Advanced Concrete Tools, Inc. v. HERMAN W. BEACH and MANOWN ENGINEERING CO., INC.

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 13a0442n.06
No. 12-5590
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
ADVANCED CONCRETE TOOLS, INC.,
Plaintiff-Appellee,
v.
HERMAN W. BEACH and MANOWN
ENGINEERING CO., INC.,
Defendants-Appellants.
)
)
)
)
)
)
)
)
)
)
)
ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR
THE MIDDLE DISTRICT OF
TENNESSEE
OPINION
Before: MERRITT, CLAY, and DONALD, Circuit Judges.
Bernice B. Donald, Circuit Judge. In this diversity action, Appellee Advanced Concrete
Tools, Inc. (“ACT”) brought a breach of contract claim against Appellant Herman W. Beach and
Manown Engineering Co., Inc. (“Manown”). Beach and Manown filed a counterclaim for breach
of contract. Subsequently, Beach and Manown filed a motion for partial summary judgment on the
sole issue of damages, contingent upon the court finding them liable for breach. The district court
granted the motion, determined the amount of damages, and, sua sponte, entered judgment in favor
of ACT on the issue of liability. For the following reasons, we reverse the judgment of the district
court and remand for further proceedings.

-- 1 of 10 --

No. 12-5590
Advanced Concrete Tools, Inc. v. Herman W. Beach, et al.
I.
On June 5, 2007, Beach and Manown entered into an Asset Purchase Agreement (“APA”)
with ACT. Under the APA, Beach and Manown were to purchase certain assets from ACT,
including various tools and equipment manufactured by ACT, for $1,100,000. On July 1, 2007, the
parties amended the terms of the APA, allocating payment as follows:
(i) $600,000 cash payable upon completion of the sale of assets hereunder on the
following schedule:
a. $290,000.00 on the date of closing.
b. $10,000.00 escrow deposit.
c. $200,000.00 within 60 days following the date of closing together with
interest thereon at the rate of six percent (6%) per annum.
d. $100,000.00 within 90 days following the date of closing together with
interest thereon at the rate of six percent (6%) per annum.
(ii) Plus quarterly payment equal to 2% of gross sales of screeds, screed bars, saddle
clamps, concrete bomb, and other screed related products sold by Advanced
Concrete Tools Inc. at the time of closing of this transaction until seller has been
paid $500,000. Such payments will begin fifteen months after completion of the
sale hereunder.
The amendment did not contain an acceleration clause.
On July 10, 2007, the parties closed on the sale. Pursuant to the terms of the amended APA,
within ninety days of closing, Beach and Manown paid ACT $600,000; the remaining $500,000 was
due in installments beginning in October 2008.
Beach and Manown claimed that, subsequent to closing, they discovered problems with the
materials purchased from ACT under the APA. They further argued that these problems affected
the gross sales of the products, thereby affecting their ability to make the 2% payments required
- 2 -

-- 2 of 10 --

No. 12-5590
Advanced Concrete Tools, Inc. v. Herman W. Beach, et al.
under Section (ii) of the APA. Consequently, Beach and Manown did not make any payments
towards the $500,000 balance.
ACT filed a suit for breach of contract in state court, and Beach and Manown successfully
removed the action to federal court based on diversity jurisdiction. Beach and Manown also filed
four counterclaims, three of which were dismissed on statute of limitations grounds on ACT’s
motion for partial summary judgment, with a breach of contract counterclaim remaining. On
October 4, 2011, Beach and Manown filed a motion for partial summary judgment on the sole issue
of the proper measure of damages on ACT’s breach of contract claim. The district court granted the
motion, determined that the amount of damages was $500,000, plus prejudgment interest, and, sua
sponte, entered judgment on the issue of liability in favor of ACT. Beach and Manown timely
appealed.1
II.
Beach first challenges the district court’s sua sponte entry of summary judgment in favor of
ACT. He contends that because the district court failed to provide him with sufficient notice that
it would rule on the issue of liability, it erred as a matter of law in entering judgment. We review
a district court’s sua sponte grant of summary judgment for abuse of discretion. Bennett v. City of
Eastpointe, 410 F.3d 810, 816 (6th Cir. 2005). A finding of an abuse of discretion is nonetheless
Manown was dismissed with prejudice from the this appeal; thus, the only remaining1
appellant is Herman W. Beach.
- 3 -

