United States District Court, D. Kansas
CHRIS L. SALEK, Plaintiff,
RELOAD, INC., RELOAD EXPRESS, INC., WATCO MECHANICAL CORP., WATCO TRANSLOADING LLC, and PHILLIP A. PENNER, Defendants.
MEMORANDUM AND ORDER
SAM A. CROW, Senior District Judge.
The case comes before the court on the following dispositive motions: the plaintiff Chris Salek's motion for summary judgment (Dk. 116), the defendant Phillip Penner's motion for summary judgment (Dk. 119), and the remaining defendants' motion for summary judgment (Dk. 121). As the matters have been fully and finally briefed, the court files this order as its decision on these pending motions.
A quick glance of the parties' extensive memoranda, the voluminous exhibits, and the numerous claims and defenses certainly leaves the impression about the complexity of the legal and factual issues here. Not only are the facts somewhat involved and layered, what the parties seek to infer and argue from them further complicates the case. This has been fully played out in how the parties briefed these summary judgment proceedings. Instead of simply disputing and defending their statement of facts with proper citations of the summary judgment evidentiary record, the parties spent inordinate effort arguing over what inferences and conclusions to draw from the evidentiary record. Consequently, the court's work on these motions has been extended and frustrated by the repetitive presentation of arguments. For purposes of this order, the court will present its summary of the uncontroverted facts and then discuss the respective claims focusing principally on the factual disputes relevant and critical to the summary judgment rulings.
The court recognizes the delay in issuing this decision has been unusual, as have been the parties' numerous, lengthy and contentious filings, the voluminous exhibits, the evolution of the plaintiff's numerous claims, and the repeated and varied presentations of factually disputed matters. The longest, and most recent, delay is attributable to expansive discovery produced by some of the defendants in response to a discovery order entered approximately one year ago. Because of the size of the additional discovery and the anticipation that the parties may find some evidence relevant to the summary judgment proceedings which would need to be incorporated by supplementary briefing, the court suspended its work on these motions and turned its attention to other matters. In the meantime, the parties appear to have processed the recent discovery materials, as capably guided by the magistrate judge, and have filed their supplementary pleadings as permitted by the district court. With the motions now ready for decision, the court has returned to these motions as permitted by its schedule.
SUMMARY JUDGMENT STANDARDS
Rule 56 authorizes a court to "grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A fact is material if it would affect the outcome of a claim or defense under the governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "[T]he dispute about a material fact is genuine, '..., if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.
On summary judgment, the initial burden is with the movant to point out the portions of the record which show that the movant is entitled to judgment as a matter of law. Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir. 1992), cert. denied, 506 U.S. 1013 (1992). Instead of disproving a claim or defense, the movant need only show "a lack of evidence" on an essential element. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998). If the movant meets that burden, the non-movant must come forward with specific facts based on admissible evidence from which a rational fact finder could find in the non-movant's favor. Id. The non-movant's Aburden to respond arises only if the" movant meets its initial burden of production. Neal v. Lewis, 414 F.3d 1244, 1248 (10th Cir. 2005) (citation omitted). The essential inquiry is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether the evidence is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, 477 U.S. at 251-52. Put another way, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.'" Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); See Pinkerton v. Colorado Dept. of Transp., 563 F.3d 1052, 1058 (10th Cir. 2009).
In applying this standard, all inferences arising from the record must be drawn in favor of the nonmovant. Stinnett v. Safeway, Inc., 337 F.3d 1213, 1216 (10th Cir. 2003). The Supreme Court has made it clear that:
Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge, whether he is ruling on a motion for summary judgment or for a directed verdict. The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.
Anderson, 477 U.S. at 255 (citation omitted). Thus, district courts are to tread cautiously in summary judgment proceedings. Id. Nevertheless, the court will expect that the party defending against summary judgment will "establish, at a minimum, an inference of the existence of each element essential to the case.'" Croy v. COBE Laboratories, Inc., 345 F.3d 1199, 1201 (10th Cir.2003) (quoting Hulsey v. Kmart, Inc., 43 F.3d 555, 557 (10th Cir.1994)).
