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Alabama Teachers Credit Union v. Design Build Concepts Inc.

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

August 10, 2018

ALABAMA TEACHERS CREDIT UNION, Plaintiff,
v.
DESIGN BUILD CONCEPTS, INC., et al., Defendants.

          MEMORANDUM OPINION

          KARON OWEN BOWDRE CHIEF UNITED STATES DISTRICT JUDGE.

         Rain drops kept falling on their heads…or at least leaking through the roof, ceilings, and walls of the building that the Defendant's predecessor designed and constructed. Yet Alabama Teachers Credit Union patiently endured ten years of water torture before finally seeking legal relief from its soggy dilemma. Ten years of rain showers, leaking into ATCU's building, with every drop serving as a reminder to ATCU of the Defendants' alleged failure to mop up the situation. Now, the mop has been handed to the court, albeit a little too late.

         Before the court is Design Build/IBT LLC's (“IBT”) Motion for Summary Judgment (doc. 78); Plaintiff Alabama Teachers Credit Union's Motion to Strike IBT's motion for summary judgment (doc. 83); ATCU's Motion to Strike IBT's Reply in Support of Summary Judgment (doc. 97); and ATCU's Motion for Leave to File a third Amended Complaint (doc. 82).

         ATCU and IBT submitted a “Joint Proposed Plan for Initial Limited Discovery” in this case on June 20, 2017, which the court adopted on June 26, 2017. (Docs. 56, 57). As agreed in the joint plan, the court's order limited discovery to issues related to IBT's affirmative defenses and an asset purchase agreement between IBT and Design Build Concepts, Inc.[1] After IBT filed its motion for summary judgment on September 15, 2017, ATCU filed motions to strike IBT's motion for summary judgment and IBT's reply brief in support of summary judgment, arguing that IBT's briefings exceeded the limited scope of discovery. (Docs. 83, 97). ATCU's motion for leave to file a third amended complaint arises from its alleged discovery of evidence that IBT fraudulently suppressed material information regarding design flaws in ATCU's building. The motion seeks to add a ninth count of fraudulent suppression.

         As explained below, the court will DENY ATCU's motion to strike IBT's motion for summary judgment (doc. 83); DENY its motion to strike IBT's reply brief (doc. 97); DENY ATCU's motion to file a third amended complaint (doc. 82), and will GRANT summary judgment in favor of IBT on all counts.

         I. FACTUAL BACKGROUND

         The Construction and Completion of the Building

         On April 17, 2003, Plaintiff Alabama Teachers Credit Union and Design-Build Concepts, Inc. (a Georgia corporation) entered into a Program Services Agreement for DBC to design and construct a building for ATCU in Gadsden, Alabama. (Doc. 80-2). The agreement contained two warranties that began to run the date on which the building's “Certificate of Substantial Completion” was issued.

         More specifically, the one-year warranty provided that “all materials and component parts used in the construction of the [building] will be free from defects under normal use and service and all workmanship will be within tolerances normally accepted in the industry. If a defect occurs, DBC . . . will repair, replace or pay the Owner the reasonable cost of repairing or replacing the defective item(s).” The four-year warranty provided that “DBC will correct or repair any Major Structural Defects in the [building], ” meaning “those defects in the materials or workmanship that reduce the stability, safety, or structural integrity of the [building] below acceptable standards or restrict the normal intended use of all or a part of the [building].” (Id. at 3).

         ATCU moved into the building in January 2006, and the Certificate of Substantial Completion was issued on March 6, 2006. (Doc. 80-4). However, items remaining to be completed on the February 28, 2006, punch list included roof leaks and water intrusion damage. (Doc. 80-9).

         IBT's Purchase of DBC's Assets

         On July 31, 2007, IBT purchased substantially all of DBC's assets and assumed some of its liabilities pursuant to an asset purchase agreement-a deal ATCU alleges was a de facto merger. (Doc. 25-1). On August 3, 2007, Jim Givan (DBC's president) and Mylle Mangum (CEO of IBT Enterprises) sent a letter to Ron Sumerall (president of ATCU) announcing that DBC had “reached an agreement to merge” with IBT Enterprises. (Doc. 85-5 at 58). The letter assured Mr. Summerall that the DBC team would continue to provide services to ATCU and would work with ATCU as in the past.

