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Inc. v. Worthington Cylinders Mississippi, LLC

United States District Court, E.D. Virginia, Newport News Division

March 7, 2016



Robert J. Krask United States Magistrate Judge

This matter is before the Court to resolve claims arising from the alleged breach of an asset purchase agreement. Following a two day bench trial, the parties supplemented the proposed findings of facts and conclusions of law submitted to the Court before trial and the matter is now ripe for adjudication. Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, the Court’s findings of facts and conclusions of law are set forth below. For the reasons set forth below, the Court concludes plaintiffs have failed to establish a breach of contract and/or failed to establish damages resulting from any such breach.


A. The Second Amended Complaint and Damages Sought by Plaintiffs

On September 30, 2013, plaintiffs, 56th Street Investors, Inc. (“56th Street”), and Wayne Franklin (“Franklin”), filed a civil action in the Circuit Court for the City of Hampton against defendant, Worthington Cylinders Mississippi, LLC (“Worthington”). ECF No. 1-1. On November 8, 2013, Worthington removed the action to this Court, pursuant to 28 U.S.C. §§ 1332, 1441, 1446. ECF No. 1. Following the Court’s ruling on Worthington’s motion for a more definite statement, ECF Nos. 3, 5, plaintiffs filed an amended complaint on December 17, 2013. ECF No. 6. On January 6, 2014, Worthington simultaneously filed an answer to the complaint and moved to dismiss plaintiffs’ request for $900, 000.00 in punitive damages. ECF Nos. 6-9. On April 16, 2014, the Court granted Worthington’s motion and dismissed plaintiffs’ request for punitive damages due to plaintiffs’ noncompliance with the Local Rules and their failure to allege: (1) a tort independent of the breach of contract claims at the heart of plaintiffs’ complaint; (2) facts sufficient to support a claim for gross negligence; and (3) facts showing that defendants engaged in reckless or intentional misconduct motivated by malice or ill will. ECF No. 14.

Prior to the original trial date of September 3, 2014, plaintiffs moved to continue the trial and add a defendant, Doral Corporation (“Doral”). ECF No. 22. After the Court granted this motion, plaintiffs filed a second amended complaint against both Worthington and Doral on August 29, 2014. ECF No. 24. Plaintiffs and Doral subsequently reached a settlement involving any claims against Doral and dismissed Doral from the case on August 19, 2015. ECF No. 46. As a result of this settlement, plaintiff also dismissed all claims against Worthington for damage to concrete flooring contained in count two. Id.

The second amended complaint alleges that plaintiff Franklin and Hy-Mark Cylinders, Inc. (“Hy-Mark”), entered into a contract with Worthington, specifically, an asset purchase agreement, whereby Worthington agreed to purchase the business and assets of Hy-Mark. ECF No. 24 at ¶ 3. Hy-Mark, the complaint alleges, conducted its manufacturing business from a building located in Hampton, VA, owned by plaintiff 56th Street. Id. at ¶¶ 1-2. Both Hy-Mark and 56th Street were solely owned by plaintiff Franklin. Id. Plaintiffs allege that Worthington, in removing Hy-Mark’s manufacturing equipment and assets pursuant to the contract, breached the contract by damaging 56th Street’s building during such removal, failing to repair such damage, failing to remove certain items specified for removal under the contract, and improperly removing other items not subject to removal under the contract. Id. at ¶¶ 11, 27, 31, 35

Although styled in six counts, each count of the second amended complaint seeks a different element of damages allegedly stemming from Worthington’s failure to abide by the contract. Plaintiffs seek: (1) $421, 386.90 based upon the estimated cost of repairing alleged damages to the electrical systems in the building (count one); (2) miscellaneous costs associated with roofing, wall, and plumbing repairs (count two); (3) $900.00 for the cost of replacing fire extinguishers and fire suppression equipment allegedly removed by Worthington (count three); (4) $31, 790.46 for the cost of cleanup services necessitated by Worthington’s alleged failure to clean the building (count four); (5) “at least $250, 000[.00]” in lost rental income stemming from the fact that, due to the alleged damage to the electrical systems, the building could only be rented for simple storage, rather than as a manufacturing facility (count five); and (6) $3, 700.00 for the cost of estimates needed to assess and identify any necessary repairs (count six). Id. The ad damnum clause of the second amended complaint seeks “actual damages of $785, 927.36, plus interest and costs . . . .”[1] Id. at ¶ 45.

