Excel Energy, Inc. v. Cannelton Sales Company

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 09a0479n.06
No. 08-6172
UNITED STATES COURT OF APPEALS FILED
FOR THE SIXTH CIRCUIT Jul 10, 2009
LEONARD GREEN, Clerk
EXCEL ENERGY, INC., )
) ON APPEAL FROM THE
Plaintiff-Appellant, ) UNITED STATES DISTRICT
) COURT FOR THE WESTERN
v. ) DISTRICT OF KENTUCKY
)
CANNELTON SALES CO., ) OPINION
)
Defendant, )
)
and )
)
CYPRUS AMAX COAL SALES CORP. and )
CYPRUS AMAX COAL CO., )
)
Defendants-Appellees. )
BEFORE: GILMAN and McKEAGUE, Circuit Judges; and BARRETT, District Judge.*
McKEAGUE, Circuit Judge. Excel Energy had an exclusive contract with Cannelton Sales
to sell coal to a particular industrial plant. After the ultimate parent of Cannelton Sales was merged
with another mineral-based company, one of Cannelton Sales’ new sister companies sold coal to that
same industrial plant. Excel Energy sued Cannelton Sales, the sister company, and one of the parent
companies for breach of contract and several other claims. The district court concluded that the
*
The Honorable Michael R. Barrett, United States District Judge for the Southern District of Ohio,
sitting by designation.
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
sister company and parent company were not successors in interest to Cannelton Sales and dismissed
the claims against those companies. For the reasons set forth below, we affirm.
I
A detailed history of this lawsuit can be found in this court’s decision remanding an earlier
appeal for further proceedings. Excel Energy, Inc. v. Cannelton Sales Co., 246 F. App’x 953, 955-58
(6th Cir. 2007). Following is a brief summary.
A. Merger of Amax and Cyprus Minerals
Prior to November 1993, Amax1 was the parent company of Amax Coal Industries, which
was the parent company of Cannelton Industries. Cannelton Industries owned a number of
subsidiary corporations, including various coal-mining companies and Cannelton Sales, a
corporation set up to sell the coal of Cannelton Industries.
Also prior to November 1993, Cyprus Minerals was the parent company of Cyprus Coal.
Cyprus Coal owned a number of subsidiary corporations, including various coal-mining companies
and Cyprus Coal Sales, a corporation set up to sell the coal of Cyprus Coal.
In March 1993, Amax and Cyprus Minerals entered into a merger agreement. As to the
resulting corporation, the agreement provided, “[T]he parties intend to effect a merger of Amax with
and into Cyprus (the ‘Merger’), with Cyprus being the corporation surviving such Merger.” Record
1
All of the business entities are corporations. “Co.” and “Inc.” have been omitted for ease of
reference.
-2-
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
on Appeal (“ROA”) 1341. “Cyprus” was identified earlier in the agreement as Cyprus Minerals.
Amax and Cyprus Minerals consummated the stock merger in November 1993. Amax was merged
into Cyprus Minerals, and the resulting entity was named Cyprus Amax Minerals.
The merger created Cyprus Amax Coal, a combination of Amax Coal Industries and Cyprus
Coal. Cyprus Amax Coal became the parent company of Cannelton, the parent company of
Cannelton Industries. Cannelton Industries remained the parent company of Cannelton Sales.
Cyprus Amax Coal also became the parent company of Cyprus Coal Sales, renamed Cyprus
Amax Coal Sales. At the end of 1993, one employee of Cannelton Sales, the director of contract
administration, became employed in a similar capacity with Cyprus Amax Coal Sales. There is no
other evidence of migration of employees from Cannelton Sales to Cyprus Amax Coal Sales.
The merger agreement was silent as to whether Cyprus Minerals would assume the general
debts and liabilities of Amax subsidiaries. The agreement provided, rather, that Cyprus Minerals
would assume specific liabilities, including liabilities involving employee-benefit plans and
indemnifications of directors and officers.
B. Excel Energy/Cannelton Sales Contract
Excel Energy entered into a contract with Cannelton Sales in March 1993. The contract is
referred to herein as the “Excel Energy/Cannelton Sales Contract.” The contract gave Excel Energy
exclusive rights to present “Cannelton’s Kanawha Division coal” to the Missouri Portland Cement
Plant in Joppa, Illinois (“LaFarge Plant”) from March 24, 1993, through December 31, 1994.
