#2203 signed 3-8-96
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
AMERICAN FREIGHT SYSTEM, INC.,
CASE NO. 88-41050-11
USA WESTERN, INC.,
CASE NO. 88-41051-11
AMERICAN FREIGHT SYSTEM, INC.,
USA WESTERN, INC.,
FAWN ENGINEERING CORPORATION,
ADV. NO. 90-7732
ORDER GRANTING IN PART AND DENYING IN PART
MOTION FOR PARTIAL SUMMARY JUDGMENT
This adversary proceeding is before the Court on a motion for partial summary judgment filed by
defendant Fawn Engineering Corporation (Engineering). Engineering appears by counsel Gene
A. DeLeve and Geoff W. Hetley. Plaintiff-debtors American Freight System, Inc., and USA
Western, Inc. (collectively AFS), appear by counsel Kurt Stohlgren. The Court has reviewed the
relevant pleadings and is now ready to rule.
The parties' pleadings disclose the following undisputed facts.
AFS's original complaint against Engineering sought $33,824.32 for charges based on 216 freight bills. On March 6, 1991, AFS filed an amended complaint and a motion for leave to file the amended complaint. The order granting leave was filed on March 20; it appears AFS did not serve the complaint after this order was entered. Nevertheless, Engineering filed an answer to the amended complaint on March 28. The amendment added $13,473.54 in charges based on 133 additional freight bills, bringing the total charges sought to $47,297.86 and the total number of bills to 349.
Engineering was incorporated under the laws of the State of Iowa in 1949 and was in good standing at all relevant times. Fawn Vendors, Inc. (Vendors), was incorporated under the laws of the State of Iowa in 1962 and was also in good standing at all relevant times. Neither Engineering nor Vendors own any of the corporate stock of the other; there is no parent-subsidiary relationship between them; and they have no stockholders in common.
Additional facts are stated below in addressing the issues raised.
DISCUSSION AND CONCLUSIONS
Engineering seeks partial summary judgment on two grounds. First, it argues that a significant
number of the 349 freight bills do not show that it was the shipper, the consignee, or a "bill-to"
party. It contends it cannot be liable for charges based on those freight bills. Second,
Engineering argues that AFS's claims for charges based on 23 of the freight bills added in the
amended complaint are barred by the statute of limitations fixed by 49 U.S.C.A. §11706(a), as
modified by 11 U.S.C.A. §108(a). AFS disputes both contentions.
I. Motion to Strike Affidavit of Norman R. Powell
Before dealing with the substantive merits of the motion, the Court must rule on Engineering's motion to strike one of the affidavits of Norman R. Powell which AFS submitted in support of its objection to the motion for partial summary judgment. Mr. Powell was general counsel for and a consultant to AFS. Engineering argues that the affidavit fails to meet the requirements of Federal Rule of Civil Procedure 56(e) because: (1) certain statements in the affidavit are hearsay not shown to be admissible as evidence; (2) the affidavit does not lay an adequate foundation to show Mr. Powell has personal knowledge of (or is "competent" to testify about) many of the statements made; and (3) the affidavit attempts to create sham issues of fact to defeat the motion for partial summary judgment.
Rule 56(e), made applicable here by Federal Rule of Bankruptcy Procedure 7056, declares that
affidavits used to support or oppose a summary judgment motion "shall be made on personal
knowledge, shall set forth such facts as would be admissible in evidence, and shall show
affirmatively that the affiant is competent to testify to the matters stated therein." These
requirements are mandatory. 10A Wright, Miller & Kane, Federal Prac. & Pro. Civil 2d, §2738
at 467 (1983). In accordance with the general burdens placed on the party that files a summary
judgment motion, courts tend to be more demanding in their scrutiny of the moving party's
affidavits, resolving doubts against the movant, but will treat the affidavits of the party opposing
the motion more indulgently. Jensen v. United States, 662 F.2d 664, 667 (10th Cir. 1981); Lew v.