SUMMARY STATEMENT OF FACTS
The defendants Reload, Inc. ("Reload") and its affiliate Reload Express, Inc. ("Reload Express" when referred to separately but otherwise is incorporated in the joint reference of "Reload") started as a small company in LaCrosse, Wisconsin, but grew over the next 25 years. Reload operated a rail-centric transloading business that served destination customers by transloading freight shipped by rail onto semi-truck trailers for final delivery to the customers not directly served by rail. Being a customized service, a transloading business can include handling and transporting various freight, such as, lumber, roofing products, papers, steel, auto parts, dry goods, canned goods, chemicals, petroleum, and other products. Reload's business had not expanded into transloading such hazardous materials as ethanol or crude oil. Reload also provided warehousing, inventory management, trucking, and single bill rail logistics. For the 12 years before it was sold, Reload was equally owned by the plaintiff Chris Salek and the defendant Phillip Penner.
The defendant Watco Mechanical Corp. ("Watco") is one of the wholly owned subsidiaries of Watco Companies, both of which are located in Pittsburg, Kansas. Watco and its related entities own and operate shortline railroads and provide international transportation services. Its three divisions are transportation-shortline railroads and industrial switching, mechanical- major mechanical repair facilities across the country, and terminal and port services-warehouses, ports and transloading facilities. In the middle of 2007, wanting to expand into transloading, Watco hired Kevin Goins who recommended Watco's acquisition of Reload.
In July of 2007, negotiations for the sale of Reload to Watco began with Salek and Penner wanting $12, 000, 000 or one times Reload's annual sales and with Watco wanting to pay a multiple of Reload's sustainable cash flow or EBITDA" ("Earnings Before Interest Taxes Depreciation Amortization"). A couple months later, the parties executed a non-binding letter of intent that called for a purchase price of $12, 000, 000 with Watco paying this price through a one-time cash payment equal to 4 times Reload's "sustainable EBITDA" and if the cash payment was less than the purchase price then the balance would be paid in common stock. Counsel for Watco sent a first draft of the stock purchase agreement ("SPA") on October 15, 2007. Because the agreement contemplated Salek and Penner keeping some equity in the company, the draft did not state a purchase price but said the parties had agreed on an "Enterprise Value" of $12, 000, 000 and the purchase price would be equal to the multiplied sustainable EBITDA plus the equity given to Salek and Penner.
On October 23, 2007, the plaintiff Salek sent an email to Watco's CEO Rick Webb that included the following:
We need to make sure that the growth in reloads [sic] business segment occurs in reload and not in another subsidiary that Phil and I are not shareholders in. This could be accomplished by describing our market area (transloading is the best description we could think of) and then have Watco and its subsidiaries and affiliates agree that they are not going to get in that market or service line.
(Dk. 123, Ex. L). At a meeting in Pittsburgh, Kansas, on October 26, 2007, there was discussion of this topic. The cited testimony presents a factual dispute over what CEO Webb told Salek at that time about all transloading business going under Reload. Salek testified Webb promised that all growth in the transloading business would be under Reload. Webb testified that he did not make any such representations in the context of an agreement with earn out provisions.
In an email entitled, "New deal, " and dated November 29, 2007, Salek wrote Penner laying out some of the terms for selling "100% of Company, " namely, "Cash price-$9, 000, 000" with an "Earn out- $3, 000, 000 over 3 years or longer based on $2, 250, 000 over 3 years with 1 Million cap" and a "3 year employee agreement co inside (sic) with earn out At our requested salary and benefits." (Dk. 123, Ex. P). On December 26, 2007, Salek sent an email, "This should be it, " that highlighted a closing cash payment of $7, 500, 000 with a commitment "to no more changes." Id. at Ex. T.
Salek testified that his company when sold was worth less than a year before and that he considered the $7.5 million cash payment to be a "good deal." (Dk. 123, Ex. B, pp. 49-50). Salek also testified that the purpose of the earn-out provisions was to reach "the 12-million-dollar purchase price" and that Watco was using the provision as its "financing." Id. at p. 100.
