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

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

March 14, 2019

NORFOLK SOUTHERN RAILWAY COMPANY, Plaintiff,
v.
BOATRIGHT RAILROAD PRODUCTS, INC, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          ABDUL K. KALLON, UNITED STATES DISTRICT JUDGE

         Norfolk Southern Railway Company asserts claims against multiple corporate and individual defendants[1] arising from an alleged scheme involving the sale of improperly and fraudulently treated railway ties. The court previously dismissed the RICO, negligence, and fraudulent misrepresentation claims against the Boatright Defendants. This action is presently before the court on Norfolk Southern's motion for reconsideration and for leave to amend, doc. 70, and Jimmy Watt's motion for judgment on the pleadings, doc. 52, and motion to strike, doc. 66. The motions are fully briefed and ripe for review. See Docs. 52; 60; 64; 65; 66; 69; 70; 73; and 75. After careful consideration, and for the reasons explained below, Norfolk Southern's motion to reconsider and for leave to amend is due to be granted in part. Specifically, Norfolk Southern may file an amended complaint to plead a RICO claim against John Bookout and Shane Boatright. Watt's motion judgment on the pleadings and his motion to strike are due to be denied.

         I. STANDARD OF REVIEW

         The court has discretion to reconsider any order that “adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties . . . .” See Fed. R. Civ. P. 54(b); Chapman v. A1 Transport, 229 F.3d 1012, 1023 (11th Cir. 2000) (en banc) (reviewing the denial of a motion to reconsider only for abuse of discretion). Although the court's “power to reconsider, revise, alter, or amend [an] interlocutory order is not subject to the limitations of Rule 59, ” Toole v. Baxter Healthcare Corp., 235 F.3d 1307, 1315 (11th Cir. 2000) (quotation omitted), “[i]n the interests of finality and conservation of scarce judicial resources, reconsideration of an order is an extraordinary remedy and is employed sparingly, ” Gougler v. Sirius Prods., Inc., 370 F.Supp.2d 1185, 1189 (S.D. Ala. 2005). Generally, “[a] motion to reconsider is only available when a party presents the court with evidence of an intervening change in controlling law, the availability or new evidence, or the need to correct clear error or manifest injustice.” Summit Med. Ctr. Of Ala., Inc. v. Riley, 284 F.Supp.2d 1350, 1355 (M.D. Ala. 2003).

         Next, courts generally “should freely give leave [to amend a complaint] when justice so requires.” Fed.R.Civ.P. 15(a)(2). However, “a motion to amend may be denied on ‘numerous grounds, such as undue delay, undue prejudice to the defendants, and futility of the amendment.” Carruthers v. BSA Advert., Inc., 357 F.3d 1213, 1218 (11th Cir. 2004) (quoting Maynard v. Bd. of Regents of Univs. of Fla. Dep't of Educ., 342 F.3d 1281, 1287 (11th Cir. 2003)).

         II. FACTUAL AND PROCEDURAL BACKGROUND[2]

         Norfolk Southern owns and operates an extensive interstate rail network. Doc. 32 at 1-2. To maintain this network, Norfolk Southern purchased railroad ties from the Boatright entities, and it required Boatright to specially prepare and treat the ties in order to prevent premature degradation. Id. at 4-5. Allegedly, Messrs. Bookout and Boatright instructed Boatright's employees to stop treating railroad ties according to Norfolk Southern's specifications, and instead to use cheap substances to make the railroad ties black without considering whether these substances impacted the preservation of the ties. Id. at 5-6. Norfolk Southern contends that Boatright enlisted Stephens Oil Company, Inc. to obtain “inexpensive petroleum products, such as asphalt flux and LUWA (typically used for road paving), on Boatright's behalf and at Boatright's direction to further the ‘make it black' scheme.” Doc. 64-3 at 7. Allegedly, Stephens Oil's participation allowed Boatright “to purchase large volumes of petroleum-based products, which have no legitimate role in tie treatment, without detection or significant suspicion.” Id. at 8. Stephens Oil then enlisted Avista Oil Refining and Trading to formulate a new chemical compound called AFDO-50 for Boatright's use in the “make it black” scheme. Id. Neither Boatright nor Stephens Oil investigated whether asphalt flux, LUWA, or AFDO-50 was a wood preservative. Id. The scheme allegedly lasted from 2009 until 2014. See doc. 32 at 7, 14.

         Former Boatright employees subsequently informed Norfolk Southern about the scheme. Id. at 14. Thereafter, Norfolk Southern confirmed that ties purchased from Boatright were not treated according to its specifications and were degrading more quickly than anticipated. Id. Norfolk Southern then commenced this action, asserting both substantive RICO and RICO conspiracy claims against the Boatright Defendants and Watt, and state law claims for breach of contract, negligence, fraud, and civil conspiracy. Doc. 32. The Boatright Defendants moved to dismiss all the claims, with the exception of the breach of contract claim asserted against the Boatright entities, docs. 35 and 37, and the court granted the motions in part, dismissing the RICO, negligence, and fraudulent misrepresentation claims, doc. 51.

         III. DISCUSSION

         Norfolk Southern asks the court to reconsider the dismissal of the RICO and fraudulent misrepresentation claims, arguing that newly discovered evidence requires reconsideration of the RICO claims and that the court erred by dismissing the fraudulent misrepresentation claims. Doc. 64. The court will begin with the contention related to the fraudulent misrepresentation claim.

         A. Whether Norfolk Southern States Viable Fraudulent Misrepresentation or Concealment Claims

          The court dismissed the fraudulent misrepresentation claim against the Boatright Defendants based on the finding that the claim merely duplicates the underlying breach of contract claim, and the damages flowing from the fraud are identical to the breach of contract damages. Doc. 51 at 35-36. Norfolk Southern argues that the decision is at odds with controlling precedent. Doc. 64 at 10-11.

         As the court noted in its decision, “[a] mere breach of a contractual provision is not sufficient to support a charge of fraud.” Doc. 51 at 31 (quoting Brown-Marx Assocs., Ltd. v. Emigrant Sav. Bank, 703 F.2d 1361 (11th Cir. 1983) (citing in turn McAdory v. Jones, 71 So.2d 526, 528 (Ala. 1954)). However, in some circumstances, “a single transaction can support an award of damages for both breach of contract and fraud, ” and “fraudulent concealments after the contract was made . . . could support both a breach of contract claim and a fraud claim.” Deupree v. Butner, 522 So.2d 242, 244 (Ala. 1988) (citing Herring v. Prestwood, 414 So.2d 52 (Ala. 1982)). In order to state a claim for fraudulent concealment based on a transaction also giving rise to a breach of contract claim, “the fraud claim must be based on representations [or concealments] independent from the promises in the contract and must independently satisfy the elements of fraud.” Dickinson v. Land Developers Construction Co., 882 So.2d 291, 304 (Ala. 2003) (J. Houston, concurring) (citing Deupree, 522 So.2d at 245). In addition, there must be “damage due to fraud that is separate from damages that may result from any subsequent contractual breach.” Id. at 305 (emphasis in original, quotation omitted).

         Norfolk Southern alleges that the Boatright Defendants fraudulently concealed the true nature of the ties it purchased from Boatright, and that it suffered damages of approximately $50, 000, 000 as a result of the fraud due to the premature degradation of the fraudulently-treated ties. Doc. 32 at 33. See also doc. 64-3 at 39. These are the same damages that Norfolk Southern purportedly suffered as a result of the alleged breach of contract. See docs. 32 at 28; 64-3 at 35. Thus, Norfolk Southern has not alleged that it incurred damages from the alleged fraud that are separate from the alleged breach of contract damages. ...


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