Baker Group, L.C. v. Burlington Northern & Santa Fe Railway Co. , 451 F.3d 484 ( 2006 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-4104
No. 04-4150
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The Baker Group, L.C.; Carle Baker, *
Jr., Trustee of the MTY Profit *
Sharing Plan and Trust, *
*
Plaintiffs - Appellants, *
*
v. *
*
Burlington Northern and Santa Fe *
Railway Company, *
*
Defendant - Appellee. *
___________ Appeals from the United States
District Court for the
No. 04-4124 Western District of Missouri.
___________
Linus L. Baker; Laurence M. Jarvis, *
*
Appellants, *
*
v. *
*
Burlington Northern and Santa Fe *
Railway Company, *
*
Appellee. *
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Submitted: January 9, 2006
Filed: June 16, 2006
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Before LOKEN, Chief Judge, HANSEN and MELLOY, Circuit Judges.
___________
LOKEN, Chief Judge.
The Baker Group, L.C., and MTY Profit Sharing Plan and Trust (collectively
“the Baker Group”) commenced this action against Burlington Northern and Santa
Fe Railway Company (“BNSF”) in Missouri state court, asserting contract and tort
claims arising out of a Railroad Car Net Lease Agreement (“the Lease”) under which
BNSF leased 649 railcars for a ten-year period. BNSF removed the action, invoking
the district court’s diversity jurisdiction. In a prior appeal, we reversed the district
court’s dismissal of certain claims on res judicata grounds and remanded for further
proceedings. Baker Group v. Burlington N. & S.F. Ry., 228 F.3d 883 (8th Cir. 2000)
(“Baker I”). On remand, District Judge Scott O. Wright recused, and the case was
reassigned to District Judge Fernando J. Gaitan. In a series of pretrial rulings, Judge
Gaitan sharply limited the issues to be tried. After a one day jury trial, the court
granted BNSF judgment as a matter of law on the remaining claims. The Baker
Group appeals these rulings. In a separate appeal, Baker Group attorneys Linus
Baker and Laurence Jarvis ask us to expunge comments critical of them in Judge
Wright’s order that we reviewed in Baker I. We affirm the judgment of the district
court and dismiss the attorneys’ appeal.
Background
The Lease was signed in July 1987 by BNSF as Lessee and by Caldwell-Baker
Company (“CBC”) as Lessor acting as broker for a disclosed principal, First Security
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Bank of Utah. First Security assigned its interests under the Lease, including the
exclusive right to receive rental payments, to the Baker Group in 1993. The Lease
expired in 1997. Two Lease provisions are primarily at issue in this lawsuit and in
related litigation in a Kansas state court. Article 8 set forth BNSF’s duty to “maintain
the cars in good condition and repair,” required Lessor approval of physical
alterations to the cars, provided that BNSF was responsible for lost or destroyed cars,
and prescribed a procedure for resolving issues arising when a car was lost or
destroyed. Article 14 set forth BNSF’s duties to return the cars in good condition at
the end of the Lease and to pay the daily rent fee until a car was returned.
The Baker Group and CBC sued BNSF in Kansas state court before the Lease
expired, alleging violations of Article 8. With that litigation on-going, the Lease
expired and the Baker Group filed this action asserting violations of Article 8 during
the Lease plus additional violations of Article 14 at the end of the Lease, namely, the
return of railcars in poor condition and the failure to return other cars. After the
Kansas trial court dismissed all claims, the district court dismissed all claims in this
action as barred by the doctrine of claim preclusion (res judicata). In Baker I, we
reversed the dismissal of the Article 14 claims because they arose at the end of the
Lease, after the Kansas lawsuit commenced, and because the Kansas court refused to
permit Article 14 claims to be litigated. 228 F.3d at 886-87.
The claim preclusion landscape was altered when the Kansas Court of Appeals
reversed the trial court decision on which Baker I relied. Caldwell-Baker Co. v.
Burlington N. & S.F. Ry., No. 82,715 (Kan. App. July 21, 2000).1 On remand in that
case, the Kansas trial court refused to permit an expansion of the issues to be tried to
1
The Kansas Court of Appeals filed its opinion on July 21, 2000, more than two
months before our decision in Baker I, yet the Baker Group and its attorneys failed
to notify us of a decision that would have significantly impacted their prior appeal.
The failure is inexplicable and reflects a lack of candor that has plagued this litigation
from the outset.
