The following article, authored by Karen Frink Wolf and Nora C. Lawrence, was originally published in the March 19 issue of DRI's Business Suit First Circuit Update newsletter.
Packgen v. BP Exploration & Production Inc., et al., 754 F.3d 61 (1st Cir. June 11, 2014)
The First Circuit recently affirmed the District of Maine’s decision granting BP Exploration & Production, Inc. and BP American Production Company’s (collectively “BP”) motion for summary judgment in a dispute regarding an alleged oral contract for the purchase goods over $500. Appellant Packgen first filed suit against BP in the District of Maine, following BP’s decision not to purchase oil containment boom from Packgen in the wake of the Deepwater Horizon oil spill off the Gulf of Louisiana in 2010. Packgen asserted negligent and intentional misrepresentation and breach of contract against BP, and sought equitable relief under theories of unjust enrichment, quantum meruit, and promissory estoppel. The First Circuit affirmed the District Court’s conclusions that the record did not indicate that BP expressed a false intention to purchase boom from Packgen; that neither the “specially manufactured goods” nor “judicial admission” exceptions to the Statute of Frauds applied in this case; and that Packgen was not entitled to equitable relief.
Packgen is a small Maine business that manufactures and designs composite packaging materials and containers for the chemical, oil, and food processing industries. Although Packgen had never manufactured oil containment boom before, it began the manufacturing process after learning that BP planned to utilize large amounts of it during its clean up of the Deepwater Horizon oil spill. Over a series of months, Packgen and BP engaged in extensive negotiations, wherein BP would agree to purchase Packgen’s entire oil containment boom supply, provided that Packgen meet certain manufacturing requirements or make certain adjustments to its product. Packgen made extensive alterations to its oil containment boom manufacturing process in pursuit of BP’s business. Ultimately, BP did not purchase Packgen’s oil containment boom, and Packgen was left with 60,000 feet of completed boom, which it was forced to sell at a considerable loss to the only purchaser it could find.
The First Circuit found that BP had not engaged in either negligent or intentional misrepresentation because Packgen could not establish that BP had made false representations of present fact. Although BP ultimately did not purchase Packgen’s product despite having indicated that it would on multiple occasions, the Court found that BP had, in fact, intended to make these purchases when it represented as much in negotiations. The First Circuit concluded that the evidence merely established that BP’s needs and requirements for boom changed repeatedly during the course of negotiations. However, the evidence did not establish that, at any point, BP expressed an intent to purchase boom when it actually lacked such an intent.
The First Circuit also rejected Packgen’s argument that the “specially manufactured goods” and “judicial admission” exceptions to the Statute of Frauds applied in this case. The Court concluded that the “specially manufactured goods” exception to the Statute of Frauds refers to the nature of the goods themselves, rather than the circumstances in which they are manufactured. Although Packgen manufactured oil containment boom with the specific intent to sell to BP, Packgen was nevertheless able to resell the boom to another purchaser without making any alterations to the product. While Packgen was forced to sell the boom at a loss, the reduced price was simply due to an overabundance of boom in the market, as opposed to any action Packgen had taken in pursuit of BP’s business. Moreover, Packgen had made an independent choice to enter the oil containment boom market because it thought it would be lucrative, not because of any inducements on the part of BP. The Court also found that the “judicial admission” exception to the Statute of Frauds did not apply because Packgen could not point to any statements that, when taken in the context of the parties’ extended negotiations, established the existence of a contract.
