United States District Court, S.D. Indiana, Evansville Division
ARC WELDING SUPPLY CO., INC. An Illinois Corporation, CHARLES R. MCCORMICK, Plaintiffs,
AMERICAN WELDING & GAS, INC. A North Carolina Corporation, Defendant.
ENTRY ON PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT,
PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT ON
DEFENDANT'S COUNTERCLAIMS, AND DEFENDANT'S CROSS
MOTION FOR SUMMARY JUDGMENT
RICHARD L. YOUNG, JUDGE UNITED STATES DISTRICT COURT.
October 2014, Defendant, American Welding & Gas, Inc.
(“AWG”), entered into an Asset Purchase Agreement
(“APA” or “Agreement”) with the
Plaintiffs herein, ARC Welding Supply Co. (“ARC”)
and Charles McCormick (collectively
“Plaintiffs”). After the parties were unable to
come to terms with the amount, if any, owed for the purchase
of Plaintiffs' asset cylinders, Plaintiffs filed a
Complaint alleging that AWG breached the terms of the
Agreement, and owes them monetary damages. AWG, in turn,
filed a counterclaim for (1) breach of contract, (2) unjust
enrichment, (3) breach of warranty, (4) fraud, (5) negligent
misrepresentation, and (6) breach of good faith and fair
dealing. The parties now move for summary judgment. For the
reasons that follow, the court GRANTS in
part and DENIES in part
Defendant's Cross Motion for Summary Judgment,
DENIES Plaintiffs' Motion for Summary
Judgment, and GRANTS Plaintiffs' Motion
for Summary Judgment on Defendant's Counterclaims.
to October 1, 2014, ARC was a distributor of compressed gases
and welding supplies in Vincennes, Indiana. ARC is, and has
always been, owned entirely by Plaintiff Charles
(“Buck”) McCormick. (Filing No. 31, Affidavit of
Charles McCormick (“McCormick Aff.”) ¶¶
5-6). On October 1, 2014, ARC sold substantially all of its
assets to Defendant American Welding & Gas
(“AWG”), which took over ARC's Vincennes
operation. (Id. at ¶¶ 10-14). In total,
AWG paid ARC and McCormick over $1, 500, 000 for ARC's
assets. (Filing No. 47-1, Deposition of Charles McCormick
(“McCormick Dep.”) at 8-9, and Ex. 1 thereto).
AWG also hired McCormick to manage its Vincennes location,
which he did for the following year. (Id. at 9-10).
The Purchase and Audit of Asset Cylinders
the primary assets AWG purchased from ARC was its stock of
“asset cylinders.” (Filing No. 47-2, Affidavit of
Ron Adkins (“Adkins Aff.”) ¶ 7). A company
like AWG or ARC makes its money by renting these cylinders to
businesses who need compressed gas for use in their
operations. (Id.). For example, a restaurant or
convenience store may rent carbon dioxide cylinders from AWG
for its soda fountains and have them refilled on a regular
basis by AWG. (Id.).
when AWG and ARC were negotiating the sale of ARC's
assets to AWG, a critical fact was the number of asset
cylinders that would be transferred. (Id. ¶ 8;
McCormick Dep. at 11-12, 16). McCormick represented that ARC
owned, and would transfer, “approximately 6, 500”
asset cylinders to AWG as part of the deal. (McCormick Dep.
at 11; Filing No. 47-3, APA, Art. 2, § 2.1(f) and
Schedule 1.1(a)). The purchase price was set, in part, on
that representation. (McCormick Dep. at 11). At the time of
the closing, however, the parties did not know the precise
count of cylinders ARC would transfer because many cylinders
were “out in the field” with customers.