During negotiations, the companies exchanged drafts of the contract. As evidenced by their
-3-
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
final agreement, the parties chose to make the obligations of the contract the responsibility of
Cannelton Sales alone, not of Cannelton and its affiliates or subsidiaries, as proposed in some of the
working drafts of the agreement.
C. Cyprus Amax Coal Sales Took Over LaFarge Plant Business
LaFarge Plant requested bids for coal for the first quarter of 1994. The request went to
several sellers, including Excel Energy and Cyprus Amax Coal Sales, both of which submitted bids.
In its bid to LaFarge Plant, Cyprus Amax Coal Sales stated that its bid was “on behalf of its affiliate
Cyprus Kanawha Corporation” and that the coal could be supplied “from any of its affiliates
controlled by Cyprus Amax Coal Company.” ROA 319. During this same time, Cyprus Amax Coal
Sales submitted a bid “on behalf of its affiliate, Cannelton Sales Company . . . to supply coal from
its Kanawha Division to Excel Energy, Inc. for resale” to LaFarge Plant. ROA 1323. In short,
Cyprus Amax Coal Sales offered to supply coal to LaFarge Plant directly and also offered to supply
coal on behalf of Cannelton Sales to Excel Energy for resale to LaFarge Plant.
LaFarge Plant accepted the bid of Cyprus Amax Coal Sales on behalf of Cyprus Kanawha,
but also continued to solicit bids for coal through 1994. Cyprus Amax Coal Sales submitted a bid
in March 1994 on “behalf of its coal producing affiliates.” ROA 322. Excel Energy did not submit
a bid this time. LaFarge Plant accepted the bid of Cyprus Amax Coal Sales.
-4-
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
D. Responsibility for Selling Cyprus Amax Coal
Cyprus Amax Coal Sales eventually took over responsibility for selling coal from all Cyprus
Amax Coal mines, including Cannelton Industries mines. Greg A. Walker, an attorney who worked
for the Cyprus parent company prior to and after the merger, testified that Cyprus Amax Coal Sales
“would have assumed the responsibilities for the sales and marketing for all of the operations of the
newly-merged entities.” ROA 841. Harry Thomas, a salesman for Cyprus Amax Coal Sales, testified
that he became responsible for sales in territories previously handled by Cannelton Sales. According
to Walker, Cannelton Sales still had business to conduct after the merger, namely managing and
administering its sales agreements entered prior to the merger, while Cyprus Amax Coal Sales would
take responsibility for coal sales on a going-forward basis.
In January 1994, Cyprus Amax Coal Sales and Cannelton Industries entered into a sales
representation agreement. The agreement provided in part:
Producer [Cannelton Industries] appoints Representative [Cyprus Amax Coal Sales]
to act as its agent to represent Producer in the sale and transportation of coal
produced from the Coal Properties to domestic and export coal markets for power
generating stations, cogeneration facilities, or steel making facilities. Representative
shall also act as Producer’s agent to handle the administration of all coal sales
agreements for coal produced from the Coal Properties in effect during the term of
this Agreement. Representative accepts the foregoing appointments as Producer’s
agent. Representative’s agency appointment as provided herein shall be an exclusive
representation of coal produced from the Coal Properties, unless Producer shall first
provide Representative with a copy of any agreement it may have with a third party
to provide some or all of the Services.
ROA 1326 (emphasis added).
-5-
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
E. Lawsuit
At some point in 1994, Cyprus Amax Coal Sales used coal from one of the Cannelton
Industries’ mines to fulfill its contract with LaFarge Plant. Excel Energy contended that this
breached the Excel Energy/Cannelton Sales Contract because Excel Energy had the exclusive right
to present that coal to LaFarge Plant. Excel Energy sued Cannelton Sales, Cyprus Amax Coal Sales,
and Cyprus Amax Coal in Kentucky state court in 1998. The case was later removed to the federal
District Court of Western Kentucky based on diversity jurisdiction. Excel Energy asserted claims
of breach of contract, breach of good faith and fair dealing, and intentional interference with contract
under Kentucky state law.
The district court dismissed the claims against Cannelton Sales with prejudice as a result of
the company’s bankruptcy filing in 2002. Excel Energy did not appeal the dismissal.
