Simmons Foods, Inc. v. Willis

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
AUG 25 2003
TENTH CIRCUIT
PATRICK FISHER
Clerk
SIMMONS FOODS, INC.,
Plaintiff-Appellant,
v. No. 02-3044
(District of Kansas)
JEFFREY L. WILLIS; WILLIS & (D.C. No. 97-CV-4192-RDR)
HOLMES, P.A.; BILL H. RAYMOND;
SCHULTZ & LONKER, CHTD.,
Defendants-Appellees.
ORDER AND JUDGMENT *
Before MURPHY, BALDOCK, and HARTZ, Circuit Judges.
I. INTRODUCTION
Appellant, Simmons Foods, Inc. (“Simmons”), was a creditor of Teets Food
Distribution Company, Inc. (“Teets”). In 1995, Teets filed for Chapter 11
bankruptcy reorganization but continued to operate its business as a debtor in
possession. Defendants Willis and Raymond represented Teets in the bankruptcy
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
proceeding. After a reorganization plan was confirmed, Teets defaulted on its
obligations and its business was liquidated. On August 29, 1997, the bankruptcy
court entered a final decree closing the estate. Thereafter, Simmons filed a
complaint in federal court alleging fraud and negligence on the part of
Defendants. Defendants’ motion for summary judgment was granted by the
district court and Simmons brought this appeal.
Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm the grant
of summary judgment in favor of Defendants.
II. FACTUAL BACKGROUND
On or about April 5, 1995, Teets filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code. After Teets filed its petition, Simmons filed
a $500,000.00 claim against the estate and asserted that it had a perfected security
interest in Teets’ accounts receivable. Teets filed an adversary proceeding to set
aside Simmons’ alleged security interest as a preferential transfer.
On April 28, 1995, while the adversary proceeding was pending, Teets filed
schedules in the bankruptcy court which included an itemized list of its accounts
receivable. Additionally, an unsecured creditors committee was formed on May
3, 1995. Two days later the creditors committee sent Teets a written request for
financial information including its balance sheets and income statements.
Simmons’ credit manager, Randy Hart, served as Simmons’ representative on the
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unsecured creditors committee. On May 8, 1995, Hart wrote a memorandum to
the attorney representing Simmons’ in the bankruptcy proceeding informing him
of possible discrepancies and misinformation in the financial data being provided
by Teets. Among Hart’s concerns was his belief that Teets had overstated its
accounts receivable “by the $30 thousand that [it] will lose in the Church’s [Fried
Chicken] bankruptcy.”
A Rule 2004 examination of Teets’ accountant Gary Ely was conducted on
August 10, 1995 and both Hart and Simmons’ attorney were present. At the Rule
2004 examination, Ely testified that approximately $18,000.00 of bad debts had
not been written off of Teets’ accounts receivable because the debts had not yet
been turned over for collection. Ely further testified that he had not been asked to
analyze Teets’ accounts receivable to determine if any should be written off, had
not been given any information as to which receivables Teets was considering
writing off, and had no idea how many of the accounts were bad. Ely did,
however, testify that the Church’s Fried Chicken 1 account receivable referred to
in Hart’s May 8, 1995 memorandum had not been written off or discounted even
though the payor had filed for Chapter 11 bankruptcy protection.
1
The record of the Rule 2004 examination reveals that the account
receivable was actually payable by a company known as Wil-Ken. Wil-Ken
operated two Popeye’s Chicken franchises in Wichita, Kansas.
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On October 10, 1995, Teets filed a plan of reorganization and a disclosure
statement. The parties thereafter settled the adversary proceeding and Teets
prepared an amended plan of reorganization and an amended disclosure statement.
Pursuant to the amended plan, $160,000.00 of Simmons’ claim was treated as
secured by Teets’ accounts receivable. Simmons was treated as a Class VI
unsecured creditor as to the remainder of its claim.
Financial statements filed by Teets and provided to the creditors committee
indicated that the company lost $42,000.00 in January 1996. The committee
observed that Teets was “in violation of four of the agreed-upon parameters
defining default” in the proposed amended plan. On February 26, 1996, however,
Simmons voted in favor of the amended plan of reorganization. Both the
amended plan and the amended disclosure statement were approved by the
bankruptcy court on March 8, 1996. Teets subsequently defaulted on its
obligations under the amended plan and the estate was liquidated. The final
decree closing the estate was entered by the bankruptcy court on August 29, 1997.
Simmons has received only $1,373.25 from Teets toward satisfaction of the debt
owed Simmons.
Defendants Willis and Raymond are both attorneys licensed to practice in
Kansas and both represented Teets throughout the bankruptcy proceedings. On
September 30, 1997, Simmons filed a complaint in federal court alleging that
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Defendants owed a duty to the bankruptcy estate and its creditors; that they either
negligently or willfully concealed information regarding the true value of Teets’
accounts receivable; that Defendants withheld this information in order to obtain
Simmons’ vote in favor of the amended plan of reorganization; and that Simmons
suffered damages as a result of Defendants’ conduct. Defendants filed a motion
for summary judgment which was granted by the district court.
