of the complaint and the parties' excellent briefs, the court has determined that the Defendants' motions are due to be granted with respect to the RICO and negligence claims and denied as to all other claims.

         Before addressing the motion to dismiss, the court first turns to the Defendants' motion to strike an exhibit Norfolk Southern attached to its response to the motions to dismiss. Doc. 48. The exhibit is a copy of a purported rail tie inspection report completed for Gulf South Forest Products by an outside consulting firm and is presented to show the existence of a purported second victim.

         Under Rule 12(f) of the Federal Rules of Civil Procedure, "[o]nly material included in a 'pleading' may be subject [to] a motion to strike." Lowery v. Hoffman, 188 F.R.D. 651, 653 (M.D. Ala. 1999) (quotations omitted). Accordingly, federal courts commonly refuse to grant motions to strike evidence submitted in support of motions to dismiss. See, e.g., Jeter v. Montgomery Cty., 480 F.Supp.2d 1293, 1296 (M.D. Ala. 2007) (declining to strike exhibits because a response is not a pleading). There are, however, differing views on the propriety of entertaining motions to strike evidentiary matters as "the Federal Rules provide no other means to contest [evidentiary] sufficiency" pretrial. Anderson v. Ga. Gulf Lake Charles, LLC, No. 2:07-CV-1378, 2008 WL 919716, *1 (W.D. La. Apr. 4, 2008). Indeed, the Eleventh Circuit has routinely considered and affirmed district court rulings on motions to strike evidentiary attachments. See Reese v. Herbert, 527 F.3d 1253, 1262, 1265-66 (11th Cir. 2008) (affirming district court's decision to strike affidavit while describing it as a decision to exclude the affidavit).

         The court, however, does not have to decide whether this document fits neatly into the rationale that allows courts to consider motions to strike evidentiary matters outside the pleadings, see Morris v. Precoat Metals, No. 2:ll-cv-0053-SLB, 2013 WL 830868, at *2 (N.D. Ala. Mar. 4, 2013) (explaining "[u]nder this view, motions to strike evidence may be granted where the evidence that is offered is inadmissible under the Federal Rules of Evidence"), because it "has discretion as to whether to accept material beyond the pleading[s] . . . offered in conjunction with a 12(b)(6) motion." Prop. Mgmt. & Invs., Inc. v. Lewis, 752 F.2d 599, 604 (11th Cir. 1985). Courts generally accept documents outside the pleadings at the motion to dismiss stage when the "extrinsic document ... is (1) central to the plaintiffs claim, and (2) its authenticity is not challenged." SFM Holdings, Ltd. v. Banc of Am. Sec, LLC, 600 F.3d 1334, 1337 (11th Cir. 2010). As evidenced by the motion to strike, Boatright is challenging the authenticity of the attached document. Consequently, Eleventh Circuit precedent precludes the court from considering the document. See, e.g., Horsley v. Feldt, 304 F.3d 1125, 1134 (11th Cir. 2002) (explaining that "undisputed" means "that the authenticity of the document is not challenged"). While Norfolk Southern maintains that the authenticity challenge is not genuine, the court notes that Boatright is not obligated, at the pleading stage, to investigate the authenticity of a newly produced document purporting to represent internal communications between two nonparties. Nor must Boatright simply accept Norfolk Southern's assertion that this document, neither referenced in the complaint nor authenticated in the briefing, is what it purports to be, particularly when the entity referenced in the document is different from the one obliquely referred to in the complaint. Typographical error or not, the difference in identity certainly casts some doubt on the veracity of the document. Relatedly, as to Norfolk Southern's offer to authenticate the document, the motion to dismiss stage is not the time for litigating evidentiary disputes of this nature. See, e.g., Harris v. Procter & Gamble Cellulose Co., 73 F.3d 321, 324 (11th Cir. 1996) (noting that a '"12(b)(6) motion tests only the sufficiency of the claim set out in the plaintiffs pleadings'") (quoting Mann v. Adams Realty Co., 556 F.2d 288, 293 (5th Cir. 1977)).

         Moreover, the court cannot credibly say that the attached document is central to Norfolk Southern's claims, see Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1369 (11th Cir. 1997), given that the complaint does not refer to the challenged document. The complaint contains only a single reference to Gulf South Forest Products, alleging that "upon information and belief Gulf South was also "directly injured" by the Defendants' conduct. Doc. 32 at 16. However, allegations founded on "information and belief are not entitled to a presumption of truth at the pleading stage. See Mann v. Palmer, 713 F.3d 1306, 1315 (11th Cir. 2013) (noting that the court does "not have to take as true . . . allegations 'upon information and belief"); see also Smith v. City o/Sumiton, 578 Fed.Appx. 933, 935 n.4 (11th Cir. 2014) ("for purposes of a Rule 12(b)(6) motion to dismiss, we do not have to take as true allegations based merely 'upon information and belief"). Put simply, no basis exists to conclude that the third-party consulting report provided by Norfolk Southern is sufficiently intertwined with the complaint to constitute part of the pleadings.

         To the extent that Norfolk Southern wishes to rely, at the pleading stage, on other entities' purported experiences with the Defendants, Norfolk Southern has had two opportunities to provide the court with well-pleaded factual allegations bearing on that issue. The court declines to relieve Norfolk Southern of Rule 8's pleading requirements by allowing it to reference additional facts in its brief that it could have included in the complaint. Therefore, the court will not consider the document attached as Exhibit A to Norfolk Southern's responsive pleadings as substantive evidence at the pleading stage of this case. See Doc. 44 and 45. With this issue addressed, the court will now turn to the motions to dismiss.


