Salek v. Reload, Inc.
2:11-cv-02585
| D. Kan. | Sep 30, 2014Background
- Salek and Penner co-owned Reload; Watco acquired Reload via a 2008 Stock Purchase Agreement (SPA) that provided a $7.5M cash payment plus potential earn-outs based on Reload EBITDA; SPA defined “Companies” as Reload and Reload Express.
- Employment agreements (separate for Salek and Penner) tied them to Reload, provided input rights, and were incorporated by reference into the SPA; SPA governed by Kansas law, employment agreements by Missouri law.
- Watco later formed Watco Transloading LLC (WTL) and contracted with EOG for crude oil transloading (Stanley and Stroud). EOG-related EBITDA was recorded under WTL, not Reload.
- Penner received a $2M payment in April 2011 and a later bonus/earn-out; documentation and timing of agreements (earn-out vs. bonus, backdating) were disputed.
- Salek sued, asserting (inter alia) breach of contract (failure to include EOG EBITDA in his earn-out; improper unilateral earn-out to Penner), breach of the implied covenant of good faith, fiduciary/joint venture and employment-related claims; WTL was sued for interference. District court addressed cross-motions for summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SPA required inclusion of EOG/other new transloading EBITDA in Reload’s earn-out | Salek: SPA/negotiations (and CEO assurances) show new transloading growth should be placed in Reload and count toward earn-out | Watco/Reload: SPA names specific entities (Reload/Reload Express); it contains no term requiring new business be placed in Reload—buyer has discretion to assign new projects | Court: SPA unambiguous as to Companies; no express term requiring new business go into Reload; summary judgment for defendants on express-contract theory |
| Whether Watco breached SPA by paying Penner an April 2011 earn-out/bonus without Salek’s written consent (§7.03 and §1.04.2(a)) | Salek: Payment to Penner functioned as an earn-out and violated §7.03 (equal division) because no written amendment signed by Salek; timing/characterization disputed | Watco/Penner: Amendments in 2009 created separate earn-out mechanics; payments were bonus/compensation to Penner for WTL work and not subject to Salek’s consent; tax/characterization issues justify treatment | Court: Material factual disputes exist about intent/characterization and whether §7.03 was violated; neither side entitled to summary judgment on this earn-out payment claim |
| Whether Watco’s actions (placing EOG under WTL, side agreements with Penner, paying Penner) violated the implied covenant of good faith and fair dealing | Salek: Watco deliberately diverted EOG revenue to WTL and made side deals to deprive Salek of earn-out—bad faith exercise of buyer discretion | Watco: SPA integration and allocation of discretion, plus actions were authorized and reasonable business decisions; implied duty cannot create new essential contract terms | Court: Claim that SPA required all future transloading be under Reload denied (would write in terms). But factual disputes exist whether Watco acted in bad faith (diverting revenue and arranging side deal with Penner) — jury question; partial denial of summary judgment |
| Whether Penner owed Salek a fiduciary duty / joint venture or breached confidentiality/noncompete / third-party beneficiary rights | Salek: Post-sale earn-out created a continuing joint venture/fiduciary relationship; Penner’s side deal and payments disadvantaged Salek; Salek claims incorporation of employment/confidentiality agreements into SPA supports enforcement | Penner: No joint venture or fiduciary duty—after sale they were employees with contingent contractual earn-outs; Penn is not party to Salek’s contracts and Salek is not an intended third-party beneficiary of Penner’s agreements | Court: Penner entitled to summary judgment — no fiduciary/joint venture established; incorporation clauses did not make Salek party to Penner’s distinct employment/confidentiality agreements; third-party beneficiary theory rejected |
| Whether WTL tortiously interfered with the SPA or Salek’s prospective business expectancy | Salek: WTL was created to divert EOG business from Reload and thereby deprive Salek of earn-out; WTL procured breach/intentional interference | WTL: As a wholly owned subsidiary acting under parent direction, WTL did not act with independent wrongful means or improper purpose; parent–subsidiary unity/privilege bars liability absent wrongful means | Court: Grant summary judgment to WTL—plaintiff produced no evidence WTL itself employed wrongful means or acted maliciously; parent-directed conduct does not sustain interference claim absent wrongful means |
Key Cases Cited
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard and inferences for nonmovant)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (no genuine issue when record could not lead a rational jury for nonmoving party)
- Waste Connections of Kansas, Inc. v. Ritchie Corp., 296 Kan. 943 (Kansas law on contract interpretation and limits on implying contract terms)
- Terra Venture, Inc. v. JDN Real Estate Overland Park, L.P., 443 F.3d 1240 (10th Cir. factors on joint ventures and fiduciary duties under Kansas law)
- O’Tool v. Genmar Holdings, Inc., 387 F.3d 1188 (earn-out/buyer conduct; contrast on evidence of intent to defeat earn-out)