Norfolk S. Ry. v. Boatright R.R. Prods., Inc.

NORFOLK SOUTHERN RAILWAY COMPANY, Plaintiff, v. BOATRIGHT RAILROAD PRODUCTS, INC., et al., Defendants.

Civil Action Number 2:17-cv-01787-AKK

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION

April 6, 2021

MEMORANDUM OPINION

Norfolk Southern Railway Company contends that Boatright Railroad Products, Inc., Boatright Railroad Products, LLC, Rush Shane Boatright, John Steven Bookout, and Jimmy Lee Watt engaged in racketeering activity, fraud, and breaches of contract over a period of several years during the parties' contractual relationship. At issue here are wooden railroad ties Norfolk Southern purchased from Boatright Railroad Products, Inc. ("BRP") pursuant to a contract that required BRP to treat those ties with certain amounts of preservative to enhance the durability and longevity of the ties. Allegedly, BRP, at the direction or with the assistance of its CEO (Boatright), its CFO (Bookout), and a Norfolk Southern railroad inspector (Watt), fraudulently concealed that BRP intentionally treated Norfolk Southern's ties with substantially less preservatives than required by the contract. This alleged conduct left Norfolk Southern's railways with millions of improperly treated ties that are prematurely degrading and require replacing at substantial cost. Consequently, Norfolk Southern asserts claims for (1) alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), § 18 U.S.C. § 1962 (against Boatright, Bookout, and Watt); (2) breach of contract (against BRP, Inc. and BRP, LLC ); and (3) fraud and civil conspiracy (against all defendants).

The court has for consideration the parties' competing motions for summary judgment—Norfolk Southern has moved on its breach of contract, fraud, and civil conspiracy claims, doc. 148, and BRP, Inc., BRP, LLC, Boatright, and Bookout have moved on all claims, docs. 146; 147; 153; 155.¹ For the reasons discussed below, except for BRP, LLC's motion, the rest of the motions are due to be denied.

I.

Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56. "Rule 56[] mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on whichthat party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (alteration in original). The moving party bears the initial burden of proving the absence of a genuine issue of material fact. Id. at 323. The burden then shifts to the nonmoving party, who is required to "go beyond the pleadings" to establish that there is a "genuine issue for trial." Id. at 324 (citation and internal quotation marks omitted). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

On summary judgment motions, the court must construe the evidence and all reasonable inferences arising from it in the light most favorable to the non-moving party. Adickes v. S. H. Kress & Co., 398 U.S. 144, 157 (1970); see also Anderson, 477 U.S. at 255. Any factual disputes will be resolved in the non-moving party's favor when sufficient competent evidence supports the non-moving party's version of the disputed facts. See Pace v. Capobianco, 283 F.3d 1275, 1276, 1278 (11th Cir. 2002). However, "mere conclusions and unsupported factual allegations are legally insufficient to defeat a summary judgment motion." Ellis v. England, 432 F.3d 1321, 1326 (11th Cir. 2005) (per curiam) (citation omitted). Moreover, "[a] mere 'scintilla' of evidence supporting the opposing party's position will not suffice; there must be enough of a showing that the jury could reasonably find for that party."Walker v. Darby, 911 F.2d 1573, 1577 (11th Cir. 1990) (citing Anderson, 477 U.S. at 252).

II.

Norfolk Southern's interstate rail network utilizes wooden crossties, bridge ties, and switch ties to support its railroad tracks. Doc. 160-1 at 6. To help it obtain these wooden ties, Norfolk Southern entered into a Treatment Agreement contract with Seaman Timber Company in 2006. Doc. 158-1 at 2-14. The Treatment Agreement required Seaman to treat the ties with "preservatives conforming to the specifications of the American Wood [Protection] Association ["AWPA"] or with such other preservatives as may be mutually agreed upon in writing by the parties." Id. at 5. The Agreement incorporated Norfolk Southern's separate written technical specifications for treated ties. Id.; see doc. 160-25. The Agreement contained a limited express warranty, which provided that the treated ties would conform to the required specifications and be free from defects for a period of eighteen months after shipment. Doc. 158-1 at 12. The warranty required Seaman to replace any defective ties if it received notice of apparent defects within the warranty period. Id.

In 2008, Boatright purchased Seaman, assumed the role of CEO, and hired Bookout as CFO. Docs. 158-2 at 14; 159-2 at 13; 160-15 at 14; 172-18 at 2. Boatright then changed the company name to BRP, Inc., docs. 158-2 at 14; 158-3 at 2-3, and executed a Change Order with Norfolk Southern, according to which BRPstepped into the shoes of Seaman in the Treatment Agreement. Doc. 158-4 at 2. The Change Order also extended the term of the Agreement to May 30, 2014. Id.