         Federal Rule of Civil Procedure 8(a)(2) requires a pleading to contain "a short and plain statement of the claim showing that the pleader is entitled to relief." "[T]he pleading standard Rule 8 announces does not require 'detailed factual allegations, ' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Mere '"labels and conclusions' or 'a formulaic recitation of the elements of a cause of action'" are insufficient. Id. (quoting Twombly, 550 U.S. at 555). "Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (quoting Twombly, 550 U.S. at 557).

         Federal Rule of Civil Procedure 12(b)(6) permits dismissal when a complaint fails to comply with Rule 8(a)(2) or does not otherwise state a claim upon which relief can be granted. When evaluating a motion brought under Rule 12(b)(6), the court accepts "the allegations in the complaint as true and constru[es] them in the light most favorable to the plaintiff." Hunt v. Aimco Props., L.P., 814 F.3d 1213, 1221 (11th Cir. 2016). However, "[t]o survive a motion to dismiss, a complaint must. . . 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). A complaint states a facially plausible claim for relief "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. In other words, the complaint must establish "more than a sheer possibility that a defendant has acted unlawfully." Id.; see also Twombly, 550 U.S. at 555 (emphasizing that "[f]actual allegations [included in the complaint] must be enough to raise a right to relief above the speculative level"). Ultimately, the line between possibility and plausibility is a thin one and making this determination is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679.

         II. FACTS

         Norfolk Southern is a Virginia-based interstate rail carrier that owns and operates an extensive interstate rail network. Doc. 32 at 1-2, 4. To maintain this network, Norfolk Southern entered into a contract with Seaman Timber Company, Inc. to purchase wooden railroad ties that met certain highly specific quality standards. Id. at 4. Among other things, Norfolk Southern required its railroad ties to consist of "acceptable species of wood, " and to meet certain "physical requirements, " "drying standards, " and "methods and specifications for the proper application of preservatives, including treatment . . . with specified amounts of creosote." Id. at 5.

         In 2009, Boatright purchased Seaman's railroad tie production facility and executed a change order with Norfolk Southern assuming Seaman's contractual obligations with regard to the railroad ties. Id. at 4-5. Shortly thereafter, Shane Boatright and John Bookout, the principal officers of the Boatright entities, allegedly instructed their employees to cease manufacturing the railroad ties according to Norfolk Southern's specifications in order to increase profit margins. Id. at 2, 5-7, 18. The two men purportedly ordered their employees to simply "make [the railroad ties] black" so that the ties appeared to comply with contractual specifications. Id. at 6. Pursuant to these instructions, Boatright employees used a variety of substances, including motor oil, anti-freeze, and paint, that uniformly lacked preservative characteristics, but darkened the appearance of the railroad ties to resemble properly treated wood. Id. at 6-7. Shane Boatright and John Bookout also sought out oil-refining companies to prepare a compound that mimicked the appearance of properly treated wood at a greatly reduced cost compared to the production methods specified in the contract. Id. at 6. Allegedly, neither individual inquired into whether the chemical would also have meaningful preservative qualities. Id.

         To further this scheme, various Boatright employees, including Shane Boatright and John Bookout, approached Jimmy Lee Watt, a railroad tie inspector working as a consultant for Norfolk Southern and tasked with ensuring that the railroad ties used in Norfolk Southern's rail network met the company's quality standards. Id. at 2, 7-8. In exchange for at least $128, 000, Watt allowed the Defendants to provide him with specially prepared railroad tie samples preselected to pass quality testing. Id. at 8. Using these pre-selected samples, Watt and the Boatright entities allegedly prepared and sent false reports to Norfolk Southern indicating that the ties met the requisite contractual standards. Id. at 8-9. Watt also failed to conduct proper inspections of the Boatright facility, and falsely represented to Norfolk Southern that Boatright's manufacturing process conformed to the parties' agreement. Id. at 8-9, 13, 15.

         This scheme lasted for nearly five years, allegedly from 2009 until 2014. Id. at 19. In total, Norfolk Southern ordered and installed nearly five million railroad ties manufactured by Boatright that purportedly failed to meet contractual standards. Id. at 9, 14, 17. During this period, Shane Boatright and other Boatright employees transmitted numerous billing requests to Norfolk Southern, over interstate wire, indicating that the ties, in fact, met Norfolk Southern's requirements. Id. at 9-14. Shane Boatright also negotiated a price increase with Norfolk Southern purportedly based on the increased cost to produce conforming railroad ties. Id. at 10-11, 32. Lastly, Boatright allegedly failed to include identifying plates or Kerf marks on its railroad ties, making it more difficult for Norfolk Southern to identify the noncompliant ties. Id. at 9.

         In 2016, approximately two years after Boatright sold its manufacturing plant and its inventory of railroad ties to another company, former Boatright employees informed Norfolk Southern of the purported scheme. Id. at 14-15. A subsequent investigation confirmed that the ties were degrading more quickly than anticipated, and that the railroad ties were not manufactured according to contractual specifications. Id. at 16. As a result, Norfolk Southern began removing and replacing the nonconforming ties and commenced this action. Id. at 17.


         Norfolk Southern's complaint asserts both substantive RICO and RICO conspiracy claims, in addition to state law claims for breach of contract, negligence, fraud, and civil conspiracy. The negligence and breach of contract claims are asserted only against the corporate defendants. Id. at 27-28. While the individual and corporate defendants respectively filed motions to dismiss asserting that, with the exception of the breach of contract claim, Norfolk Southern's claims are uniformly subject to dismissal for failure to state a claim pursuant to Rule 12(b)(6), each set of Defendants has adopted by reference the arguments raised in their co-Defendants' motions. See Docs. 35 at 1 nl; 38 at 2. Consequently, the court will address the motions collectively.

         A. ...

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