Cyprus Amax Coal Sales and Cyprus Amax Coal moved for summary judgment. They
maintained that the breach-of-contract claim failed as a matter of law because the contract was
between Excel Energy and Cannelton Sales, not the Cyprus defendants. They further contended that
the intentional-interference claim failed because they had the right to compete with Excel Energy
for sale of coal to LaFarge Plant. Excel Energy filed a cross-motion for summary judgment. The
district court granted summary judgment to the Cyprus defendants on both claims; it did not
specifically address Excel Energy’s claim for breach of good faith and fair dealing.
This court affirmed in part and reversed in part. It agreed that summary judgment for the
Cyprus defendants was proper as to the intentional-interference claim. Excel Energy, 246 F. App’x
at 967-68. The court concluded, however, that there was a genuine issue of material fact on whether
-6-
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
the Cyprus defendants violated the Excel Energy/Cannelton Sales Contract. Id. at 963-66. The court
remanded the breach-of-contract claim as well as the breach-of-good-faith-and-fair-dealing claim
for further proceedings. The court noted, however, that the district court had not addressed an issue
raised in the initial summary-judgment briefs; namely, whether the Cyprus defendants were liable
on the Excel Energy/Cannelton Sales Contract as successors in interest. Id. at 959 n.5.
On remand, the district court considered the successor-in-interest issue. The district court
noted that, under Kentucky law, separate corporate interests like subsidiaries and affiliates are treated
as distinct legal entities. Moreover, a corporation that purchases another corporation normally does
not assume the liabilities of that corporation. The district court recognized that there are exceptions
to this general rule, including (1) when the purchaser and seller merge, or (2) when the purchasing
corporation is a mere continuation of the selling corporation. The district court determined,
however, that there was no record evidence showing that Cannelton Sales itself had merged with any
company or that Cyprus Amax Coal Sales was a mere continuation of Cannelton Sales. Accordingly,
the district court found that the Cyprus defendants were not successors in interest to Cannelton Sales
and, therefore, could not be held liable for any breach of contract or breach of good faith and fair
dealing by Cannelton Sales.
Excel Energy appealed.
II
A. Summary Judgment
-7-
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
We review de novo the district court’s grant of summary judgment. Bender v. Hecht’s Dep’t
Stores, 455 F.3d 612, 619 (6th Cir. 2006). Summary judgment is appropriate when “the pleadings,
the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue
as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(c). To survive summary judgment, the non-movant must provide evidence beyond the
pleadings “set[ting] out specific facts showing a genuine issue for trial.” Fed. R. Civ. P. 56(e)(2).
B. Kentucky Law on Successor In Interest
Cyprus Amax Coal Sales did not expressly assume the duties and liabilities of Cannelton
Sales arising under the Excel Energy/Cannelton Sales Contract. Although Cyprus Amax Coal Sales
became the exclusive agent for Cannelton Industries, that agency relationship was subject to any
prior agreement that Cannelton Industries had with a third party. Moreover, Cyprus Amax Coal
Sales entered into that agency agreement with Cannelton Industries, not Cannelton Sales. Thus, the
question on appeal is whether Cyprus Amax Coal Sales is the successor in interest to Cannelton
Sales and thereby can be deemed to have assumed those duties and liabilities.
Under Kentucky law, “a corporation which purchases another corporation does not assume
the payment of any debts or liabilities of the corporation which it has purchased.” Pearson ex rel.
Trent v. Nat’l Feeding Sys., 90 S.W.3d 46, 49 (Ky. 2002) (citations omitted). Moreover, liability
will not be imposed on a parent corporation merely because of its ownership of the subsidiary. 15
Fletcher Cyclopedia, Corporations § 7131 (2008) (“A holding company is ordinarily not liable for
the debts of the corporation whose stock it holds.”).
-8-
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
Kentucky recognizes four exceptions to the general rule that a purchasing corporation does
not assume the debts or liabilities of a selling corporation. These are:
(1) where the purchaser expressly or impliedly agrees to assume such debts or other
liabilities;
(2) where the transaction amounts to a consolidation or merger of the seller and
purchaser;
(3) where the purchasing corporation is merely a continuation of the selling
corporation; or
(4) where the transaction is entered into fraudulently in order to escape liability for
such debts.
Pearson, 90 S.W.3d at 49 (citations omitted).