         Then, on April 25, 2008, Mr. Givan sent Mr. Summerall a second letter, advising him that DBC had “merged capabilities with IBT Enterprises, LLC, ” had “transferred to Design Build Concepts/IBT, LLC all its assets as of July 31, 2007, and [would] conduct business in that name going forward.” (Doc. 85-5 at 59).[2] The letter further stated that IBT would “remain the surviving entity, continuing performance under your [Program Services] Agreement.” Last, the letter explained the Program Services Agreement “contemplates [that ATCU's] consent to the transfer of substantially all of DBC's assets may be required, as such transfer under the Agreement may constitute an assignment.” Mr. Summerall signed the letter, DBC's officers and employees continued working for IBT after the asset purchase in the same capacities as before, IBT continued using the “DBC” name on its website, and IBT operated out of DBC's former office. (Doc. 84 at 11, 24).

         Problems Continue with ATCU's Building

         Aside from the initial leaks indicated on the February 2006 punch list, ATCU discovered more leaks and subsequent damage within four to six months after moving into the building. (Doc. 85-3 at 17). ATCU notified DBC of the problems, and DBC began making site visits to attempt to repair the defects. (Id. at 28). Thus began a long cycle of ATCU experiencing water intrusion damage, and DBC's (and later, IBT's), fruitless assurances and efforts to solve the problems. The record is sparse regarding DBC's and IBT's efforts to repair the building between 2006 and 2010, so ATCU's case centers on the events described below.

         IBT's Chief Operating Officer, Mr. Lock, wrote Mr. Summerall on November 30, 2010, acknowledging five years of failed attempts to repair the leaks in ATCU's building. (Doc. 80-15). On December 8, 2010, Mr. Lock notified Mr. Summerall that he planned to obtain a quote from a roofing company to inspect the building's roofing membrane and flashing system, and to make any necessary repairs or adjustments. (Doc. 80-16). His email assured ATCU that IBT would “get to the bottom of the problem and bring this to a final resolution once and for all.” (Doc. 80-15). Mr. Lock also told ATCU that if the leaks continued after the repairs or replacement of the membrane, IBT would continue searching for the source of the problem and solve it. (Doc. 85-13).

         Approximately two weeks later, Mr. Lock wrote Mr. Summerall again with an update on the status of obtaining quotes to remove and replace the roof pavers and to inspect or replace the roofing membrane. (Doc. 80-17). He suggested the work would begin at the beginning of 2011. However, as of Mr. Lock's February 24, 2011, email to ATCU, the work still had not been completed. (Doc. 84 at 15-16). The record is unclear as to whether the parties resolved this particular issue, providing only that Mr. Lock followed up on the work on August 25, 2011. (Id.).

         On September 6, 2011, ATCU notified IBT of a new leak that appeared in the building's foyer. (Doc. 85-18 at 3). IBT responded that it would follow up with its client services manager, Billy Cowan. (Id. at 2). Four days later, on September 10, Mr. Cowan notified Mr. Lock that he had scheduled an inspection of the ATCU roof by Fiber-Tite, the roofing manufacturer; GKL Roofing, the original subcontractor that installed the roof and made multiple repairs at IBT's instruction; and Clarks Custom Roofing, whom IBT requested provide pricing for flashing around roof vents. (Doc. 85-19).

         On October 31, 2011, Clarks Custom Roofing emailed Mr. Cowan regarding the cost to install drip edge flashing as IBT had requested. (Doc. 85-20). Clarks stated that the building envelope was “badly designed” and the roofing manufacturer, the exterior insulation finishing system (“EIFS”) installer, and the roofing installer must have known that the work was unacceptable. Mr. Cowan forwarded the email to his IBT colleagues, but not to anyone at ATCU. (Doc. 85-27 at 3-4). No. one at IBT ever revealed this information to ATCU. (Doc. 85-21 at 2-3).