Kona Hospital, 754 F.2d 1420, 1423 (9th Cir. 1985); Continental Aircraft Sales v. McDermott
Bros., Co., 316 F.Supp. 232, 236 (D.Pa. 1970); 10A Wright, Miller & Kane, Fed. Prac. & Pro.
Civil 2d, §2738 at 484.
Engineering first questions whether certain portions of the information contained in Mr. Powell's affidavit are shown to be admissible at trial. It attacks the admissibility of exhibits attached to the affidavit and statements made in the affidavit that rely on the exhibits. The exhibits include copies of checks, letters, memoranda, computer printouts, and a proof of claim. Although the affidavit does not say so, the computer printouts appear to summarize information drawn from AFS's records about shipments it transported. The information in the exhibits constitutes out-of-court statements which AFS appears to be offering to prove the truth of the matters asserted, that is, the information is hearsay. Fed.R.Evid. 801(c). Engineering complains that pages 3 and 4 of Exhibit B, and all of Exhibits C, D, F, G, and I are not properly authenticated as records made and kept in the ordinary course of business, and so would not be admissible at trial. Engineering adds that Exhibits D, F, G, and I, which purport to be documents prepared or vouched for by AFS's agent, contain admissions against AFS's interest and so would be admissible at trial to the extent of the admissions. AFS responds that pages 3 and 4 of Exhibit B, and all of Exhibits C, D, F, G, and I are records it generated in the ordinary course of business and kept in the ordinary course of business.
It appears AFS is contending the exhibits in question are admissible under the hearsay exception commonly referred to as the business record exception, found at Evidence Rule 803(6). That rule makes a hearsay document admissible if it is:
[a] memorandum, report, record, or data compilation, in any form, of acts, events, conditions,
opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person
with knowledge, if kept in the course of a regularly conducted business activity, and if it was the
regular practice of that business activity to make the memorandum, report, record, or data
compilation, all as shown by the testimony of the custodian or other qualified witness, unless the
source of information or the method or circumstances of preparation indicate lack of
Fed.R.Evid. 803(6). Clearly, Mr. Powell's statement that the exhibits were all generated and kept in the ordinary course of business is not sufficient to satisfy this rule. He has not asserted that the records were made at or near the time of the relevant acts or events by a person with knowledge about them.
AFS suggests the requirements of Rule 803(6) are "at best technical." While the requirements may be "technical" in the sense that only lawyers are likely to be familiar with them, they are not technical in the sense that they are insignificant and may be disregarded. The rules of evidence have been developed by the courts over the centuries as an integral part of our litigation system, and cannot be ignored simply because they might accurately be called "technical" in some respects. Under the Federal Rules of Evidence, hearsay statements are generally deemed untrustworthy and so are excluded from trials and summary judgment affidavits. The exceptions to this general rule, like Rule 803(6), have been crafted to allow hearsay into evidence only when the source of a statement or the circumstances of its occurrence provide adequate assurance of its trustworthiness.
Mr. Powell has not described the creation of the exhibits sufficiently to show they would be admissible at trial under Rule 803(6). Therefore, in deciding Engineering's motion for summary judgment, the Court will not consider pages 3 and 4 of Exhibit B or any part of Exhibits C, D, F, G, and I as admissible business records, or any of Mr. Powell's statements which rely on those exhibits. The Court will consider Exhibits D, F, G, and I to the extent they contain admissions which Engineering could offer against AFS under Evidence Rule 801(d)(2)(D).
Engineering further argues that it is impossible to tell from the affidavit which statements Mr.
Powell based on the excluded exhibits and which he based on other exhibits and his own
knowledge, so the entire affidavit must be stricken. This is not correct. Instead, the Court must
disregard inadmissible allegations and consider only the admissible portions in determining
whether or not to grant summary judgment. Lee v. National Life Assurance Co., 632 F.2d 534,
529 (5th Cir. 1980); Shearing v. Iolab Corp., 712 F.Supp. 1446 (D.Nev. 1989).