The district court first concluded that all of Simmons’ claims were barred
pursuant to the doctrine of res judicata. As to Simmons’ negligence claims, the
court additionally concluded that under Kansas law, Defendants did not owe a
duty of care to Simmons upon which a negligence claim could be based. Finally,
the court determined that summary judgment was appropriate because expert
testimony was necessary to establish a causal link to damages and Simmons had
failed to offer expert testimony on causation. As to the fraud claims, the district
court held that the record demonstrated beyond a reasonable doubt that Simmons
had general knowledge of Teets’ failure to discount or write off bad debts and,
consequently, it could not demonstrate that it justifiably relied on Defendants’
representations and/or omissions. Alternately, the court concluded that Simmons
had failed to offer expert testimony establishing a causal link to the damages it
suffered because of the alleged fraud.
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III. DISCUSSION
This court reviews a grant of summary judgment de novo, applying the
same standard as the district court. See Kimber v. Thiokol Corp., 196 F.3d 1092,
1097 (10th Cir. 1999). Under that standard, summary judgment is appropriate “if
the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of
law.” Fed. R. Civ. P. 56(c). When determining whether a genuine issue of
material fact exists, all “justifiable inferences” are drawn in favor of the non-
moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
However, if the party opposing the motion “fails to make a showing sufficient to
establish the existence of an element essential to that party’s case,” summary
judgment is appropriate. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Simmons challenges each of the bases for the district court’s decision to
grant summary judgment in favor of Defendants. Because it is dispositive,
however, it is necessary for us only to address the district court’s conclusion that
summary judgment was appropriate because Simmons failed to present expert
testimony establishing a causal link to damages.
Under Kansas law, a plaintiff asserting either a negligence claim or a fraud
claim must demonstrate a causal link between the alleged wrongful act and the
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alleged damages. See Hesler v. Osawatomie State Hosp., 971 P.2d 1169, 1174
(Kan. 1999) (negligence claim); Canterbury Court, Inc. v. Rosenberg, 582 P.2d
261, 269-70 (Kan. 1978) (fraud claim). The Kansas Supreme Court has held that
expert testimony is required to prove causation in negligence actions unless
causation is “self-evident” from the evidence in the record. Moore v. Associated
Material & Supply Co., 948 P.2d 652, 659 (Kan. 1997). Defendants argue that
expert testimony is necessary to establish causation on both the negligence and
fraud claims asserted by Simmons. Simmons counters that the causation issue is
self-evident and can be resolved by “simple reasoning.” According to Simmons,
the “[d]amages claimed in the instant case are simply the net worth diminishment
determined by [Teets’] own monthly records plus the loss of prompt collection of
accounts receivable.”
At the core of both the negligence and fraud claims is Simmons’ allegation
that Defendants withheld information and misrepresented the true value of Teets’
accounts receivable. Simmons asserts that it would not have voted for the
amended plan of reorganization and would have made a motion to convert the
Chapter 11 bankruptcy into a Chapter 7 liquidation if it had been provided
accurate financial information. Simmons further alleges that Teets’ net worth was
severely diminished by the delay in liquidating the business. Consequently, to
prevail on its claims, Simmons must prove, at a minimum, that any delay in
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liquidating the bankruptcy estate was the result of Defendants’ negligent or
fraudulent acts. Simmons must also show that the assets of the bankruptcy estate
available to pay its claim against the estate diminished during the reorganization
period and that such diminishment would not have occurred if the estate had been
liquidated immediately. To meet this burden, Simmons must first establish that it
could have forced Teets’ liquidation. Further it must demonstrate how liquidation
would have affected the operation of Teets and must apply that analysis when
comparing the amount it would have received through an immediate liquidation
with the amount it actually received.
Simmons, however, has proffered no evidence that would demonstrate
Defendants’ negligent or fraudulent acts caused the damages it alleges. Although
Simmons engaged the services of a bankruptcy attorney as its expert, this attorney
offered no opinion on causation and specifically declined to opine on the issue of
damages. Further, its appellate briefs do not direct this court to any evidence in
the record that supports the required element of causation. Its argument on the
issue addresses only the amount of damages it allegedly suffered, not the essential
question of whether those damages were caused by the negligent or fraudulent
acts of the Defendants. Simmons’ conclusory allegations on the causation
element are insufficient. See Mitchell v. Henderson, 202 F.3d 282 (10th Cir.
2000). Because causation is not “self-evident” from evidence in the record,
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expert testimony was required. Moore, 948 P.2d at 659. Simmons failed to offer
such testimony and, consequently, has failed to establish an essential element of
its case.
IV. CONCLUSION
This court concludes that, under Kansas law, expert testimony was
necessary to establish the essential element of causation on both the negligence
and fraud claims asserted by Simmons against Defendants. Because Simmons has
failed to proffer such evidence, it has failed to “make a showing sufficient to
establish the existence of an element essential to [its] case,” and summary
judgment was appropriate. Celotex Corp., 477 U.S. at 322. Accordingly, the
order of the district court granting Defendants’ motion for summary judgment is
affirmed. Simmons’ motions to supplement the appendix filed on October 25,
2002 and October 31, 2002 are granted.
ENTERED FOR THE COURT
Michael R. Murphy
Circuit Judge
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