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include the primary issue in this Missouri action -- Article 14 claims involving the
condition of cars returned by BNSF at the end of the Lease. Instead, the court’s
pretrial Journal Entry recited that the causes of actions remaining for trial in Kansas
were “plaintiffs’ claim that defendant violated Article 8C and Article 14 of the Lease
in question by destroying wrecked cars and not returning them to plaintiffs,” plus a
contract claim for attorneys’ fees. The Kansas case was tried, and the jury awarded
plaintiffs $168,000 because BNSF failed to give timely notice that certain rail cars
had been damaged and would be destroyed.
The Article 14 Claims That Were Tried
In a laudable effort to narrow the issues for trial, the district court on remand
ordered the parties to respond to a series of questions and then used those responses
as a basis for determining that the only issue to be tried was the Baker Group’s
Article 14 claim that BNSF failed to return certain railcars at the end of the Lease.
The parties agreed that either 648 or 649 cars were initially leased, that 23 cars were
lost or destroyed during the term of the Lease and paid for by BNSF pursuant to
Article 8, and that 615 cars were returned by BNSF or were being repaired by the
Baker Group at the end of the Lease. That left eleven cars to be accounted for at trial.
The task of tracing a particular railcar was complicated by the fact that BNSF had
renumbered some cars during the term of the Lease. Just before trial, the court issued
an order that identified eleven cars at issue, limited the trial to those eleven cars, and
provided that the Baker Group “will be required to establish that the above referenced
cars were not returned at the end of the lease in accordance with Article 14.”
Carle Baker was the only witness for the Baker Group at trial. While insisting
that eleven cars were never returned, Baker admitted that the Baker Group had been
notified by BNSF during the term of the Lease that at least six of the eleven had been
damaged and would be destroyed pursuant to Article 8. However, Baker explained,
the Baker Group was never paid for those six cars and the other five “have not been
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accounted for.” Roger Sperry, retired Director of Equipment, testified for BNSF that
he was responsible for finding all leased railcars at the end of the Lease and that
“every active car was returned.” Sperry explained that, just before the Lease expired,
BNSF was paying rent on 626 cars, eleven more than the 615 that were returned,
because “[i]n some cases Mr. Baker refused to acknowledge that the cars had been
destroyed so it was determined that it would be at that time appropriate to continue
to pay rent until resolution could be made between Mr. Baker and BN[SF].”
Reviewing the issue de novo, we conclude that the district court correctly
granted BNSF judgment as a matter of law at the close of the evidence. See Arabian
Agric. Servs. Co. v. Chief Indus., Inc., 309 F.3d 479, 482 (8th Cir. 2002) (standard
of review). Recall that the Kansas court defined the issue to be tried in that case as
“plaintiffs’ claim that defendant violated Article 8C and Article 14 of the Lease in
question by destroying wrecked cars and not returning them to plaintiffs.” The
doctrine of claim preclusion barred the Baker Group “from relitigating claims that
were litigated or could have been litigated” in that prior suit. Baker I, 228 F.3d at
885. All claims for cars that were not returned because they were lost or destroyed
during the term of the Lease could have been litigated in the Kansas action. This
included claims for a larger settlement payment under Article 8 because BNSF did
not provide timely notice. It also included claims for rental payments not made prior
to the settlement payments, which could be viewed as either Article 8 or Article 14
claims. On the other hand, the Kansas court did not include in the issue to be tried
Article 14 claims for cars that were not wrecked, were still in existence, and were not
returned at the end of the Lease. Any cars in that category were never involved in the
Article 8 process that was the core of the Kansas lawsuit. Thus, to prevail at this trial,
the Baker Group had to prove that one or more railcars fell into this narrow category.
It failed to do so. Indeed, on direct examination, Carle Baker testified:
Q (By Mr. [Linus] Baker) Mr. Baker, for every car that was
destroyed, did you find a payment record?
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A No.
Q How many payments records are you missing, for the cars under
the lease?
A Eleven.
This testimony, plus the Baker Group’s failure to discredit Sperry’s testimony that all
railcars in existence at the end of the Lease were returned, establish that all claims for
non-returned cars are precluded because they could have been litigated in the Kansas
case. “[A]n entire claim arising from a single wrong cannot be divided and made
subject of several suits no matter how numerous the items of damage.” Klassen v.
Central Kan. Co-op Creamery Ass’n, 165 P.2d 601, 606 (Kan. 1946).