On January 4, 2008, Chris Salek, Phillip Penner and Watco entered into the SPA with this opening paragraph:
STOCK PURCHASE AGREEMENT dated as of Jan. 4, 2008, among CHRIS L. SALEK ("SALEK") AND PHILLIP A. PENNER ("PENNER"), the individual shareholders of Companies (collectively the "Shareholders"), RELOAD, INC., a Missouri corporation ("Reload"), RELOAD EXPRESS, INC., an Missouri corporation ("Express") (with Reload and Express being collectively referred to here as "Companies"), and WATCO MECHANICAL CORP., a Kansas corporation ("Purchaser").
(Dk. 123, Ex. U, at CS000040). The SPA specified that Watco was purchasing the shares for "(i) a one time cash payment of" $7, 500, 000; "(ii) potential future earn out payments not to exceed" $4, 500, 000, "and (iii) the assumption by Purchaser" of liabilities spelled out in the SPA. Id. at § 1.01. The SPA also spells out that Kansas laws shall govern "all matters, including but not limited to matters of validity, construction, effect, performance and remedies." (Dk. 129-1, p. 46).
The SPA on earn-out payments began with the general provision that the "[s]hareholders shall have the ability to earn up to a maximum additional purchase payment... per year to be equally divided between PENNER AND SALEK (the "Earn Out Payments")." Id. at § 1.04.2(a). The SPA specified a full annual earn-out payment if the closing EBITDA met the "required EBITDA" and a pro-rated earn-out payment if the closing EBITDA did not meet the "required EBITDA" but exceeded the "base EBITDA." Id. at § 1.04.2(b). The SPA also spells out that "the term EBITDA' shall mean Net Income of the Companies for such calendar period (fiscal year) plus the sum of all amounts deducted arriving at...." Id. at § 1.04.2(e). The SPA in its opening paragraph delineates the "Companies" as Reload and Reload Express. The SPA does not include any terms specifically restricting Watco from starting new subsidiaries or businesses of any kind. Nor is there an express term requiring Watco to place all new transloading business within Reload or prohibiting Watco from putting any new transloading business into another Watco subsidiary.
Also on January 4, 2008, the defendant Penner and the plaintiff Salek entered into separate written employment agreements with Reload and Watco. (Dk. 123, Exs. V and W). Both employment agreements provided for a term of employment through December 31, 2010, and an annual salary of $250, 000. The agreements specified both were "employed by RELOAD, not Watco" and that Watco "join[ed]" the agreements merely "for the purpose of causing RELOAD to satisfy the obligations of the" SPA and the employment agreement. Id. at Exs. V and W § 1. Both agreements included provisions that made them subject to and governed by Missouri law and also stated this was "the entire agreement and understanding by and between Employer and Employee with respect to the employment of Employee, and no representations, promises, agreements, or understandings, written or oral, relating to the employment of the Employee and not contained herein, shall be of any force or effect." Id. at § 12. Watco's Vice President of Distribution, Kevin Goins ("Goins") supervised Salek and Penner. Goins joined Watco to manage its transloading growth initiatives, and he worked for Reload after Watco acquired it.
At the time of the sale, Reload operated four transloading facilities located in St. Louis, Missouri; La Crosse, Wisconsin; Glendale, Arizona; and Rockton, Illinois. The SPA resulted in Reload becoming a wholly-owned subsidiary of Watco which in turn was a wholly-owned subsidiary of Watco, Companies, Inc. After the SPA, facilities located in Oklahoma City, Oklahoma; Lawton, North Dakota (client-High Sierra); and Stroud, Oklahoma (client-High Sierra), were put within Reload.
With the housing market collapse, Reload's revenue was down at these facilities. The plaintiff offers testimony that Watco's insistence on "take or pay" contracts before investing in operations also had a negative effect on Reload's operations. Kevin Goins who oversaw Reload's operations opined that the "global economy" was the "primary reason" for Reload's struggling revenues. (Dk. 123, Ex. E, pp. 286-87). Watco has invested more than two million dollars in Reload.