-- 3 of 10 --

No. 12-5590
Advanced Concrete Tools, Inc. v. Herman W. Beach, et al.
subject to harmless error analysis, in which the aggrieved party must demonstrate prejudice in order
to prevail. Smith v. Perkins Bd. of Educ., 708 F.3d 821, 829 (6th Cir. 2013).
A. Notice
While the practice is not favored, we have long recognized a district court’s authority to enter
summary judgment on grounds not advanced by either or any party. See id.; Excel Energy v.
Cannelton Sales Co., 246 F. App’x 953, 959 (6th Cir. 2007). This, however, is only permitted where
“the losing party was on notice that [it] had to come forward with all of [its] evidence.” Celotex
Corp. v. Catrett, 477 U.S. 317, 326 (1986) (emphasis added). “The clearly established rule in this
circuit is that a district court must afford the party against whom sua sponte summary judgment is
to be entered ten-days notice and an adequate opportunity to respond.” Yashon v. Gregory, 737 F.2d
547, 552 (6th Cir. 1984). “Notice and opportunity are determined from the totality of the
proceedings below, including whether any party filed a motion for summary judgment on the claim
and whether the losing party addressed the claim in its arguments.” Aubin Indus., Inc. v. Smith, 321
F. App’x 422, 423 (6th Cir. 2008).
Considering the totality of the proceedings, we find that the district court erred in sua sponte
granting summary judgment. Although ACT and Beach each filed motions for summary judgment,
neither party moved for summary judgment on the issue of liability for breach of contract. While
unusual, Beach filed a motion for summary judgment on damages alone–in the event the court were
to subsequently find him liable for breach. The issue of liability was not briefed by Beach, and the
- 4 -

-- 4 of 10 --

No. 12-5590
Advanced Concrete Tools, Inc. v. Herman W. Beach, et al.
evidence submitted pertained to the calculation of damages based on revenue records and deposition
testimony on the lack of a requirement of future manufacturing of ACT products, products Beach
was required to sell in order to pay the 2% due under the amended APA. ACT’s memorandum of
law in response to Beach’s motion for partial summary judgment assumes breach on the part of
Beach, but nonetheless, argues contract interpretation only as it applies to the measure of damages.
And, most importantly, the district court did not inform Beach that it was considering the issue of
liability in conjunction with the measure of damages prior to its ruling.
Even if Beach had been on notice, the district court’s opinion failed to address his
counterclaim for breach of contract, which, in this case, we view as potentially relevant to
determining liability. Beach’s counterclaim was based on certain warranties in the APA. Under2
the Uniform Commercial Code (“UCC”), to which Tennessee adheres, a counterclaim for breach of
warranty would surely require an analysis of rejection or acceptance of the goods and any potential
setoff damages. See Audio Visual Artistry v. Tanzer, No. W2012-00216-COA-R3-CV, 2012 WL
6697600, at *16-17 (Tenn. Ct. App. Dec. 26, 2012). This is especially so where a determination that
ACT was the first to materially breach the contract by providing damaged goods would necessarily
affect the amount of damages, if any, Beach is required to pay. See Carter v. Krueger, 916 S.W.2d
932, 936-37 (Tenn. Ct. App. 1995) (holding that a party who has materially breached a contract is
not entitled to damages for the other party’s later breach). In fact, the district court’s opinion sought
We note that in granting ACT’s motion for partial summary judgment as to three of Beach’s2
counterclaims, the district court did not dismiss Count IV– Beach’s counterclaim for breach of
contract.
- 5 -

-- 5 of 10 --

No. 12-5590
Advanced Concrete Tools, Inc. v. Herman W. Beach, et al.
to specifically avoid Beach’s contention that ACT had tendered defective goods by stating, “[t]he
Court concludes that this is not a material factual dispute as it does not go to the amount of
damages.” This statement implies that the district court would only entertain arguments as to
damages, not liability.
While a district court’s failure to address a counterclaim would normally not constitute error
because we would assume the district court implicitly rejected the claim, see Bank of Lexington &
Trust Co. v. Vining-Sparks Sec., Inc., 959 F.2d 606, 615 (6th Cir. 1992), the error here in granting
summary judgment sua sponte on the issue of liability precludes such a finding. Since Beach lacked
notice that he had to come forward with all of his evidence as it pertained to liability, the district
court abused its discretion when it rejected, implicitly or otherwise, Beach’s counterclaim for breach.
B. Prejudice
We also find that Beach was prejudiced by the district court’s failure to give notice and an
opportunity to respond. To demonstrate prejudice, the losing party must be able to show “that it
could have produced new favorable evidence or arguments had more notice been given.” Perkins,
708 F.3d at 831 (emphasis added). Whether Beach would have been successful on the issue of
liability or his counterclaim for breach of contract is immaterial. Beach argues that given the
opportunity, he would have produced evidence showing product failure, which is the basis for his
counterclaim against ACT for breach. After viewing the evidence, the district court might have
- 6 -