B. The Pretrial Dispute over Plaintiffs’ Expert Witnesses

Before trial, Worthington moved to exclude the testimony of plaintiffs’ experts[2] due to plaintiffs’ failure to provide a written report from such experts in accordance with Rule 26(a)(2)(B) of the Federal Rules of Civil Procedure. ECF No. 15. Plaintiffs opposed the motion arguing that the experts in question, including Thomas Waltz of Campana Waltz Real Estate and Gary Hewitt of Hewitt Construction Company, were not specially retained as experts, but instead were involved in the dispute prior to the onset of litigation, and thus were not required to disclose written and signed expert reports. ECF No. 17 (citing Fed.R.Civ.P. 26(a)(2)(B)). Further, plaintiffs argued that they had complied with Fed.R.Civ.P. 26(a)(2)(C) by disclosing, with respect to such experts, the subject matter of their expected testimony and summaries of the facts and opinions upon which they relied. ECF No. 17 at 8.

The exhibits appended to the parties’ filings revealed plaintiffs’ discovery responses and disclosures in this regard. Exhibit B to plaintiffs’ opposition to Worthington’s motion, for example, contained a set of itemized proposals prepared by Gary Hewitt “for labor and materials for the replacement of [electrical] components starting at the closest termination point from the equipment back to the original power source” for the building from which Worthington removed Hy-Mark’s equipment. ECF No. 17-B. These same proposals were also attached as Exhibit A to the original and second amended complaint.

Exhibit 1 to Worthington’s motion to exclude also included plaintiffs’ responses to Worthington’s interrogatories and document requests. ECF No. 16-1. In these documents, plaintiffs notified Worthington about, among other things, Thomas Waltz’s efforts to rent or sell the Hy-Mark facility following the sale and removal of the equipment from it. ECF No. 16-1 at 6-9 (identifying renters, leases, lessees, and listing price of $2, 950, 000.00). In response to an interrogatory, plaintiffs identified Thomas Waltz as an “expert in building values for lease and sale” and specified that he would testify about “the reduction in value of the Premises for sale or rent due to damages caused by Defendant, efforts to sell and lease the Premises, and the causes for reduction in rent.” ECF No. 16-1 at 13. In this regard, in response to an interrogatory asking plaintiff 56th Street Investors (the building owner) to state with particularity its damages, 56th Street identified the cost of repairs identified in repair estimate prepared by Gary Hewitt and the “lost rents described in Plaintiffs’ Complaint . . . .” Id. at 15. In response to the same interrogatory, plaintiff Franklin reported that he, as 56th Street’s sole owner, likewise “suffered all of the losses incurred by 56th Street . . . through reduction in value of his assets, loss of income from 56th Street . . ., and expenses incurred . . . in repairing the damage.” Id. at 15-16.

With respect to Thomas Waltz’s testimony, plaintiffs disclosed to Worthington assorted documents pertaining to Waltz’s effort to sell Hy-Mark’s building (for $2, 950, 000.00) or lease it (55, 000 square feet at $5.25 per square foot), information about the marketing methods to be employed, maps/photographs of the facility, and several leases for the facility. ECF No. 18-3. Neither the interrogatory responses nor the document production by plaintiffs contained any information concerning any records or opinions by Mr. Waltz regarding the reduction in the overall value of the premises as a result of any damages to the facility allegedly caused by Worthington.