From July 2009 to May 2014, Norfolk Southern purchased millions of rail ties from BRP at a total cost of $190,355,668.95. Doc. 160-34 at 3-7. BRP treated the ties by flooding them with a liquid solution containing some quantity of creosote, a distillate of coal tar that is highly effective at preserving wood. Docs. 158-22 at 12; 160-23 at 6. Norfolk Southern's specifications required the ties to retain a certain minimum amount of creosote following treatment. See, e.g., doc. 160-25 at 9, 18, 38. And Norfolk Southern required BRP to certify on invoices that the ties met Norfolk Southern's specifications and AWPA standards. Id.

The exact composition of the solution that BRP used to treat the ties is disputed and changed throughout the course of the business relationship. At any given time, the solution consisted of some quantities of creosote and raw coal tar, motor oil, and/or asphalt flux. See docs. 160-15 at 29-30; 160-41 at 16-18; 160-43 at 15-17. Of those substances, only creosote is a wood preservative, but the other substances might facilitate the effect of creosote. See docs. 160-23 at 15; 160-41 at 17-18. Indeed, AWPA standards state that mixtures of creosote and petroleum are effective preservatives, and Norfolk Southern permitted BRP to use a creosote solution diluted up to 25% with a petroleum blend. Docs. 158-14 at 2; 160-23 at 15; 160-41 at 17-18; 160-44 at 10-11.

BRP kept records of the number of gallons of creosote-containing solution it used in treating ties and the amounts of creosote the ties retained following treatment. See docs. 158-21 at 28-32; 158-22 at 24-26; 160-40 at 10-15; 161-1, et seq.; 161-14 at 2-4. But, three BRP employees—Elijah Colburn, Dwight Mitchell, and Sam Moates—testified that BRP kept both an accurate and a falsified set of treatment records. See docs. 158-21 at 28-32; 158-22 at 24-26; 160-40 at 10-15. Allegedly, a BRP employee initially accurately recorded the amount of preservative used to treat a batch of ties and the number of pounds of preservative per cubic foot retained by the ties following treatment. Docs. 158-21 at 28-31; 158-22 at 24-25; 160-40 at 10-13. The employee did this in handwriting on a standardized treating report form. Docs. 158-21 at 31; 158-22 at 24; 160-40 at 10-12; 161-14 at 2-4. An employee then would copy the accurate handwritten numbers into a digital spreadsheet. Docs. 158-21 at 31; 158-22 at 25; 160-40 at 10-14. Finally, the employee would erase numbers on the handwritten report and write in new numbers to show that BRP purportedly used more preservatives and that the ties retained more preservatives than was actually used and retained. Docs. 158-21 at 31; 158-22 at 24; 160-40 at 10-12.

The spreadsheet with the accurate measurements shows that BRP substantially undertreated the ties. See doc. 161-1, et seq. Nearly all of BRP's monthly records show significant discrepancies between the gallons of preservativerequired and the gallons of preservative used. See id. Looking at just three representative months: in July 2009, Norfolk Southern's orders required 187,101 gallons of preservative, but BRP used only 95,310 gallons, doc. 161-1 at 5; in December 2011, BRP used 87,540 gallons instead of the 185,748 gallons the orders required, doc. 161-7 at 17; and, in February 2013, BRP used 88,020 gallons instead of the required 215,404 gallons, doc. 161-10 at 10.

BRP recorded the amount of profit in gallons of preservative that the company gained by undertreating the ties. Docs. 160-40 at 14; 161-1, et seq. It also recorded numbers representing half of what was actually required in gallons of preservative to meet Norfolk Southern's specifications. Doc. 160-35 at 23-24. According to Mitchell, Boatright directed Mitchell to use half of that half amount of preservative (i.e. 25% of what was actually required) to save money. Id. And Russel Nix, a supervisor at BRP, testified that Boatright said that a tie should retain only one pound of creosote if it was actually required to retain six pounds. Doc. 160-37 at 19.

A tie properly treated with creosote will appear black in color. Doc. 160-37 at 28. As part of the alleged fraud, Nix testified that Boatright stated at supervisor meetings "make it black" and "[g]reen ties in, black ties out, all this other stuff is just ya-ya bullshit." Id. at 17, 27. Nix...