         Sometime in 2012, ATCU's loan manager, Mr. Clark, met Mr. Cowan and GKL on-site to discuss various repairs. (Doc. 84 at 18). After that visit, GKL made multiple attempts to repair the building up until sometime in 2015, but no evidence suggests that IBT paid GKL for those visits. IBT alleges that its last site visit occurred sometime in 2012, and its final email correspondence with ATCU occurred no later than February 2013. (Doc. 79 at 11). ATCU alleges that IBT made site visits in February 2013, but the court gleans no evidence supporting that proposition from the emails ATCU submitted. (Docs. 85-23; 85-24).

         ATCU alleges GKL's repairs were on behalf of IBT, were according to IBT's instruction, and were an attempt to satisfy IBT's warranty obligations (docs. 84 at 18;85-24; 85-27). However, Randall Lipscomb, a principal of GKL, testified that DBC hired GKL as the original subcontractor to install the roof at the ATCU building, but GKL never acted or represented itself as DBC's or IBT's agent. (Doc. 80-24 at 1). GKL's communications with IBT ceased sometime in 2013, and Mr. Lipscomb did not communicate with any IBT employee or representative after that time. (Id. at 2).

         After direct communications between IBT and ATCU ceased in 2013, the building continued leaking. (Doc. 79 at 12). In late 2015 or early 2016, ATCU retained a building envelope consultant, Stephen Ward & Associates, to inspect ATCU's building to determine the source of the leaks. (Doc. 85-26 at 2). On July 15, 2016, SWA issued a report of its findings and recommendations, which revealed latent defects in the building of which ATCU was unaware. (Doc. 85-25). The report identified, among other defects, a bad EIFS membrane assembly design within the building's walls. The defects were products of the initial design and DBC's construction, so SWA would have discovered them if ATCU had hired the company back in 2007. (Doc. 80-5 at 30). ATCU sent the report to IBT on August 24, 2016, and requested that IBT inspect the building to develop a plan of action to address the defects and to correct the problems that IBT had repeatedly failed to properly repair. IBT did not respond.

         ATCU Files Suit

         ATCU filed suit against DBC and IBT in the Circuit Court of Etowah County on November 10, 2016, (doc. 1-1 at 6), and Defendants removed the case to this court on December 16, 2016. (Docs. 1-1 at 6; 1). As previously noted, this court dismissed all claims and crossclaims against DBC. Only ATCU's claims against IBT remain, which include breach of contract; negligence; fraudulent misrepresentation; breach of warranty; negligent hiring, training, and supervision; professional negligence; and negligent performance of warranty obligation.

         II. STANDARD OF REVIEW

         Summary judgment allows a trial court to decide cases when no genuine issues of material fact are present and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56. When a district court reviews a motion for summary judgment, it must determine two things: whether any genuine issues of material fact exist, and whether the moving party is entitled to judgment as a matter of law. Id.

         The court must “view the evidence presented through the prism of the substantive evidentiary burden, ” to determine whether the non-moving party presented sufficient evidence on which a jury could reasonably find for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The court must not weigh the evidence and making credibility determinations because these decisions belong to a jury. See Id. at 254.

         Further, all evidence and inferences drawn from the underlying facts must be viewed in the light most favorable to the non-moving party. See Graham v. State Farm Mut. Ins. Co., 193 F.3d 1274, 1282 (11th Cir. 1999). However, the nonmoving party “need not be given the benefit of every inference but only of every reasonable inference.” Id. (emphasis added).

         The non-moving party “must do more than simply show that there is some metaphysical doubt as to the material fact.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). If the evidence is “merely colorable, or is not significantly probative, summary judgment may be granted.” Anderson, 477 U.S. at 249-50 (citations omitted).

         After both parties have addressed the motion for summary judgment, the court must grant the motion only if no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56.