Five months after the SPA, Goins sent an email to Watco's COO regarding Reload's personnel and performance. This email included critical comments about Salek's performance. Eight months later, Goins replaced Salek as Vice-President of Sales and Marketing based on Goins' opinion that Salek was underperforming. Two months after that in April of 2009, Goins reports to Watco's COO his plans for Reload that included moving Penner to the EOG project, moving Salek to the Rockford facility or terminating him, and reducing the salaries of both Salek and Penner.
On June 12, 2009, Penner, Reload and Watco entered into an amendment to the SPA and an amendment to the employment contract. These amendments reduced Penner's annual salary from $250, 000 to $100, 000 and added the difference to the potential earn-out payments under the SPA. By an email dated July 7, 2009, Penner informed Salek that he had agreed to these amendments. On July 15, 2009, at 6:06 a.m., Salek sent an email asking Penner if he knew whether "the transloading part of EOG [would] count toward their earn out" and if anybody had said this. (Dk. 123, Ex. LL). Penner emailed back that he "didn't' have an answer to that." Id. Later that night, Salek emailed Penner, "If we are being treated equally the EOG does not count toward our earn out. Kevin clarified that today." Id. at Ex. MM. Salek testified that Watco representatives told him on July 15th that EOG would not count but that he did not agree to the representatives' position on this. Id. at Ex. B, pp. 171-173. On July 17, 2009, Salek signed amendments to the SPA and the employment agreement that contain essentially the same terms as Penner's amendments. Salek's employment with Reload/Watco subsequently ended on December 31, 2010, as specified in the written agreements.
On August 11, 2009, Watco Companies, Inc. created the wholly-owned subsidiary, Watco Transloading LLC ("WTL"). On August 28, 2009, Watco, WTL and another Watco subsidiary entered into a Transload Services Agreement with a collective of three corporations referred to as EOG Resources. Reload is not a named party in this contract. The contract called for loading and unloading services, as well as management and facility services at EOG's facilities in Oklahoma ("Stroud Facility") and in North Dakota ("Stanley Facility"). This will be referred to as the EOG Project.
Watco generated EBITDA statements on Reload for the years of 2008, 2009, 2010, and 2011, and the plaintiff acknowledges having received and reviewed these statements. These EBITDA statements generated by Watco for the plaintiff on Reload showed the following totals for 2008 a negative ($179, 534.86); for 2009 a negative ($123, 943.47); for 2010 a positive $860, 918.96; for 2011 a positive $887, 848.66; and for 2012 a positive $258, 900.52. Watco calculated these EBITDA amounts based on the following transloading facilities within Reload, including, St. Louis, Missouri; La Crosse, Wisconsin; Glendale, Arizona; Rockford, Illinois; Oklahoma City, Oklahoma; Stroud, Oklahoma (High Sierra); and Lawton, Oklahoma. These same EBITDA statements do not include any EBITDA generated by the EOG Project or any other projects or locations within WTL or other non-Reload entities in Watco.
On February 15, 2011, Phil Penner sent to Rick Baden, a Watco executive, an email that stated: "I was following up on the changes we talked about to my earn out agreement to add the companies to the documents that have been brought on board, EOG (LLC) and the OKC facility? Also the status of the earn out calculations?" (Dk. 123, (Ex. VV). As the plaintiff points out, this topic was not first raised in February of 2011. Approximately 21 months earlier, Watco's COO Towner copied Baden on an email sent to the CEO Webb. It said, in part:
In review of the Stock Purchase agreement, I believe we agree that the earn Out is limited to only those properties that were owned by and acquired from RELOAD. I'd suggest we use this as a bargaining chip to reduce Phil's salary to 100, 000 with all of the difference added to his Earn Out potential with payment of the difference solely dependent on the earnings of the core properties. Additionally, I believe we should keep all of the new properties, esp EOG in Watco Companies, Inc and negotiate a separate deal to allow him to receive an Earn Out on this project. With regards to Chris Salek, we should then ask him to take a reduction with no ties to the EOG project. If you approve this approach, I'll proceed accordingly.
(Dk. 131, Ex. 36). There is also an email from Goins to COO Towner in May 2010 that included a reference to Penner being frequently concerned over whether Watco was trying to take away his earn out.
