Federal judge dismisses fraud, breach of contract action against Growmark

By Nicholas Malfitano | Jul 6, 2015

A rail company’s case of fraud, negligent misrepresentation and breach of contract against an agricultural cooperative was dismissed by a federal judge on June 29

Judge Anita B. Brody  

PHILADELPHIA – A rail company’s case of fraud, negligent misrepresentation and breach of contract against an agricultural cooperative was dismissed by a federal judge on June 29.

Judge Anita B. Brody of the U.S. District Court for the Eastern District of Pennsylvania ruled that Ballwin, Mo.-based BD Pipe & Rail’s claims against Growmark, Inc. of Bloomington, Ill. would be thrown out of court.

Growmark is the lessee of property located just south of the Walt Whitman Bridge at 4101 S. Columbus Boulevard in Philadelphia that borders both the Delaware River and Port of Philadelphia Piers 122 and 124. Growmark leased this plot from two entities - about 12 acres were leased from from the Philadelphia Regional Port Authority (PRPA), and about 30 acres from Consolidated Rail Corporation (Conrail).

Together, these two parcels collectively make up the Growmark premises, which Growmark wanted to redevelop in the hopes of using the property as an industrial site.

In March 2012, BD and Growmark entered negotiations related to the Growmark property after their cooperative investigations revealed the property contained “substantial” iron ore deposits. BD agreed to enter Growmark’s property and remove the ore, eventually hoping to sell the ore at a profit. During these negotiations and the investigations, Growmark represented it possessed rights to the iron ore contained on the entirety of the property.

BD and Growmark formalized their relationship in a trio of license agreements, beginning Aug. 9, 2012. The first license agreement, began Aug. 9, 2012, and expired on May 9, 2013. The second license agreement began Sept. 23, 2013, and the third license agreement, which began Jan. 15, 2014, terminated the second one.

Through each license agreement, BD was permitted to enter the Growmark Premises and remove iron ore. In exchange, BD agreed to pay Growmark a fee for every ton of iron ore removed, while also assuming other obligations regarding the Growmark property, including the demolition of two buildings there.

After executing the first license agreement, the parties began the process of securing the necessary permits to actually undertake the iron ore excavation. BD alleges Growmark “continued to assert that it possessed rights to the iron ore on the entirety of the Growmark premises.”

BD further claims that 16 months into the permit application process, Growmark was forced to disclose in December 2013 on a permit form that it does not, in fact, possess a lease with Conrail for the section of the property it leased from it. On Jan. 27, 2014, Growmark sent BD a proposed lease between Conrail and Growmark, as BD claims without a lease on the Conrail Parcel, Growmark did not possess and therefore could not have transferred the iron ore rights in the Conrail Parcel to Growmark.

BD brought suit in the Philadelphia County Court of Common Pleas in October, alleging breach of contract, fraudulent inducement, and negligent misrepresentation on the part of Growmark – all claims Growmark has motioned to dismiss.

BD alleges Growmark’s “failure to provide rights, license and possession of the iron ore is a material breach of the License Agreement," while Growmark claims there is no breach of contract because the license agreements “disclaim Growmark’s ownership of the iron ore rights, or, at the very least, warn BD that any excavation of iron ore on the Conrail Parcel is conditioned on Conrail’s approval.”

As both parties did business in Philadelphia but are headquartered in other states, the case was removed to the U.S. District for the Eastern District Court of Pennsylvania and came before Brody.

“The First License Agreement states plainly: ‘Excavation and removal from the area owned by and leased from Conrail is subject to Conrail approval.’ Even assuming BD is correct that Growmark represented in contract negotiations that it had the right to all of the ore on the Growmark Premises, including the Conrail Parcel, the first license agreement contains no promise guaranteeing BD’s access to iron ore from the Conrail Parcel. Moreover, the First License Agreement contains an integration clause foreclosing the existence of additional or collateral agreements,” Brody said.

Brody pointed out the second license agreement being “even more explicit” in this intent, as it states “Growmark makes no warranty or representation, express or implied, or assumes any legal liability or responsibility for the ownership, right to remove, quality or content of the Ore Material or the Overburden”, while also containing the identical language from the first license agreement that “excavation and removal from the area owned by and leased from Conrail is subject to Conrail approval.”

“BD cannot assert a breach of contract claim based off of iron ore rights in the Conrail Parcel based off of the third license agreement, because the third license agreement does not cover the Conrail Parcel. The third license agreement states that ‘excavation and removal of any iron ore containing overburden from the area owned by and leased from Conrail is subject to Conrail approval and is not covered by this Agreement,” Brody explained. “The third license agreement only covers the PRPA Parcel, and specifies that ‘neither of Growmark or PRPA make any representation as to the condition of the PRPA Premises or ownership of the Ore Material or the Overburden.”

Brody stated the wording of the license agreements provided no claim of ownership or access to the iron ore rights on the Conrail Parcel, a central tenet of BD’s claims.

“In conclusion, none of the three license agreements BD identifies guarantees unfettered access to the iron ore rights on the Conrail Parcel. Each license agreement plainly warns that excavation of the Conrail Parcel is subject to Conrail’s approval. The second license agreement goes even further, disclaiming any representation, warranty, or legal liability for the right to remove iron ore from the Conrail Parcel,” Brody said.

“BD cannot rely on the third license agreement because it does not concern the Conrail Parcel, only the PRPA Parcel. Because all three license agreements contain an integration clause, none of Growmark’s alleged representations regarding its ownership of iron ore in the Conrail Parcel are relevant.”

Brody further ruled the integration clauses included in each license agreement effectively barred BD’s fraudulent inducement and negligent misrepresentation claims, before dismissing the case in its entirety.

“BD cannot sustain a fraud in the inducement or negligent misrepresentation claim on the basis of representations that occurred outside the four corners of the license agreements, because it agreed by signing the license agreements that those representations would not carry legal weight. To hold otherwise would provide BD an end-around the integration clauses it agreed to in the license agreements,” Brody said.

The plaintiff was seeking judgment in excess of $50,000, plus interest, reasonable attorney’s fees, court costs and other relief the Court deemed just and appropriate.

The plaintiff is represented by Thomas A. Musi, Jr., of Musi Malone & Daubenburger, in Media.

The defendant is represented by Brad A. Funari of Reed Smith in Pittsburgh, plus Laura A. Lange and Marta A. Stein of McGuire Woods, in Pittsburgh and Chicago, respectively.

U.S. District Court for the Eastern District of Pennsylvania case 2:14-cv-06623

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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