         III. DISCUSSION

         On June 20, 2017, ATCU and IBT submitted a “Joint Plan for Initial Limited Discovery, ” which the court adopted in its Order dated June 26, 2017. (Docs. 56, 59). Pursuant to that Order, the parties were to engage in limited discovery “on issues related to Defendant's affirmative defenses (specifically that the claims are time barred) and to the Asset Purchase Agreement” between IBT and DBC. The plan also provided that, following the period of limited discovery, IBT would file a motion for summary judgment “on its affirmative defenses.” After IBT moved for summary judgment, ATCU filed a motion to strike the motion, or in the alternative, for leave to conduct additional discovery needed to respond appropriately. (Doc. 83).

         As an initial matter, the court will DENY ATCU's motion to strike (doc. 83) because it finds IBT's briefs in support of its motion for summary judgment adequately comply with the Joint Plan. The court is capable of disregarding IBT's arguments to the extent they exceed the plan. Therefore, the court clarifies that its decision in this Memorandum Opinion is based solely on the issues of 1) IBT's affirmative defenses; and 2) successor liability, if any, arising out of its asset purchase agreement with DBC.

         In essence, ATCU claims that DBC breached the two companies' Program Services Agreement by failing to properly construct the building; that DBC and IBT breached the Program Services Agreement's warranty provisions by failing to effectively repair the building's defects; that DBC negligently constructed the building; that DBC and IBT were negligent in their attempts to repair the building; and that DBC and IBT fraudulently misrepresented that they would complete or had already completed the required repairs. Again, ATCU asserts that IBT is liable for its own conduct, as well as DBC's, pursuant to the doctrine of successor liability.

         As for its affirmative defenses, IBT contends that each of ATCU's claims is untimely-barred either by Alabama's statute of limitations or statute of repose. In response, ATCU argues that IBT should be equitably estopped from asserting the statute of limitations, and the statute of repose does not bar its claims. ATCU further argues that its claims for negligence, breach of contract, and breach of warranty arising out of the defects discovered in 2016 are not untimely because those defects were latent and, consequently, the limitations period regarding those claims did not begin to run until their discovery.

         As explained below, the question of successor liability significantly affects the other issues in this case, such as the applicable statute of limitations and repose. Therefore, the court will first address that question, followed by an analysis of IBT's affirmative defenses and ATCU's arguments against the applicability of those defenses. Last, the court addresses ATCU's motion seeking leave to amend its complaint.

         A. Whether IBT may be held liable for DBC's conduct (Successor Liability)

         ATCU argues that IBT bears liability for DBC's conduct under three exceptions to the general rule of successor non-liability. IBT disagrees, and argues that IBT's purchase of DBC was an asset purchase, which legally shields IBT from successor liability. The parties also disagree as to whether Alabama or Georgia law governs the successor liability issue. Therefore, the court will first address the choice of law question, then apply the appropriate law to the facts to determine whether ATCU may hold IBT liable for DBC's conduct.

         IBT maintains that Georgia law governs the question of successor liability because its asset purchase agreement with DBC provides that Georgia law governs the agreement's validity and interpretation. ATCU, on the other hand, focuses on exceptions to the general rule of successor non-liability, and provides Alabama case law showing that a purchaser may be liable for its successor's conduct even when the purchase is legally styled as an asset purchase agreement. Thus, ATCU argues that even if IBT's purchase of DBC constitutes an asset purchase agreement under Georgia law, ATCU may still hold IBT liable for DBC's conduct under Alabama law-so long as certain factors are present.

         A federal court sitting in diversity applies the conflict-of-laws rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Therefore, this court must apply Alabama's choice of law rules regarding whether, and under what circumstances, IBT may be held liable for DBC's conduct under the doctrine of successor liability.

         To begin, the court notes that Alabama honors choice of law provisions within valid contracts. See Cherry, Bekaert & Holland v. Brown, 582 So.2d 502, 507 (Ala. 1991). Because the asset purchase agreement between IBT and DBC so provides, the court agrees with IBT that Georgia law governs any issues concerning the validity and interpretation of that agreement. However, that finding does not dictate that Georgia law exclusively governs the question of successor liability.