On March 2 and 3, 2011, Watco sent emails with the 2010 earn out calculations for Reload to both Penner and Salek. Later on March 2nd, Watco's Chief Accounting Officer ("CAO") also sent Penner an email saying, "Phil, we're putting together a version of the calculation to include the EOG properties based on feedback from Terry [(COO)] and RB [(Rick Baden)]." (Dk. 123, Ex. WW). On March 28, 2011, the CAO attached to an email to Penner a "draft of the new earn out agreement." Id. at Ex. XX. Three days later, the CAO sent Penner this email that said in part:
Phil, I talked with Craig and RB tonight about our discussion from this afternoon. They're ok with advancing the $2.0 million tomorrow, but you need to go ahead and sign the earn-out agreement. This is just protection for Watco in the unlikely case of Watco paying you on Friday and then you becoming deceased before we finalize the deal. This way we'll at least have an agreement in place. Once we have had a chance to finalize a deal, we can shred the signed earn out if we decide to go with the bonus approach instead."
Id. at Ex. XX. On April 4, 2011, Penner sent the signed earn-out agreement to the CAO. Id. This written agreement expressly defined the "Companies" used for calculating EBITDA as Reload and WTL. Later that same day, the CAO emailed Penner:
Phil, after talking with our auditors, we're going to have to treat this as "compensation". This is because the original earn out related to the purchase price was adjusted to encompass entities that were not part of the sale and did not exist until much later. Additionally since the sellers are being treated differently, they are view this as a bonus. I have to believe the IRS will look at it the same way, but (as I mentioned before) I'm not much of a tax guy. Even if this is treated as a bonus rather than additional purchase price, we want to make sure you end up in the same place on an after tax basis. I've attached a calculation showing what the gross-up would be for taxes. Whichever way we treat this, the initial cash to you will be in excess of $2.0 million. I propose that I send you $2.0 million in the morning as an advance against which answer we come up with. Then you can bounce off of your tax guy to make sure he/she agrees. I'm traveling first thing in the morning but should be on the ground by 9:30 if you want to discuss. Please shoot me an email if you agree with the $2.0 million approach and I will have Jennifer Muckala send the funds in the morning.
Id. at Ex. YY. The $2 million payment then was made to Penner.
On April 16, 2011, the COA emailed a "Bonus Earn-Out Agreement" to Penner. Id. at Ex. AAA. Instead of signing this agreement, Penner continued to negotiate for capital gains treatment of the payments. Penner signed a Bonus Agreement dated December 30, 2011, which resulted in Watco paying another $1.4 million in addition to the earlier $2 million advance, and the agreement defines the payments as bonuses and "as compensation for Penner's efforts in growing and expanding Watco Transloading L.L.C. with EOG Resources, Inc." Id. at CCC. The Bonus Agreement also provides that Watco will indemnify and hold harmless Penner for any damages, losses or settlement and fees paid to Salek that arise from or are directly related to payment of this bonus. Id. The defendants represented in their reply memorandum that "[t]he parties later executed the bonus agreement at the end of the year when the employee payroll taxes were due" and cited the bonus agreement in support. (Dk. 150, pp. 42-43).
While both were employed with Reload as Vice Presidents of Operations, Penner and Salek's son, Mike, had important roles in designing, implementing, and providing the transloading operations at EOG's Stanley and Stroud facilities. Reload was their employer who paid their salaries for this work. Other Reload employees also were working on these projects. Goins testified that the employees working the transloading element of the EOG project were all Reload employees. In late December 2009, Watco began transloading EOG's crude oil at the Stanley and Stroud Facilities.
As previously mentioned, the Watco defendants were compelled to produce discovery after the summary judgment pleadings were on file. From that recent production, the plaintiff has found emails that put in doubt the timing of the bonus agreement. Rather than executed on December 30, 2011 as it is dated, the emails suggest the bonus agreement was not signed until the first part of January of 2012, well after the actual $2 million payment in April of 2011, but was back-dated to 2011.