Consequently, pursuant to the APA, AWG held back $150,
000-known as the “Cylinder Deferred Payment”- for
180 days to protect against a marginal shortage of up to 1,
200 cylinders (1, 200 x $125 = $150, 000). (APA, Art. 2,
§ 2.1(f)). In AWG's experience, this 1, 200 cylinder
cushion was more than sufficient to protect against any
shortage that might occur, and Plaintiffs said and did
nothing to dissuade AWG of this belief. (Adkins Aff. 13).
conducted the cylinder audit between October 1, 2014 and May
22, 2015. (Id. ¶ 15). The audit was supervised
by Ron Adkins, AWG's President and Chief Executive
Officer at the time. (Id. at ¶¶ 1, 16;
McCormick Dep. at 39). The audit started with an in person
physical count of the “dock stock” by AWG
employees Rick Hersick and Fred Seminik. (Adkins Aff. ¶
17; McCormick Dep. at 28-29). The “dock stock”
consisted of the cylinders on-site at the Vincennes facility
that AWG purchased from ARC. (Id.). That count
yielded 1, 553 cylinders. (Adkins Aff. ¶ 17).
then audited the cylinders that were out “in the
field” with the 1, 233 customers whose accounts were
transferred from ARC to AWG. (Id. ¶ 18). To do
this, AWG first reviewed each customer's payment history.
(Id.). If the records showed the customer
consistently paid rent on a certain number of cylinders, and
there were not a large number of exchanges, AWG provided full
credit for that number and would generally not visit the
customer to confirm the count. (Id.). If, however,
there were a large number of cylinder exchanges or
abnormalities in the records provided by ARC, AWG would
perform a physical audit whereby an AWG representative would
actually visit the customer's location, meet with the
customer, locate the cylinders, and record the number on
cylinder reconciliation forms, which the customer would then
confirm by signing. (Id.).
the cylinders transferred from ARC to AWG were “in the
field” pursuant to 99-year leases with customers.
(Id. at ¶ 19). In those situations, AWG would
send a letter to the customer seeking verification of the
count listed in ARC's records. (Id.). Many of
the customers provided the verification, and when that was
done, AWG would provide full credit to ARC. (Id.).
If there was a discrepancy between the records and the
customers' count, or if the customer did not respond, AWG
would follow up and often would perform an in-person
October 1, 2014, AWG started sending monthly cylinder rent
bills to all of the customers it acquired from ARC.
(Id. ¶ 23). These billings revealed that a
significant percentage of ARC's customers were “no
rent” customers, meaning the customers did not actually
pay rent to ARC on the ARC-owned cylinders they were using,
but instead only paid to have them refilled. (Id.).
Under the APA, ARC's “no rent” cylinders were
not considered “asset cylinders” to be included
in the count unless those cylinders were retrieved. (APA,
Art. 1, § 1.1(a) and Art. 2, § 2.1(f)).
provided that settlement of the Cylinder Deferred Payment was
to occur on or before April 15, 2015. (APA, Art. 2, §
2.1(f)). Adkins informed McCormick that the audit was taking
longer than anticipated. (McCormick Dep. at 25). Adkins told
McCormick that it looked like the count was going to come up
short of the 6, 500 cylinders, but that AWG wanted to
continue counting in order to find every available cylinder.
(Adkins Aff. ¶ 30). The parties dispute whether McCormick
orally consented to the continued audit and resulting delay
in settlement. Adkins testified that McCormick consented.
(Id. ¶ 32). McCormick says he did not.
(McCormick Dep. at 25).
finished the audit on May 22, 2015. (Adkins Aff. ¶ 33).
It tallied up the “in the field” count on a
29-page spreadsheet that listed the count for each and every
one of the 1, 233 customers. (Id.). In sum,
AWG's audit represented that ARC owned and transferred 4,
663 asset cylinders to AWG-1, 837 cylinders short of the 6,
500 promised in the APA. (Id.).