B. Personal Knowledge
Engineering has asserted that Mr. Powell is not "competent" to testify to a number of the assertions set out in his affidavit. However, the Court believes Engineering is using the term "competent" in a different sense than it is used in Rule 56(e). Under the Federal Rules of Evidence, all witnesses except the judge or a juror in the case are competent to testify on matters for which federal law provides the rule of decision. Fed.R.Evid. 601, 605, 606. Since Mr. Powell is neither the judge nor a juror, he is "competent to testify" within the meaning of that phrase in Rule 56(e). The Court concludes that Engineering is actually arguing that Mr. Powell does not have personal knowledge of the facts asserted in the contested paragraphs of his affidavit.
Accordingly, the Court will consider the statements that Engineering argues should be stricken for lack of personal knowledge. In ¶1 of the affidavit, Mr. Powell asserts that "the Intention of AFS was at all times and in all cases to publish tariffs and observe tariffs strictly in accordance with the filed rate doctrine embodied in 49 U.S.C. Section 10761." This statement is not relevant to the question whether Engineering could be liable for bills generated under other names, so the Court will not be considering it in any event. Engineering attacks statements in ¶¶3, 4, 10, and 20, and AFS responds that those paragraphs are based on Mr. Powell's personal knowledge of AFS's "ordinary course of business records." These statements must be stricken since the Court has rejected AFS's proffer of the business records on which they are based.
Paragraph 22 presents a somewhat different problem. It concerns the "Statement of Account"
which AFS attached to its amended complaint. Engineering contends this document is not a
record made in the ordinary course of AFS's business, while AFS contends it is. AFS adds that
the document is the billing for the amount Engineering owes it and is supported by freight bills it
issued to Engineering. Even assuming the document is not itself a bill prepared in the ordinary
course of business, the Court believes it is probably a summary of information derived from AFS's
shipping records and its postpetition audit of its billing records. At least some of the information
on it would likely be admissible under Evidence Rule 1006. In an affidavit Engineering submitted,
Richard Musser declared that AFS had provided copies of the actual freight bills which are
identified by number on the Statement of Account, so the document would be admissible at trial
as a summary of the numbers which identify the freight bills AFS is suing on. The charges
claimed to be due might be admissible this way as well, but the Court cannot determine that from
the information supplied. Furthermore, as will be discussed below, Mr. Powell's and Mr. Musser's
affidavits make clear that the company names which the Statement of Account appears to use to
identify the party liable for each bill do not correspond to the names on the freight bills, so this
portion of the statement would not be admissible to show which company is liable. At any rate,
the Statement of Account contains nothing to further AFS's allegation that Engineering is liable
for bills issued in other names.
C. Sham Issue
Engineering also asserts that ¶¶5 and 6 of Mr. Powell's affidavit attempt to create a sham fact
issue to defeat the summary judgment motion. It claims these paragraphs directly contradict his
sworn deposition testimony. Though there is authority for the proposition that a witness's
affidavit may not be excluded because it conflicts with his deposition, 10A Wright, Miller, &
Kane, Fed. Prac. & Pro. Civil 2d, §2738 at 473 (1983), the 10th Circuit has held that a court
may disregard an affidavit that conflicts with the affiant's prior sworn statements when it
concludes the witness is trying to create a sham fact issue. Franks v. Nimmo, 796 F.2d 1230,
1237 (10th Cir. 1986). The Circuit indicated this would be an unusual situation. Id. Engineering
suggests Mr. Powell's statements about his memory of events surrounding the assignment of a
separate account number to Engineering conflict with his deposition testimony about a lack of
memory of various aspects of AFS's dealings with Engineering and Vendors, none of which
specifically concerned assigning a separate account number to Engineering. Even if the
deposition and affidavit deal with the very same subject, an inability to remember at one time does
not contradict a later assertion of remembering. In Franks, by contrast, the witness had testified
in a deposition that no one had said anything to him at a particular time about probationary status
or getting the rights of a tenured civil servant, and later submitted an affidavit alleging that at that
same time, the defendants had all told him he was a permanent employee and would not have to
comply with any probationary provisions. 796 F.2d at 1236-37. This portion of Engineering's
attack on the affidavit must be overruled.
