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Patriot Rail Corp., A Delaware v. Sierra Railroad Company

January 31, 2011


The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge


And Related Counterclaim.

As a result of its ultimately unsuccessful attempt to purchase a short-line rail company from Defendant Sierra Railroad Company ("Sierra"), Plaintiff Patriot Rail Corporation ("Patriot") seeks monetary damages through the present action under various theories, including breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and unfair competition.

Sierra, in turn, by way of counterclaim seeks damages from Patriot under the same theories, and further asserts additional claims premised on intentional and negligent interference with prospective economic advantage, misappropriation of trade secrets, and coercion. Sierra also seeks damages from Cross-Defendant Larry Coe ("Coe"), a Patriot employee, under all the same theories except breach of contract, and breach of the implied covenant of good faith and fair dealing.

Presently before the Court is Patriot and Coe's Motion for Summary Judgment as to Sierra's counterclaim. Patriot and Coe alternatively seek summary adjudication as to particular issues. For the reasons set forth below, the Motion for Summary Judgment as to the case as a whole will be denied. The alternative request for summary adjudication is denied in part and granted in part.*fn1


This case arises out of a dispute between two railroad companies who were in negotiations aimed at the apparent purchase, by Patriot, of Sierra's business. Sierra is a smaller company operating its short-line railroads solely within Northern California, whereas Patriot is a larger concern that purchases and operates short-line railroads and regional freight railroads throughout the United States and North America.

It is undisputed that the parties began sales negotiations in 2005. The parties disagree about who pursued the acquisition opportunity and initiated discussions concerning a proposed sale. In connection with the potential acquisition, a non-disclosure/ confidentiality agreement ("NDA") was entered into by the parties later that same year. The NDA was intended among other things to protect the confidential and trade-secret information of Sierra, while allowing a free flow of information to Patriot.

During the course of these negotiations, Sierra had an ongoing short-term contract, renewed yearly, for the provision of rail services to McClellan Business Park ("McClellan") in Sacramento County, California. Sierra was seeking a long-term contract with McClellan by 2007, and introduced Patriot as a potential buyer that could fund what was necessary to expand its operations on the McClellan site. Sierra asked Patriot to assist in its presentation to McClellan, and Patriot agreed. During this process, Sierra asserts it provided significant confidential information to Patriot.

After Sierra introduced Patriot to McClellan, the three parties met to discuss the long-term contract sought by Sierra. In August 2007, Patriot met with McClellan alone. Sierra claims it was not advised of that meeting. Sierra contends that while Patriot did indicate to Sierra, following the meeting, that it intended to draft its own proposal to submit to McClellan, it assured Sierra that this merely constituted an alternate proposal to increase the chance that as a group they would secure the desired long-term contract.

Approximately three days after this discussion, and two weeks after the private meeting with Patriot and McClellan, McClellan gave notice to Sierra that it was terminating its lease and starting a new Request for Proposal Process (RFP) for a long-term contract. McClellan told Sierra it would be considered along with three other bidders. According to Sierra, it did not know the identity of the other bidders at that time. Sierra alleges that Patriot never informed Sierra that it was selected as one of the other three companies in contention. Around this same time, in September 2007, Patriot sent a Stock Purchase Offer to Sierra, with a provision reconfirming the effectiveness of the NDA. Patriot then proceeded to file its own RFP response with McClellan.

In January of 2008, McClellan informed Sierra that it had selected Patriot for its long-term contract. In March 2008, Sierra filed suit against Patriot alleging the claims that are in its current counterclaim. Following institution of that lawsuit, however, the parties apparently agreed to attempt to continue buyout negotiations, and Sierra accordingly dismissed its complaint without prejudice. At this time, the parties entered into a Letter of Intent ("LOI") that proposed buyout terms while at the same time clarifying that there was no binding obligation to actually consummate the transaction as described. The LOI nonetheless provided that sections 3(a)-3(e) of the agreement were binding on the parties. Section 3(c) is of particular importance to Sierra as it reiterated that the Confidentiality Agreement between Patriot and Sierra remained in full effect.