         In Alabama, the same state's law that governs the plaintiff's claims against the defendant also governs the question of whether a successor entity may be held liable for its predecessor's conduct-even if the actual business deal between the successor and predecessor is governed by the law of another state. See Am. Nonwovens, Inc. v. Non Wovens Eng'g, S.R.L., 648 So.2d 565, 567-70 (Ala. 1994). Here, the parties do not dispute that Alabama law governs ATCU's claims against IBT because they arise out of DBC's building contract with ATCU-not out of IBT's purchase agreement with DBC. Therefore, while Georgia law governs the contract by which IBT purchased DBC's assets, “Alabama law governs the question of whether” IBT may be held liable as DBC's successor. Id. at 570.

         Alabama law provides scenarios in which Alabama courts should look beyond the form of a purchase agreement and impute the seller's liability to the purchaser. And because ATCU relies on those scenarios to establish successor liability, the court does not need to interpret the asset purchase agreement or make any determination regarding its validity. The court can assume as true IBT's assertion that, under Georgia law, the contract is an asset purchase agreement rather than a merger.

         However, the court must determine whether the facts in this case would lead an Alabama court to impute DBC's liability to IBT despite the fact that its purchase of DBC was an asset purchase rather than a merger. Under Alabama law, “where one company sells or otherwise transfers all its assets to another company, the transferee is not liable for the debts and liabilities of the transferor unless (1) there is an express agreement to assume the obligations of the transferor, (2) the transaction amounts to a de facto merger or consolidation of the two companies, (3) the transaction is a fraudulent attempt to escape liability, or (4) the transferee corporation is a mere continuation of the transferor.” Prattville Memorial Chapel v. Parker, 10 So.3d 546, 555 (Ala. 2008) (internal quotations omitted).

         ATCU argues that IBT is liable for DBC's debts and liabilities because three of these four exceptions apply to IBT's relationship with DBC. As shown below, the court finds that IBT expressly assumed DBC's warranty obligations in existence at the time of the Asset Purchase Agreement. It also finds that IBT is a mere continuation of DBC. The court makes no determination regarding the other two exceptions because the parties only provided New York and Georgia case law regarding the de facto merger theory, and ATCU did not submit any argument for the fraud-based exception.

         An express agreement

         IBC and DBC executed an asset purchase agreement on July 31, 2007, by which IBT acquired DBC's assets, some of its liabilities, and its goodwill. (Doc. 84 at 10). IBT expressly assumed the liabilities laid out in the asset purchase agreement's “Section 1.2 Assumed Liabilities, ” which include “(A) accounts payable and accrued expenses . . . ” and “(B) obligations for warranty or repair work for services provided by DBC to customers of the Business prior to the Effective Date.” (Doc. 25-1 at 2-3).

         So, the court finds that IBT did assume DBC's obligations for warranty and repair work that DBC was contractually bound to perform at the time the asset purchase agreement was executed.[3] That assumption of liability would allow ATCU to hold IBT liable for failure to meet warranty and repair obligations in effect at the time IBT and DBC executed the asset purchase agreement.

         Continuation of the transferor

         A second exception to the rule that a transferee corporation generally is not liable for the liabilities of the transferor is if “the transferee corporation is a mere continuation of the transferor.” Prattville Memorial Chapel, 10 So.3d at 555. The Supreme Court of Alabama has established that a purchasing corporation is a mere continuation of the selling corporation if

(1) There was basic continuity of the enterprise of the seller corporation, including, apparently, a retention of key personnel, assets, general business operations and even the [seller's] name;
(2) The seller corporation ceased ordinary business operations, liquidated, and dissolved soon after distribution of consideration received from the buying corporation;
(3) The purchasing corporation assumed those liabilities and obligations of the seller ordinarily necessary for the continuation of the normal business operations of the seller corporation; and
(4) The purchasing corporation held itself out to the world as the effective continuation of ...

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