II. Partial Summary Judgment
Having ruled on Mr. Powell's affidavit, the Court now turns to the merits of Engineering's motion
for partial summary judgment. Federal Rule of Civil Procedure 56, governing grants of summary
judgment, is made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy
Procedure 7056. FRCP 56(c) provides that this Court must grant summary judgment "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." In considering a motion for summary
judgment, the Court must examine all the evidence in the light most favorable to the party against
whom summary judgment is sought. Summary judgment is inappropriate if an inference can be
deduced from the facts which would allow the nonmovant to prevail. The court must consider
factual inferences tending to show triable issues in the light most favorable to the existence of
those issues. Where different ultimate inferences may properly be drawn, summary judgment
should be denied. United States v. O'Block, 788 F.2d 1433, 1435 (10th Cir. 1986).
A. Fictitious Names
Through the affidavit of Richard Musser, Engineering alleges that 150 of the 349 freight bills AFS has sued on, including 9 said to be "not legible," do not list Engineering by name as the shipper, consignee or bill-to party (The Court counts 151 such bills shown on Engineering's exhibit). It did not indicate what name was listed for any liable party on those bills. In a responsive affidavit not attacked by Engineering like the one discussed above, Mr. Powell alleges there are only 146 such bills. Some of the ones marked "not legible" on Engineering's exhibit may account for this difference. Mr. Powell purports to list the names appearing on all the freight bills sued on in this case and the number of times each name appears on a bill as the liable party, but his list only covers 337 bills, not 349. He asserts that 191 bills include the words "Fawn Engineering" in the name of the liable party. He then lists the names he asserts are shown as the liable party on 146 bills. He contends: 11 name Fawn, Fawn Co., Fawn Mfg. Corp., Fawn Sales, or Fawn Selectivend as the liable party; 66 name Fawn Vendors, Fawn Vendors Co., or Fawn Vendors, Inc., as the liable party; 19 name Federal Finance or Federal Finance Co. as the liable party; 6 name Federal Machine Corp. as the liable party; 22 name Federal Vendors, Federal Vendors Co. or Federal Vendors, Inc., as the liable party; 1 names Inland Finance Co. as the liable party; and 23 name USI, USI Co., or USI Corp. as the liable party.
To be liable for charges related to a freight bill, as Engineering correctly states, a party must be either the shipper, consignee, or an agreed bill-to party. AFS responds that, through a litany of fictitious or assumed names, Engineering is in fact shown on the freight bills that do not include the words "Fawn Engineering" in the name of the liable party. At various times, as shown by a Certificate of Existence obtained from the Iowa Secretary of State, Engineering has adopted all of the following fictitious names: Merchants Finance Co., Federal Vendors Co., Fawn Shipping Co., USI Co., Inland Finance Company, and (incredibly, considering Fawn Vendors, Inc., was a separate Iowa corporation during all the time when Engineering had adopted the name) Fawn Vendors Co. AFS contends the Court should find Engineering liable for freight bills listing any of these names as a liable party.
However, the Certificate of Existence shows that Engineering's registration of the fictitious name "Fawn Vendors Co." expired on March 18, 1983, and the name was again adopted beginning on February 27, 1990. AFS has presented no evidence to show that Engineering used the name Fawn Vendors Co. from March 1983 to February 1990. All the shipments AFS is suing on were made during this window of time. At least without the portions of Mr. Powell's affidavit which the Court has stricken, AFS has presented no evidence that could support a finding that Engineering is liable for any charges incurred under the names Fawn, Fawn Co., Fawn Mfg. Corp., Fawn Sales, Fawn Selectivend, Fawn Vendors, Fawn Vendors Co., or Fawn Vendors, Inc. Engineering is entitled to summary judgment for any bills showing these names for the liable party. Mr. Powell has not alleged that the names Merchants Finance Co. or Fawn Shipping Co. appear on any of the bills, so these fictitious names are irrelevant.