From this recent production, the plaintiff also uncovered several August 2009 emails from Watco's CAO to Watco's CFO indicating that "EOG has been set up as a Reload entity" and that the CFO replied that EOG should not be set up under Reload primarily because the EOG transload EBITDA "will not be applied to the Reload earn out." (Dk. 182-3). The plaintiff has another email written by Watco's CFO in January of 2011 showing that a transloading business was not put under Reload to avoid paying the plaintiff an earn-out and that Watco then arranged for Penner to receive his earn-out through a separate agreement:
On the new Transload operations that Phil was asking about last week, we would like to put them outside of Reload, Inc., and put them into the same legal entity (Watco Transloading LLC) where Stanley and Stroud are today. It's my understanding from past conversations that Phil will get credit for these transloads in his earn out calculation, but not Christ [sic] (that's one of the reasons we want to have the new profit centers located in Watco Transloading LLC. We recommend that we create a new Earn Out agreements for Phil and terminate his old one, that way we can include these other locations Reload, over the original terms of the earnout (again, Chris would be excluded).
COUNT ONE against Defendants Reload, Reload Express and Watco: Breach of Contract and Implied Covenant of Good Faith and Fair Dealing for Failing to Include EBITDA from EOG Project and other Transloading Facilities in Calculating Salek's Earn-Out Payment
Salek moves for summary judgment on this count, (Dk. 117, p. 11) as do the defendants Watco and Reload. (Dk. 122, p. 30). As one of the plaintiff's theories of recovery listed in the pretrial order ("PTO"), this count states:
against Defendants Reload, Express and Watco for Breach of Contract and the Implied Covenant of Good Faith and Fair Dealing, by among other things, failing to pay any earn out payments to Plaintiff and failing to include the EBITDA from the Stanley Facility, the Stroud Facility, and other transloading facilities in their calculation that determined Plaintiff's earn out payment (Count 1)
(Dk. 107, pp. 12-13). Under the essential elements to this count, the plaintiff asserts a breach of the SPA and the Amended Agreement in that the Watco defendants failed "to pay any earn out payments to" the plaintiff and failed "to include the EBITDA from the Stanley Facility, the Stroud Facility, and other transloading facilities in their calculation[s]" for the year ending in December of 2010 and other years. Id. at p. 14. The plaintiff claims the defendants breached "the implied duty of good faith and fair dealing by excluding the EBITDA from the Stanley Facility, the Stroud Facilities, and other transloading facilities when they calculated Plaintiff's right to an earn out payment for the year ended December 31, 2010, and other years." Id. at p. 15. The plaintiff also claims violations of this implied covenant of good faith by the defendants entering into a side agreement for earn out payments to Penner and by paying Penner earn out money without paying any such monies to the plaintiff.
Governing Kansas Law on Breach of Contract
Under Kansas law which governs the SPA and the amended agreement, the following are the elements to a breach of contract claim: "(1) the existence of a contract between the parties; (2) sufficient consideration to support the contract; (3) the plaintiff's performance or willingness to perform in compliance with the contract; (4) the defendant's breach of the contract; and (5) damages to the plaintiff caused by the breach." Stechschulte v. Jennings, 297 Kan. 2, 23, 298 P.3d 1083 (2013). "The primary rule for interpreting written contracts is to ascertain the parties' intent. If the terms of the contract are clear, the intent of the parties is to be determined from the language of the contract without applying rules of construction." Osterhaus v. Toth, 291 Kan. 759, 768, 249 P.3d 888 (2011) ( citing, e.g., Anderson v. Dillard's, Inc., 283 Kan. 432, 436, 153 P.3d 550 (2007)). Thus, when the written contract's terms are plain and unambiguous, the court determines the parties' intent from the four corners of the contract and without reviewing extrinsic or parole evidence. Simon v. Nat'l Farmers Org., Inc., 250 Kan. 676, 679-80, 829 P.2d 884, 887 (1992). "Interpreting a written contract that is free from ambiguity is a judicial function and does not require oral testimony to determine the contract's meaning." Carrothers Constr. Co., L.L.C. v. City of South Hutchinson, 288 Kan. 743, 751, 207 P.3d 231 (2009) (citation omitted).