During the course of the negotiations, each party alleges the other was acting unreasonably and purposefully delaying the negotiations. In December of 2008, both parties seemed to be nearing a final agreement. According to Patriot, however, Sierra rejected its offer without discussion or negotiation. Sierra on the other hand, claims Patriot substantially changed the terms of the agreement finally submitted to Sierra, and thereby effectively negated all previous negotiations leading up to the December offer. This led both parties to inform each other of their intention to file suit. Patriot got to court first, and Sierra quickly responded with its own counterclaim against Patriot. This led to the Motion now before the Court for consideration.


The Federal Rules of Civil Procedure provide for summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with 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." Fed. R. Civ. P. 56(c). One of the principal purposes of Rule 56 is to dispose of factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).

Rule 56 also allows a court to grant summary adjudication on part of a claim or defense. See Fed. R. Civ. P. 56(a) ("A party seeking to recover upon a claim ... may ... move ... for a summary judgment in the party's favor upon all or any part thereof."); see also Allstate Ins. Co. v. Madan, 889 F. Supp. 374, 378-79 (C.D. Cal. 1995); France Stone Co., Inc. v. Charter Township of Monroe, 790 F. Supp. 707, 710 (E.D. Mich. 1992). The standard that applies to a motion for summary adjudication is the same as that which applies to a motion for summary judgment. See Fed. R. Civ. P. 56(a), 56(c); Mora v. ChemTronics, 16 F. Supp. 2d. 1192, 1200 (S.D. Cal. 1998).

Under summary judgment practice, the moving party always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. at 323 (quoting Rule 56(c)).

If the moving party meets its initial responsibility, the burden then shifts to the opposing party to establish that a genuine issue as to any material fact actually does exist. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986); First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 288-89 (1968).

In attempting to establish the existence of this factual dispute, the opposing party must tender evidence of specific facts in the form of affidavits, and/or admissible discovery material, in support of its contention that the dispute exists. Fed. R. Civ. P. 56(e). The opposing party must demonstrate that the fact in contention is material, i.e., a fact that might affect the outcome of the suit under the governing law, and that the dispute is genuine, i.e., 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, 251-52 (1986); Owens v. Local No. 169, Assoc. of Western Pulp and Paper Workers, 971 F.2d 347, 355 (9th Cir. 1987).

Stated another way, "before the evidence is left to the jury, there is a preliminary question for the judge, not whether there is literally no evidence, but whether there is any upon which a jury could properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed." Anderson, 477 U.S. at 251 (quoting Improvement Co. v. Munson, 14 Wall. 442, 448, 20 L. Ed. 867 (1872)). As the Supreme Court explained, "[w]hen the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts.... Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita, 475 U.S. at 586-87.

In resolving a summary judgment motion, the evidence of the opposing party is to be believed, and all reasonable inferences that may be drawn from the facts placed before the court must be drawn in favor of the opposing party. Anderson, 477 U.S. at 255. In judging evidence at the summary judgment stage, the court does not make credibility determinations or weigh conflicting evidence. See T.W. Elec. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630-631 (9th Cir. 1987), citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Nevertheless, inferences are not drawn out of the air, and it is the opposing party's obligation to produce a factual predicate from which the inference may be drawn. Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal. 1985), aff'd, 810 F.2d 898 (9th Cir. 1987).


A. Breach Of Contract

"In a breach of contract claim under California law, a plaintiff must allege (1) a contract, (2) plaintiff's performance, (3) defendant's breach, and (4) damages." Lyons v. Coxcom, Inc., 718 F. Supp. 2d 1232, 1237 (9th Cir. 2009). "Two basic prerequisites for contract formation are the existence of mutual consent and terms that are sufficiently definite so that the performance promised is reasonably certain." Schwarzkopf v. Intern. Business Machines, Inc., 2010 WL 1929625, 5 (9th Cir. 2010) citing Weddington Productions, Inc. v. Flick, 60 Cal. App. 4th 793, 811 (1998).

"A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as ...

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