After a hearing on the motion to exclude on July 21, 2014, ECF No. 21, the Court granted the motion in part and denied it in part. With respect to witnesses Hewitt and Waltz, the Court ruled that, to the extent that they became involved in the matter prior to litigation and provided services to plaintiffs pertaining to repair estimates and marketing and leasing the property, they were not specially retained and need not have prepared signed, written expert reports. ECF No. 20 at 2. Accordingly, the Court ruled that Gary Hewitt could testify about his repair estimates and opinions related thereto. Id. With respect to Thomas Waltz, the Court ruled, consistent with the damages alleged in the complaint and the disclosures identified as exhibits to the filings concerning the motion to exclude, he “may testify to the fair market value of the lease and the value obtained when a portion of the property was re-let.” Id. The Court also ruled that plaintiffs would not be allowed to elicit expert testimony from their experts “regarding [Worthington]’s responsibility for the alleged damage as it relates to the Sales Agreement, or the duties of the departing occupant of the building” because to do so would “render them specially retained . . . and trigger the reporting requirements” of Rule 26(a)(2)(B), with which plaintiffs previously failed to comply. Id. at 3. Finally, the Court permitted plaintiffs to remedy any shortcomings in their prior disclosures pertaining to their experts by means of allowing additional disclosures and by extending and modifying the expert disclosure deadline. Id.

C. Worthington’s Motion for Summary Judgment

On November 23, 2015, the Court held a final pretrial conference with counsel for the parties in advance of the bench trial set for December 15, 2015. ECF No. 48. In the final pretrial order dated November 23, 2015, plaintiffs’ list of exhibits specified that they sought to introduce building leases and marketing materials consistent with those documents discussed above. ECF No. 49 at 3. In plaintiffs’ factual contentions, they claimed that due to the damages allegedly caused by Worthington, plaintiffs “had difficulty renting the Building to others.” Id. at ¶ 29. Plaintiffs further alleged that, due to Worthington’s removal of the building’s existing heavy duty electrical wiring and components, they were unable to rent the building at “the highest rental levels” and instead were forced to rent the building “at a significantly reduced rate, ” resulting in estimated rental losses of $250, 000.00. Id. at ¶¶ 30-31. Plaintiffs’ presented no factual contentions regarding the sale of the building or the reduction in total value of the building as a result of the damages allegedly caused by Worthington.

One day before trial, Worthington filed a motion for summary judgment advising that defense counsel’s independent research revealed that 56th Street had sold the building on October 6, 2015 for $2, 700, 000.00. ECF No. 56 at 2. Exhibit A to Worthington’s motion contained a deed, signed by plaintiff Franklin on behalf of 56th Street, conveying the premises to a buyer on October 6, 2015. ECF No. 56-A at 2-4. Worthington’s motion reported that plaintiffs had neither disclosed the sale to Worthington nor supplemented any prior discovery. ECF No. 56 at 2; Trial Transcript (“Trial Tr.”) 282-83. These nondisclosures were later corroborated by plaintiffs’ counsel, who informed the Court at trial that he was unaware of the sale until the day before trial, and by Wayne Franklin, who testified at trial that he did think the sale of the property was “relevant.”[3] Trial Tr. 90-92, 97-98.

Worthington sought summary judgment on two grounds. First, it argued that, assuming any breach of contract had occurred, plaintiffs were now unable to prove they suffered any damages resulting therefrom with respect to count one. Worthington argued that the recent, undisclosed sale of the property and plaintiffs’ failure to actually undertake any of the repairs proposed by Gary Hewitt, limited plaintiffs’ basis for recovering damages to proof of the diminution, if any, of the market value of the property stemming from the alleged contract breach. ECF No. 56 at 3-6. Inasmuch as plaintiffs failed to disclose any such proof to the defense in advance of trial and were in no position to present evidence of any diminution in market value at trial, Worthington argued it was entitled to summary judgment upon count one as a matter of law. Id. Second, to the extent that plaintiffs’ proposed findings of fact and conclusions of law filed on December 9, 2015 sought to raise new statutory causes of action and recovery against Worthington based upon Virginia law, Worthington sought entry of summary judgment upon them because plaintiffs failed to plead such claims in the complaint. Id. at 6. Given the late nature of Worthington’s filing, the Court, in a telephone conference held on December 14, 2015, reserved ruling on the motion for summary judgment and rejected plaintiffs’ request for postponement of the trial, which proceeded as scheduled on December 15-16, 2015.