It may be that the Baker Group has lost an opportunity to litigate whether there
are up to five leased railcars that were never returned to the Baker Group and are still
functioning somewhere in the BNSF system or elsewhere. But this is the result of
filing multiple lawsuits with overlapping claims in different courts. Those who abuse
the judicial system in this fashion must suffer the consequences. The judgment
dismissing all claims for non-returned cars is affirmed.
The Claims That Were Not Tried
The district court made a series of pretrial rulings that simplified the issues to
be tried in this action. These rulings are ripe for review because the court has now
entered final judgment.
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A. Tort Claims. The Baker Group’s amended complaint included tort claims
for conversion of non-returned cars,2 for negligent breach of a bailee’s duties, and for
breach of the duty of good faith and fair dealing. Judge Wright initially dismissed
these claims on the ground that the Lease defined the parties’ relationship and “no
independent duty exists beyond the contract.” We declined to review that
interlocutory ruling in Baker I, 228 F.3d at 888. On remand, Judge Gaitan reaffirmed
the prior ruling. The Baker Group appeals the dismissal of these claims, an issue we
review de novo. See Weaver v. Clarke, 45 F.3d 1253, 1255 (8th Cir. 1995).
Under Kansas law, a plaintiff may pursue breach of contract and “independent”
tort claims, even if based on the same facts. See Burcham v. Unison Bancorp, Inc.,
77 P.3d 130, 145-46 (Kan. 2003). In this case, however, the Baker Group does not
allege an independent tort, such as the breach of fiduciary duty at issue in Unrau v.
Kidron Bethel Retirement Servs., 27 P.3d 1, 15 (Kan. 2001). Rather, the amended
complaint alleged only the breach of duties imposed on BNSF by the Lease. In the
Kansas action based on the same Lease, the Kansas Court of Appeals affirmed the
dismissal of all tort claims because “all the tort claims arose from the alleged breach
of contract.” CBC v. BNSF, slip op. at 19.
Turning to the additional claims in this case, the Baker Group’s claim for
breach of the duty of good faith and fair dealing is a contract claim, not a tort claim.
See Kansas Baptist Convention v. Mesa Operating Ltd. P’ship, 864 P.2d 204, 211
(Kan. 1993). As the duty is an implied term of the Lease, it cannot add to BNSF’s
express duties under Article 8 and Article 14 of the Lease. See Taylor Equip., Inc.
v. John Deere Co., 98 F.3d 1028, 1031-32 (8th Cir. 1996), cert. denied, 520 U.S. 1197(1997). Likewise, the tort claims for conversion and negligent breach of a bailee’s
duties are based upon the parties’ contractual relationship. Though a choice of
2
We are inclined to agree with BNSF that the amended complaint did not plead
a claim for conversion, but the district court treated the claim as adequately pleaded.
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remedies may be available to a bailor in this situation, the Kansas courts construe
complaints that emphasize the defendant’s contractual duties, liked the amended
complaint in this case, as an election to waive the tort and sue for breach of contract.
See Cont’l Ins. Co. v. Windle, 520 P.2d 1235, 1238 (Kan. 1974). Thus, the district
court did not err in following the lead of the Kansas courts in related litigation
involving the same Lease and dismissing the Baker Group’s purported tort claims.
B. Contract Claims for Returned Cars. Article 14 of the Lease, entitled
“Delivery at End of Term,” imposed the following obligations on BNSF at expiration:
Lessee shall deliver the cars to Lessor or Lessor’s designee at the
end of the lease term . . . empty, free from residue, and in the same order
and condition as it was delivered by Lessor to Lessee, except for and
subject to ordinary wear and tear and modifications permitted under this
Agreement. . . . Lessee shall continue to pay the daily rental charge on
each car . . . until it is returned to Lessor [in the condition required]. . . .
Lessee, at its expense, shall remove or cause to be removed from
the cars any of Lessee’s special paint and advertising and all Lessee
marks. Lessee shall on demand, reimburse Lessor for the expense of
cleaning any car that contains residue or other such cost which may be
incurred to place a car in the condition described above, provided Lessor
advises Lessee of such cost or expense within fifteen (15) days from the
time it receives the car . . . from Lessee, and provided Lessor has
permitted Lessee to participate in a joint inspection of such car(s) to
verify its reported condition.
