United States District Court, N.D. Alabama, Middle Division
OWEN BOWDRE CHIEF UNITED STATES DISTRICT JUDGE.
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.
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
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,
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
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
Construction and Completion of the Building
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.
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).
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).
Purchase of DBC's Assets
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
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). 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
Continue with ATCU's Building
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
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.
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,
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.
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).
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).
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).
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.
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.
STANDARD OF REVIEW
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.
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.
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).
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).
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.
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.
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.
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.
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.
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
Whether IBT may be held liable for DBC's conduct
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
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.
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.
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
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
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.
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
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.
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
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. 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.
of the transferor
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
(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
(4) The purchasing corporation held itself out to the world
as the effective continuation of ...