Dispute Over Cylinder Audit
before the parties entered into the APA, McCormick claims he
gave AWG documentation showing ARC owned somewhere between 6,
000 and 6, 700 asset cylinders. (See McCormick Dep.
learning of the cylinder deficiency claimed by AWG, McCormick
instructed Plaintiffs' accountant, Elisha Sterling, to
contact AWG on June 9, 2015 and discuss the dispute. (Filing
No. 47-7, Deposition of Elisha Sterling at 9-10). Sterling
relayed to AWG that McCormick “says there may be a
shortage” but believed that “a shortage of 1, 837
is unlikely.” (Id. at 13; Adkins Aff.
AWG's audit, 16 cylinders were discovered at Landree Mine
which were not counted. (McCormick Dep. at 45-16). Beyond
that, Plaintiffs admit that they have no evidence that the
counts at any of the 1, 232 other customers were flawed.
Q: Do you know of any other examples other than the Landree
Mine of situations where additional cylinders were found at a
customer after May of 2015?
(Id. at 46).
The Purchase and Audit of Receivables
also purchased ARC's accounts receivables as part of the
October 1, 2014 sale of assets. (APA, Art. 2, § 2.1(a)).
The parties agreed to defer 20% of the payment for
receivables for 100 days, so that determinations could be
made as to precisely which receivables were performing, and
thus being purchased, and which were not. (Id.).
is no dispute over receivables. AWG admits it owes ARC $43,
859.48 due to the post-closing reconciliation of receivables.
are three motions before the court. The first of these is
Plaintiffs' Motion for Summary Judgment on their breach
of contract (the APA) and attorneys' fees claims. They
seek three specific damage awards for AWG's alleged
breach of the APA: (1) the receivables holdback of $43,
859.48; (2) the entire $150, 000 Cylinder Deferred Payment;
and (3) attorneys' fees. The second is Plaintiffs'
Motion for Summary Judgment on Defendant's Counterclaims.
This motion does not address all six counterclaims; instead,
it addresses Counts II, IV, V, and VI of AWG's
Counterclaim for unjust enrichment, fraud, negligent
misrepresentation, and breach of the duty of good faith and
fair dealing. Lastly, AWG filed a Cross-Motion for Summary
Judgment on Plaintiffs' breach of contract and
attorneys' fees claims and on Counts I and III of its
Counterclaim for breach of contract and breach of warranty.
AWG asks the court to award it $79, 625 in damages for the
asset cylinder shortfall (offset by the $43, 859.48 it owes
Plaintiffs on the receivables). The court begins with
Plaintiffs' breach of contract claim.
Breach of Contract
is a diversity case filed in the State of Indiana, Indiana
rules of contract interpretation control. Hinc v.
Lime-O-Sol Co., 382 F.3d 716, 719 (7th Cir. 2004). Under
Indiana law, the interpretation of a contract is a question
of law for the court. AM General LLC v. Armour, 46
N.E.3d 436, 440 (Ind. 2015). In interpreting an unambiguous
contract, the court must give effect to the intentions of the
parties as expressed in the four corners of the document.
Id. “Clear, plain, unambiguous terms are
conclusive of that intent.” Art Country Squire,
L.L.C. v. Inland Mortg. Corp., 745 N.E.2d 885, 889
(Ind.Ct.App. 2001). The meaning of a contract is to be
determined from an examination of all of its provisions, not
merely from a review of individual words, phrases, or
paragraphs read in isolation. Id.
“contract term is not ambiguous merely because the
parties disagree about the term's meaning.” Roy
A. Miller & Sons, Inc. v. Industrial Hardwoods
Corp., 775 N.E.2d 1168, 1173 (Ind.Ct.App. 2002). Rather,
a contract is ambiguous if its terms are susceptible to more
than one reasonable interpretation. Trustees of Indiana
Univ. v. Cohen, 910 N.E.2d 251, 257 (Ind.Ct.App. 2009).
Ambiguous terms must be resolved by a trier of fact.
Arrotin Plastic Materials of Ind. v. Wilmington Paper
Corp., 865 N.E.2d 1039, 1041 (Ind.Ct.App. 2007).