The amended complaint alleged that BNSF violated Article 14 by returning cars in
substandard condition and by not removing BNSF’s special paint, advertising, and
reporting marks. The complaint prayed for damages including “the fair and
reasonable cost of repairs” plus compensation for the loss of rental income while the
returned cars were restored to their original condition. The district court dismissed
these claims prior to trial on the ground that the Baker Group failed to satisfy
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conditions precedent to recovery under Article 14 -- advising BNSF of any repair
expenses within fifteen days of receiving the cars and permitting BNSF to participate
in a joint inspection to verify the alleged deficient conditions.
On appeal, the Baker Group argues that the district court erred in construing
Article 14 because the conditions precedent are found in the second paragraph of
Article 14 and therefore only apply to claims for reimbursement of the costs of
removing BNSF logos and reporting marks from the returned cars. The Baker
Group’s brief asserts that they did not “seek reimbursement of their out-of-pocket
costs in this lawsuit,” an assertion flatly contradicted by the above-quoted prayer for
relief in the amended complaint. This is an example of why the Baker Group’s ever-
changing litany of multiple claims asserted in multiple courts left it with little if any
credibility in the district court, or in this court.
After careful review of the Lease as a whole, the district court concluded that
the conditions precedent in the second paragraph of Article 14 unambiguously apply
to all damage claims for breach of BNSF’s duties under Article 14 concerning
returned cars. Reviewing the district court’s interpretation of the unambiguous
contract de novo, we agree. See Winthrop Res. Corp. v. Eaton Hydraulics, Inc., 361
F.3d 465, 470 (8th Cir. 2004) (standard of review). As the court noted, limiting the
conditions precedent to the duties set forth in the second paragraph would permit the
Baker Group to demand post-Lease rental payments on rail cars allegedly needing
repairs without providing BNSF with timely notice and a joint inspection to verify
that the cars were returned in substandard condition. In addition, the reference to
“residue” in the second paragraph links directly to the duty prescribed in the first
paragraph to return cars “free from residue,” further textual evidence that the
conditions precedent apply to all Article 14 duties.
Alternatively, the Baker Group argues that BNSF may not enforce the Article
14 conditions precedent because the Kansas state court ruled that BNSF breached
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Article 8 of the Lease by failing to give timely notice that certain railcars were lost
or destroyed during the term of the Lease. That ruling, the Baker Group explains,
discharged them from all future performance duties, including compliance with the
post-termination conditions precedent in Article 14. The district court rejected this
argument, concluding “there is no basis for applying collateral estoppel to prevent
[BNSF] from raising the issue of condition precedent as it relates to Article 14.” We
agree. See Restatement (Second) of Contracts §§ 237, 245 (performance of a
condition is excused only when the other party’s breach contributes materially to the
non-occurrence of the condition). The Baker Group offered no evidence that BNSF’s
failure to give timely notice under Article 8 that some railcars were lost or destroyed
during the Lease materially affected the Baker Group’s Article 14 duties to give
notice and offer joint inspection of cars allegedly returned in substandard condition.
The Baker Group does not challenge on appeal the district court’s conclusion
that the Article 14 conditions precedent were not satisfied. Accordingly, we affirm
the dismissal of all claims relating to returned railcars.3
The Indispensable Party Issue
On the eve of trial, the Baker Group filed a motion to dismiss the lawsuit
without prejudice because CBC as Lessor was an indispensable party whose joinder
would destroy the court’s diversity jurisdiction. The motion was based on the final
judgment in the Kansas action in which the court ruled that the judgment must be
entered in favor of CBC, not the other plaintiffs, because CBC was the contracting
party. Agreeing with BNSF that the purpose of the Kansas court ruling was only to
determine the proper form of the judgment, the district court denied the motion to
3
In their reply brief, the Baker Group argues for the first time that BNSF
frustrated performance of the conditions precedent. We do not consider issues raised
for the first time in a reply brief, particularly fact-intensive issues of this nature.
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dismiss, concluding that the Baker Group continued to have standing and that CBC
was not needed “to adjudicate this case.” We review this ruling for abuse of
discretion. See Steele v. Turn Key Gaming, Inc., 135 F.3d 1249, 1251 (8th Cir.
1998).
The first question is whether the absent party, here CBC, must be joined if
joinder would not deprive the court of jurisdiction. See Fed. R. Civ. P. 19(a). If the
absent party is a necessary party, as defined in Rule 19(a), but joinder is not feasible,
then Rule 19(b) sets forth factors to apply in determining whether “in equity and good
conscience the action should proceed among the parties before it, or should be
dismissed.” Rule 19(b) is a pragmatic rule whose application turns on considerations
of efficiency and fairness in the particular case. See Pujol v. Shearson/American
Express, Inc., 877 F.2d 132, 134 (1st Cir. 1989); see also Ranger Transp., Inc. v. Wal-
Mart Stores, 903 F.2d 1185, 1187 (8th Cir. 1990).