"Whether an instrument is ambiguous is a matter of law to be decided by the court." Simon v. National Farmers Organization, Inc., 250 Kan. 676, 680, 829 P.2d 884 (1992). "Ambiguity in a written contract does not appear until the application of pertinent rules of interpretation to the face of the instrument leaves it generally uncertain which one of two or more meanings is the proper meaning." Id. (citation omitted). "To be ambiguous, a contract must contain provisions or language of doubtful or conflicting meaning, as gleaned from a natural and reasonable interpretation of its language." Gore v. Beren, 254 Kan. 418, 427, 867 P.2d 330 (1994). A court is not to uncover "ambiguities or uncertainties where common sense tells us there are none." Eggleston v. State Farm Mut. Auto. Ins. Co., 21 Kan. App.2d 573, 574, 906 P.2d 661, (citations omitted), rev. denied, 257 Kan. 1091 (1995). "[T]he fact the parties differ as to what an ambiguous contract requires does not force this court to find that the contract was, in fact, ambiguous." Ryco Packaging Corp. of Kansas v. Chapelle Intern., Ltd., 23 Kan. App.2d 30, 36, 926 P.2d 669 (1996) (citation omitted), rev. denied, 261 Kan. 1086 (1997). "The court must not consider the disputed provision in isolation, but must instead construe the term in light of the contract as a whole, such that if construction of the contract in its entirety removes any perceived ambiguity, no ambiguity exists." Kay-Cee Enterprises, Inc. v. Amoco Oil Co., 45 F.Supp.2d 840, 843 (D. Kan. 1999) (citing Arnold v. S.J.L. of Kansas Corp., 249 Kan. 746, 749, 822 P.2d 64 (1991)). "In the absence of more than one possible meaning to a word or phrase in a legal instrument, ambiguity does not exist." Wenrich v. Employers Mutual Ins. Companies, 35 Kan. App.2d 582, 587-588, 132 P.3d 970 (2006) (citation omitted).
Breach of Contract for Not Including EOG Project's EBITDA as New Transloading Business under Reload
As noted above, the following facts are uncontroverted. The SPA defines EBITDA to "mean Net Income of the Companies, " and the SPA in its opening paragraph delineates the "Companies" as Reload and Reload Express. The SPA does not include any terms specifically restricting Watco from starting new subsidiaries or businesses of any kind. Nor are there any express terms in the SPA or in the amended agreement that require Watco to place all new transloading business within Reload.
As full purchasers and sole owners of Reload, the Watco defendants argue the contract gives them the sole "discretion" to choose which business opportunities to put under Reload. And if the new business is not put under Reload, then it is not part of Reload's EBITDA calculation used to determine the earn-out payment. Thus, the defendants' position is that only those properties actually under Reload are included in Reload's EBITDA calculation. The defendants seek summary judgment on this theory because the plaintiff cannot prove that the SPA expressly required the EOG Project's EBITDA to be under Reload.
In opposing summary judgment on this theory, the plaintiff argues the SPA "is ambiguous regarding whether new Transloading Facilities' EBITDA should count towards an earn out." (Dk. 147, p. 38). On this theory, the plaintiff contends the SPA is ambiguous in that the definition of "Companies" as Reload and Reload Express could mean either all new transloading properties acquired by Watco, as the plaintiff argues, or only those "properties existing or contemplated at the time of the" SPA, as subsequently described in a later bonus agreement between only Penner and Watco. (Dk. 144, Ex. 18). In arguing for summary judgment, the defendants posit there is no ambiguity in that they retained discretion to add new business under Reload and that the earn-out provisions did not freeze Reload's business property as of the SPA. The defendants describe their position as obvious and plain from the agreement, "only those properties actually added to Reload become part of the Reload EBITDA calculation." (Dk. 150, p. 54).
The court does not find the SPA ambiguous as to what entities are the "Companies, " Reload or Reload Express, from which the EBITDA calculation is to be made. The contract is plain that this is a Reload EBITDA calculation, and this term necessarily includes all business and property within Reload. As for what future or new transloading business is to be put under Reload, the plaintiff has no logical and factual argument for there being any express SPA terms governing this issue. The SPA defines "Companies" by referring to the particular names of existing companies and not to any kind or group of businesses. The SPA does not include any language that would suggest reading the companies' names as also meaning a general description of a business area akin to Reload or otherwise identifiable ...