Finally, the First Circuit held that Packgen was not entitled to equitable relief under any theory. The Court concluded that Packgen could not provide evidence that BP benefited from Packgen’s manufacturing of boom under either a theory of unjust enrichment or quantum meruit. The Court also concluded that Packgen was not entitled to equitable relief under a theory of promissory estoppel. The parties disputed whether promissory estoppel applies to a promise otherwise unenforceable under the Statute of Frauds. The Court took pains to establish that the Maine courts have not definitively answered that question in the context of a sale of goods. Nevertheless, it applied the theory espoused by the Supreme Judicial Court of Maine in Chapman v. Bomann, 381 A2d 1123 (Me. 1978), that a court may apply promissory estoppel when “it would be grossly unjust and, therefore, tantamount to a fraud on the plaintiffs to allow [a] defendant to assert the Statute of Frauds.” Id. at 1129. However, the Court concluded that Packgen had failed to meet that standard. Therefore, Packgen was not entitled to equitable relief under promissory estoppel.
In re PHC Inc. Shareholder Litigation et. al. v. PHC, Inc., 762 F.3d 138 (1st Cir. Aug. 6, 2014)
In this case, the First Circuit held that the District of Massachusetts abused its discretion when it granted Defendant-Corporation’s motion for summary judgment without allowing Plaintiff-Shareholders to engage in additional discovery in light of the Plaintiffs’ Rule 56(d) Affidavit. Plaintiffs, who were holders of Class A common stock of PHC, Inc. (“PHC”), filed separate class action suits claiming that a merger between PHC and Acadia Health Care Company (“Acadia”) was the result of an unfair process that provided stockholders with insufficient compensation. Plaintiffs sued PHC, Acadia, and Acadia Merger Sub., LLC, the entity created to facilitate the merger, as well as several board members and directors for breach of fiduciary duty, aiding and abetting those breaches, and disclosure violation.
After the two cases were consolidated, Defendants filed a motion to dismiss under Rule 12(b)(6). The District of Massachusetts granted the motion in part and denied it in part, allowing Plaintiffs to move forward on the breach of fiduciary duty claims against the individuals, and the aiding and abetting claims against Acadia and Merger Sub. Immediately thereafter, Defendants filed a motion for a judgment on the pleadings under Rule 12(c). The District Court denied this motion, finding that additional discovery was necessary before the factual record would be clear enough to support such a motion.
However, before engaging in discovery, Defendants filed a motion for summary judgment, which Plaintiffs opposed. In support of their opposition to summary judgment, Plaintiffs submitted a Rule 56(d) Affidavit that outlined the evidence they sought and the previous attempts they had made to obtain it. The District Court granted Defendant’s motion for summary judgment without addressing Plaintiffs’ Rule 56(d) Affidavit, concluding that Plaintiffs lacked standing because they did not have enough evidence to demonstrate a cognizable injury.
Reviewing the District Court’s decision under an abuse of discretion standard, the First Circuit ultimately found that the District Court had abused its discretion by granting Defendants’ summary judgment motion without allowing additional discovery in light of Plaintiff’s 56(d) motion. The First Circuit emphasized that district courts should construe motions involving Rule 56(d) broadly and generously, as the rule is designed to protect litigants who need additional time to respond to summary judgment motions for legitimate reasons.
The Court went on to stress that a party that utilizes Rule 56(d) to oppose a motion for summary judgment must authoritatively establish why it does not have the evidence necessary to craft an opposition. If that reason is incomplete discovery, the party must cite good cause for its failure to discover facts previously, must establish that the sought after facts probably exist, and must adequately explain how those facts would impact the outcome of the motion. However, even in the face of these requirements, there is a strong presumption in favor of relief.
The First Circuit concluded that Plaintiffs had timely filed its Rule 56(d) motion and had proffered adequate reasons for not discovering the facts sooner; namely, that Defendants filed the motion for summary judgment before the parties began to engage in discovery in earnest. The Court also highlighted that most of the discovery Plaintiffs sought was in Defendants’ control, and that Defendants had not been forthcoming with disclosure at previous junctures. This, the Court emphasized, weighed heavily in favor of granting Plaintiffs relief.
Ultimately, the First Circuit held that a court should not grant summary judgment on the basis of a party’s lack of proof without first determining whether that party has had a sufficient opportunity to gather such proof from the opposing party.