A. Stipulated Findings of Fact

In the final pretrial order, the parties stipulated to the following facts. See ECF No. 49 at ¶¶ 1-7.

1. Plaintiff, 56th Street Investors, Inc. (“56th Street”), is a Delaware corporation that owned the property at 305 E Street in Hampton, VA (the “building” or “premises”).

2. Plaintiff Wayne D. Franklin (“Franklin”) is a Virginia resident and the sole shareholder of 56th Street.

3. Defendant Worthington Cylinders Mississippi, LLC (“Worthington”), is an Ohio limited liability company.

4. Hy-Mark Cylinders, Inc. (“Hy-Mark”), was a cylinder manufacturing business, of which plaintiff Franklin was a shareholder, and that was formerly located at the premises.

5. On or about May 21, 2010, Franklin and Hy-Mark entered into an asset purchase agreement (the “contract”) with Worthington.

6. Worthington hired Doral Corporation (“Doral”) to provide rigging and transportation services in connection with moving the purchased assets.

7. 56th Street has not restored or replaced all of the electrical panels, wiring, conduit, or other electrical items that it claims were improperly removed from the premises.

B. The Contract

The Court makes the following additional findings of fact set forth below.

8. According to the contract, Hy-Mark was “engaged in the business of manufacturing and selling cylinders and other products, including . . . impact extruding cylinders and other products for the medical, recreation, and general industries and also performing secondary processing on certain products such as machining, necking, heat treating, painting, coatings, and assembly . . . .” Plaintiff’s Exhibit (“Pl. Ex.”) 1 at ¶ A.

9. Hy-Mark engaged in this business in a warehouse of approximately 55, 000 square feet located upon a roughly seven acre site within an industrial park located in Hampton, VA. Pl. Ex. 23.

10. Worthington agreed to buy “substantially all of the assets” of Hy-Mark’s business for the sum of $8, 000, 000.00, plus sums to compensate the seller for certain capital and other expenditures and for the value of the seller’s product inventory at the time of closing, set to take place on June 21, 2010. Pl. Ex. 1 at ¶¶ 1.3, 2.1.

11. The assets purchased by Worthington included “all of the assets of [Hy-Mark], including without limitation, the following assets, properties, and rights of [Hy-Mark] used directly or indirectly in the conduct of, generated by, held, or constituting” Hy-Mark’s business: (a) “assets and properties reflected on the Interim Balance Sheet[4]” or acquired thereafter, other than receivables or inventory sold after the date of said balance sheet, in the ordinary course of business; (b) intellectual property belonging to or used in the course of Hy-Mark’s business; (c) “[a]ll machinery, equipment, tools, dies, furniture, furnishings, fixtures, goods and other tangible property”; (d) “[a]ll inventory including . . . work in progress, parts, components, . . . raw materials, labels, office and other supplies, merchandise and other inventories”; (e) “[a]ll motor vehicles”; (f) “customer and supplier lists”; and (g) goodwill. Pl. Ex. 1 at ¶ 1.1.1(a)-(j); Pl. Ex. 19.

12. The assets purchased included: office equipment, furniture, tools, dies, forklifts, compressors, industrial saws, industrial sanders, industrial presses, grinders, dryers, conveyers, cylinder rinse stations, and assorted other ...

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