The certificate from the Iowa Secretary of State does show that Engineering had adopted the
fictitous name Federal Vendors Co. from October 9, 1979, through December 31, 1989, the
fictitious name Inland Finance Company from June 20, 1986, through December 31, 1989, and
the fictitious name USI Co. from May 27, 1982, through June 27, 1989. The shipments at issue
were all made within these time frames, so AFS has produced some evidence that Engineering
was using those names during the relevant time. Coupled with Mr. Powell's assertions that these
names (or names differing only by including "Corp." or omitting "Co.") appear on 22, 1, and 23 of
the bills respectively, AFS has raised a genuine issue of material fact concerning Engineering's
possible liability for those bills. That is, this evidence would be sufficient to support a finding at
trial that Engineering was the party liable for those bills. In a supplemental affidavit, Mr. Musser
identifies 47 bills as having one of these names shown as the shipper or consignee, apparently
adding one more to those identified by Mr. Powell. Engineering contends that AFS has conceded
these names were included in its dealings with Fawn Vendors and not Engineering. The Court
believes the materials relied on are not sufficient to establish for purposes of summary judgment
that Engineering cannot be liable for bills in these names.
B. Statute of Limitations
Engineering contends 23 of the freight bills which AFS tried to add to this proceeding by amending its complaint are barred by the applicable statute of limitations. As pertinent here, section 11706(a) of the Interstate Commerce Act, 49 U.S.C.A. §11706(a), establishes a three year statute of limitations for bringing suit to recover charges for transporting freight, beginning when the claim accrues. The Bankruptcy Code provides that the debtor had until the later of two years after the date it filed for bankruptcy or the end of the three-year period fixed by the Interstate Commerce Act to bring such suits. 11 U.S.C.A. §108(a).
As a preliminary matter, Engineering questions whether AFS ever properly filed its amended complaint. On March 6, 1991, AFS filed both a motion for leave to file an amended complaint and the amended complaint itself. The Court's order granting permission to file the amended complaint was entered on March 20. Engineering filed an answer to the amended complaint on March 28. Under Federal Rule of Civil Procedure 15(a), made applicable here by Bankruptcy Rule 7015, AFS had to seek leave of court or Engineering's consent to amend its complaint. Engineering's time to answer the amended complaint was ten days after service of the amendment. Clearly, the Rule means the amendment was to be served after leave to amend the complain was obtained. However, Rule 15(a) also says leave to amend is to be freely given, and leave was obtained here, albeit after the amendment was served. Nevertheless, Engineering filed an answer and would not appear to have suffered any possible prejudice from AFS's irregular method of amending its complaint. Consequently, the Court will deem the amended complaint to have been properly filed on March 6, 1991. See 6 Wright, Miller & Kane, Fed. Prac. & Pro. Civil 2d §1484 at 601-02 (1990).
As indicated, Engineering contends 23 of the bills added by the amended complaint, forming the basis of $3,814.36 in charges, were more than three years old as of March 4, 1991,(1) and so are barred by the statute of limitations. AFS concedes 22 of the 23 were more than three years old on March 4, 1991. Mr. Powell asserts that the bill identified by the number 8-02102172-4 was for freight delivered on March 8, 1988, barely less than three years before the amended complaint was filed. AFS seeks $59.04 on this bill. Consequently, Engineering is entitled to summary judgment on 22 of the bills, and total charges of $3,755.32, unless the bills are not barred by having been more than three years old when AFS commenced suit on them. The Court cannot resolve the parties' dispute about the bill for $59.04 by summary judgment.(2)
Summarized, AFS's original complaint asserted that it, as a common carrier, transported goods in interstate commerce at Engineering's request, that it had tariffs on file with the Interstate Commerce Commission specifying the price Engineering was to pay for the shipments, and that under the applicable tariffs, Engineering still owed AFS specified amounts for specified shipments. Its amended complaint simply identified more shipments for which it claimed money was owed. As applicable here, FRCP 15(c)(2) provides that an amendment to a pleading relates back to the date of the original pleading when "the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading." Judge Crow has explained:
Amendments will relate back if they only flesh out the factual details, change the legal theory, or
add another claim arising out of the same transaction, occurrence or conduct. [Citation omitted.]