Putting aside the Rule 19(a) issue, and viewing the Rule 19(b) issue from the
dual perspective of fairness and efficiency, the Baker Group’s motion to dismiss was
without merit. Carle Baker, Jr. is the majority owner and chief executive officer of
CBC and the Baker Group and is the trustee of the MTY Trust. All three entities
joined in the Kansas action, but only the Baker Group and MTY joined in this action
when it was filed in state court before being removed by BNSF. The amended
complaint alleged that CBC entered into the Lease in its own interest and as broker
for First Security, that the Baker Group purchased from First Security “certain
ownership interest” in the railcars and the right to receive rental income under the
Lease, and that CBC brought a separate action concerning its interest in the Lease in
state court. Not until six years after the case was filed, after the district court made
adverse rulings limiting the issues to be tried, did the Baker Group assert that CBC
is an indispensable party and the suit must be dismissed without prejudice. It is hard
to imagine a clearer case of abusive forum shopping. The Baker Group’s appeal of
this issue is frivolous.
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The Attorneys’ Appeal
In Case No. 04-4124, attorneys Linus Baker and Laurence Jarvis urge us to
expunge critical comments Judge Wright made about them in his June 21, 1999 final
order dismissing the Baker Group’s claims. The Baker Group appealed that order in
Baker I, complained of the critical comments, and urged us to reassign the case to a
different judge if we remanded. We denied that relief. 228 F.3d at 888. Linus Baker
and Jarvis did not join in the Baker Group’s first appeal or file a separate appeal at
that time. In this circuit, an order sanctioning an attorney is appealable, and the
appeal “must be filed within 30 days from the entry of the order.” Hill v. St. Louis
Univ., 123 F.3d 1114,1120 (8th Cir. 1997). Accordingly, we dismiss the appeal from
Judge Wright's order as untimely.
If Judge Wright’s comments did not amount to a sanction, they would not be
appealable at all, except perhaps by writ of mandamus, which was not sought. As
Judge Posner observed in Bolte v. Home Ins. Co., 744 F.2d 572, 573 (7th Cir. 1984),
appellate review of every judicial scolding of an attorney would presage “a
breathtaking expansion in appellate jurisdiction.” Compare Butler v. Biocore Med.
Tech., Inc., 348 F.3d 1163, 1166-69 (10th Cir. 2003), and cases cited. Though Judge
Wright expressly stated that ethical violations may have occurred, he left resolution
of that issue to the state disciplinary authorities. Linus Baker and Jarvis argue that
the order was nonetheless a sanction that deprived them of liberty and property
interests without due process of law because they were afforded no prior notice and
opportunity to respond. Though the appeal is untimely, we note that the due process
contention is frivolous. A judge’s referral of possible ethical violations to an attorney
discipline authority “is analogous not to a censure or reprimand but to an order to
show cause why sanctions should not be imposed,” following which the attorney will
receive all process due. Teaford v. Ford Motor Co., 338 F.3d 1179, 1181 (10th Cir.
2003).
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After our remand in Baker I, the Baker Group filed a motion asking Judge
Gaitan to expunge Judge Wright’s critical comments from the June 21, 1999 order.
Judge Gaitan denied the motion, explaining that he “[did] not find the language
objectionable or unduly critical of plaintiffs’ counsel” and was “unwilling to second
guess Judge Wright or to state that there was no basis for his comments.” Order of
September 28, 2001, at pp. 11-12. Linus Baker and Jarvis appeal that order, but their
appeal briefs simply assume that we have jurisdiction to consider an appeal by them
at this time. Judge Gaitan’s order was not a sanction (if it was, the appeal would be
untimely). These attorneys are not parties to the underlying lawsuit and therefore
lack standing to appeal from the final judgment. In these circumstances, we dismiss
this part of No. 04-4124 for lack of jurisdiction. Alternatively, if we have
jurisdiction, we conclude that Judge Gaitan did not abuse his discretion in declining
to disturb Judge Wright’s prior order.
Conclusion
We have carefully considered the other issues raised on appeal by the Baker
Group and their attorneys and conclude that each is without merit. The judgment of
the district court is affirmed. The appeal in No. 04-4124 is dismissed.
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