On appeal, Excel Energy relies upon three of the four exceptions to establish successor-in-
interest liability on behalf of the Cyprus defendants: agreement to assume debts and liabilities;
merger; and mere continuation. We consider each in turn.
C. Express or Implied Assumption Exception
As noted above, when the purchasing corporation agrees to take on the debts and liabilities
of the selling corporation, courts will give effect to that agreement, whether express or implied. This
exception, however, provides little support for Excel Energy’s successor-in-interest theory. As an
initial matter, Cannelton Sales was not purchased—there was no stock or asset transaction involving
Cannelton Sales itself. Rather, its ultimate parent, Amax, merged with another corporation.
Although the identity of the ultimate owner of a subsidiary changes, the merger of a parent does not
result in or otherwise legally equate to the purchase of the subsidiary. Cf. Hazard Coal Corp. v. Ky.
-9-
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
W. Va. Gas Co., 311 F.3d 733, 739 (6th Cir. 2002) (“Under Kentucky law, separate corporate
interests, including subsidiaries and affiliates . . . , are separate legal entities and must be recognized
and treated as such . . . .”).
A review of the merger agreement between Amax and Cyprus Minerals confirms that Cyprus
Minerals did not agree to assume the debts and liabilities of Cannelton Sales, except with respect to
some employee benefits and indemnifications of directors and officers. Nor has Excel Energy
directed us to anything in the record to suggest that Cyprus Minerals implicitly agreed to take on the
debts and liabilities of any of the Amax subsidiaries. The assumption by the purchasing corporation
of a limited set of the seller’s debts and liabilities does not imply the assumption of all of the seller’s
debts and liabilities. Pearson, 90 S.W.3d at 50.
D. Merger Exception
Excel Energy also relies upon the merger of Amax and Cyprus Minerals to show that Cyprus
Amax Coal Sales was the successor in interest to Cannelton Sales. Again, though, subsidiaries are
separate and distinct legal entities from their parents and only if there is reason to pierce the
corporate veil will a court treat a parent and a subsidiary as a single entity. Hazard Coal, 311 F.3d
at 739. Excel Energy has not advanced any veil-piercing arguments; instead, it relies upon the
merger of the ultimate parents to support its successor-in-interest theory.
Excel Energy has not pointed to anything in the record to show that Cannelton Sales itself
actually merged into one of the Cyprus Minerals companies. As support for its theory, Excel Energy
asserts in its brief, “[T]he [Merger] Agreement provides that the Cyprus entities would be the
- 10 -
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
‘surviving corporation.’” Appellant’s Br. at 15 (emphasis added). That is not what the agreement
says. Rather, as previously noted, the merger agreement provides, “[T]he parties intend to effect a
merger of Amax with and into Cyprus (the ‘Merger’), with Cyprus being the corporation surviving
such Merger.” ROA 1341. “Cyprus” refers to the parent company, Cyprus Minerals. The record
clearly shows that this was a merger of parents, not of subsidiaries.
Prior to the merger of parents, Cannelton Sales was a separate corporate interest to that of
its ultimate parent, Amax. After the merger, Cannelton Sales remained a separate corporate interest
to that of its newly merged ultimate parent, Cyprus Amax Minerals. While the ultimate parents of
Cannelton Sales and Cyprus Amax Coal Sales merged, that merger did not result in the merger of
the subsidiaries’ corporate interests into one single corporate entity.
E. Mere-Continuation Exception
Finally, Excel Energy argues that Cyprus Amax Coal Sales is a mere continuation of
Cannelton Sales. Excel Energy runs into an obstacle at the very outset of this exception: there is no
purchaser-seller relationship between Cyprus Amax Coal Sales and Cannelton Sales, a circumstance
plainly required under Pearson, 90 S.W.3d at 49. Notwithstanding this obstacle, Excel Energy’s
reliance on the mere-continuation exception still fails.
The factors to consider under this exception are varied. Chief Judge Heyburn of the Western
District of Kentucky has provided a helpful list of factors culled from federal and state cases. Dixstar
v. Gentec Equip., No. 3:02-CV-45-H, 2004 WL 3362501, at * 4 (W.D. Ky. Feb. 11, 2004). These
are:
- 11 -
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
(1) continuity of shareholders and ownership, management, personnel, physical
location, and business operations, (2) whether sufficient consideration was given,
particularly whether stock was given in exchange, (3) whether the predecessor ceased
business operations and was dissolved shortly after the new company was formed,
(4) whether the successor company paid any outstanding debts on behalf of the
previous company in order to continue business without interruption, (5) the buyer’s
intent or purpose when the new company was formed, and (6) whether the successor
held itself out to the public as a continuation of the previous company.