Relation back is denied those amendments which are based on entirely different facts,
transactions, and occurrences. [Citation omitted.]
Marsh v. Coleman Co., 774 F.Supp. 608, 612 (D.Kan. 1991). That is, "when new or distinct conduct, transactions, or occurrences are alleged as grounds for recovery, there is no relation back, and recovery under the amended complaint is barred by the statute of limitations if it was not timely filed." Holmes v. Greyhound Lines, 757 F.2d 1563, 1566 (5th Cir. 1985).
In response to Engineering's assertion of the statute of limitations as a bar to some of the added shipments, AFS relies solely on a case that involved a shareholder's derivative action based on an alleged unlawful agreement between his company and a shipper to violate a filed tariff for contract carriage by paying "commissions" to officers of the shipper and collecting charges less than those set by the tariff. Siegel v. Converters Transportation, 714 F.2d 213, 215-16 (2d Cir. 1983). The case is not relevant here because AFS has not alleged it had any agreement with Engineering to violate any filed tariff, but simply that Engineering has not paid all charges required by the applicable tariffs. In fact, since AFS's counsel cited this Court's decision in American Freight System v. Superior Machinery Co. (In re American Freight System), No. 88-41050-11, Adv. No. 90-7222, Order Granting in Part Plaintiff's Motion for Leave to File Amended Complaint (Bankr.D.Kan. Aug. 7, 1991), and was AFS's counsel in that case as well, he must have been aware the Court had there rejected the argument he has repeated here. In the future, if counsel wishes to reassert arguments the Court has previously rejected, he should state in his brief that this is what he is doing.
The Court remains convinced that each shipment sued on was made under a separate bill of lading
which constituted the contract between the parties and forms the basis of AFS's claims to recover
freight charges. While some or all of the shipments may have been covered by the same tariff, no
two bills of lading covered the same goods picked up at the same place at the same time and
delivered to the same place at the same time. Each bill of lading covered a different transaction.
Furthermore, "[t]he rule has long been established that claims for freight accrue when the services
are rendered. [Citations omitted]. The claim for freight and the 'right to demand payment
[accrue] immediately upon the delivery of the property,' [citation omitted] because at that time the
claim can be definitely ascertained and set up." Baggett Transportation Co. v. United States, 319
F.2d 864, 868 (U.S. Ct. of Claims 1963). Consequently, under FRCP 15(c), the commencement
of suit on the bills added by AFS's amended complaint does not relate back to the filing of the
original complaint, and the 22 bills which AFS concedes were more than three years old on March
4, 1991, are barred by the statute of limitations fixed by 49 U.S.C.A. §11706(a).
The Court concludes that Engineering's motion for partial summary judgment should be granted in part and denied in part. The motion is granted to the extent AFS's claims are based on bills which do not list as a liable party an entity having "Fawn Engineering," "Federal Vendors," "Inland Finance," or "USI" in its name. The parties should confer to determine precisely which bills are covered by this ruling; since the freight bills themselves were not submitted, the Court cannot resolve the discrepancies between the affidavits of Mr. Powell and Mr. Musser. The motion is also granted to the extent of the 22 bills that were conceded to be more than three years old when AFS added them by amending its complaint. The rest of the motion is denied.
IT IS SO ORDERED.
Dated at Topeka, Kansas, this _____ day of March, 1996.
JAMES A. PUSATERI
CHIEF BANKRUPTCY JUDGE
1.The certificate of service on the amended complaint indicates it was mailed to Engineering's counsel on March 4, 1991. Presumably that is why Engineering uses that date rather than the date the complaint was filed with the Court.
2.On the other hand, it appears that recovery on that bill will be barred by the Court's ruling on the names under which Engineering could be liable.