Id. (collecting cases; footnotes and citations omitted). Excel Energy wants to add to this list what
it calls the “determinative factor”: “whether the predecessor corporation [Cannelton Sales] remains
as a viable source for recovery.” Appellant’s Br. at 18. This is not, however, a factor that Kentucky
courts have endorsed. Cf. Pearson, 90 S.W.3d at 51-52 (rejecting a strict-liability-based rationale
for extending the mere-continuation exception).
Directly after the merger, Cannelton Sales and Cyprus Amax Coal Sales did not share the
same shareholders—Cannelton Sales was owned by Cannelton Industries and Cyprus Amax Coal
Sales was owned by Cyprus Amax Coal. There is no evidence of common directors or officers. This
lack of commonality of shareholders, directors and officers weighs heavily against Excel Energy. In
re: Wright Enters., 77 F. App’x 356, 369 (6th Cir. 2003); Parker v. Henry A. Petter Supply Co., 165
S.W.3d 474, 479 (Ky. Ct. App. 2005) (“In Kentucky, a determination of the continuity of a
corporation after a sale depends on examining the sale agreement to determine continuity of
shareholders or management.”). The companies did share a common ultimate parent, but that cannot
be controlling, as the exception would otherwise swallow the rule. Excel Energy does not suggest
that there was insufficient consideration given to Amax stockholders as part of the merger. There
is no question that Cannelton Sales continued in its corporate form for years after the merger. Nor
- 12 -
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
is there any indication that Cyprus Amax Coal Sales paid any outstanding debts of Cannelton Sales
or held itself out to the public as a continuation of Cannelton Sales.
Excel Energy argues that Cannelton Sales “employees” continued to perform the identical
job duties for Cyprus Amax Coal Sales after the merger. This assertion is broader than the record
evidence relied upon. There is evidence that a single Cannelton Sales employee became employed
at Cyprus Amax Coal Sales shortly after the merger. This court rejected a similar argument that a
company was the successor of another as evidenced by the transfer of one employee. Conn v. Fales
Div. of Mathewson Corp., 835 F.2d 145, 147 (6th Cir. 1987).
Excel Energy places considerable emphasis on the December 1993 offer to Excel Energy by
Cyprus Amax Coal Sales “on behalf of its affiliate” Cannelton Sales. Yet, had there been
continuation, Cyprus Amax Coal Sales would not have offered Excel Energy coal “on behalf of its
affiliate,” but rather would have done so directly on behalf of itself as a successor to Cannelton
Sales.
Finally, there is evidence that Cyprus Amax Coal Sales began to sell coal on behalf of all
Cyprus Amax Coal properties, including Cannelton Industries properties. Yet, viewed in the light
most favorable to Excel Energy, the evidence shows that Cyprus Amax Coal Sales assumed
responsibility for all future coal sales for the Cyprus Amax Coal constellation of companies. While
the agency agreement between Cyprus Amax Coal Sales and Cannelton Industries put the former
company in charge of the administration of all coal sales agreements for coal produced during the
term of the agency agreement, this was expressly subject to any prior service agreements Cannelton
Industries might have had, including with Cannelton Sales.
- 13 -
No. 08-6172
Excel Energy, Inc. v. Cannelton Sales Co.
Excel Energy has failed to show that there is any genuine issue of material fact regarding
whether the Cyprus defendants are successors in interest to Cannelton Sales. Because Kentucky law
shields a purchaser from the debts and liabilities of a seller corporation absent some showing of
successor-in-interest liability, the Cyprus defendants cannot be held liable on Excel Energy’s breach-
of-contract claim against Cannelton Sales. Likewise, Excel Energy’s claim of breach of good faith
and fair dealing requires a showing of a contractual relationship and, accordingly, Excel Energy’s
failure to show that the Cyprus defendants are successors in interest to Cannelton Sales likewise
forecloses liability against these defendants.
III
For the reasons set forth above, we AFFIRM summary judgment in favor of the Cyprus
defendants.
- 14 -