-- 6 of 10 --

No. 12-5590
Advanced Concrete Tools, Inc. v. Herman W. Beach, et al.
determined that ACT materially breached the contract first, thereby affecting the amount of damages.
Accordingly, Beach has demonstrated prejudice.
Having determined that Beachsdid not have notice and was prejudiced as a result, we reverse
the sua sponte grant of summary judgment and remand so that Beach may submit his evidence and
the district court can consider all relevant evidence before ruling.
III.
Beach next contends that the district court erred in entering final judgment against him while
there remained an unresolved counterclaim. In advancing this position, Beach argues that the district
court failed to cite its reasons for determining that the judgment was final or that there was no just
reason for delay in accordance with Fed. R. Civ. P. 54(b), despite the fact that the district court did
not mention Rule 54(b) in its Order. ACT, in turn, argues that Rule 54(b) is not applicable in this
case. We agree.
Rule 54(b) provides as follows:
When more than one claim for relief is presented in an action, whether as a claim,
counterclaim, cross-claim, or third-party claim, or when multiple parties are
involved, the court may direct the entry of a final judgment as to one or more but
fewer than all of the claims or parties only upon an express determination that there
is no just reason for delay and upon an express direction for the entry of judgment.
In the absence of such determination and direction, any order or other form of
decision, however designated, which adjudicates fewer than all the claims or the
rights and liabilities of fewer than all the parties shall not terminate the action as to
any of the claims or parties, and the order or other form of decision is subject to
revision at any time before the entry of judgment adjudicating all the claims and the
rights and liabilities of all the parties.
- 7 -

-- 7 of 10 --

No. 12-5590
Advanced Concrete Tools, Inc. v. Herman W. Beach, et al.
Fed. R. Civ. P. 54(b). Rule 54(b) is designed to promote efficiency by allowing the district court to
certify a claim for interlocutory appeal where the claim is wholly distinct from the remaining claims
given the “aggregate of operative facts.” See Planned Parenthood Sw. Ohio Region v. DeWine, 696
F.3d 490, 500-01 (6th Cir. 2012); see also Gen. Acquisition, Inc. v. GenCorp, Inc., 23 F.3d 1022,
1028 (6th Cir. 1994). As Beach correctly points out, to certify a claim under Rule 54(b), the district
court must first “expressly direct the entry of final judgment as to one or more but fewer than all the
claims . . .” and, second, “must expressly determine that there is no just reason to delay appellate
review.” Planned Parenthood, 696 F.3d at 500.
Here, neither inquiry was addressed by the district court before it entered final judgment. In
fact, the district court did not mention Rule 54(b) in its Order. Furthermore, as alluded to previously,
Beach’s counterclaim for breach cannot be wholly distinct from the issues of liability and damages
on ACT’s breach of contract claim where both claims involve the same contract and a determination
on liability potentially affects the resulting damages. In all likelihood, the district court did not
contemplate interlocutory appeal using Rule 54(b), but instead intended its final order to confer
jurisdiction on all claims pursuant to 28 U.S.C. § 1291. As such, any review for abuse of discretion
in applying Rule 54(b) is unnecessary, and we refer to our previous analysis finding that the district
court’s final order entering summary judgment sua sponte on liability was in error.
IV.
Lastly, Beach argues that the district court erred by granting summary judgment in favor of
ACT as to liability because there remained genuine issues of material fact. He also asserts that the
district court applied the wrong measure of damages, and thus, erred as a matter of law.
- 8 -

-- 8 of 10 --

No. 12-5590
Advanced Concrete Tools, Inc. v. Herman W. Beach, et al.
We have already addressed the error in granting summary judgment on the liability issue, and
we decline to address the issue of the correct measure of damages. Relying on General Acquisition,
we agree that “[g]iven the . . . possibility that [the award of damages may] be rendered moot by
subsequent developments in the district court, . . . the ruling on damages is not amenable to
interlocutory review.” 23 F.3d at 1030 (finding that “[a]ppellate review of a question of damages
prior to any [proper] determination of liability puts the proverbial cart before the horse”).
V.
For the foregoing reasons, we reverse and remand for further proceedings consistent with this
opinion.
- 9 -

-- 9 of 10 --

No. 12-5590
Advanced Concrete Tools, Inc. v. Herman W. Beach, et al.
MERRITT, Circuit Judge, concurring. I agree with the Court’s disposition of this case.
In a breach-of-contract suit, the question of liability naturally comes before the question of damages.
This case got off track, however, when the defendant submitted a summary judgment motion asking
for a favorable measure of damages in the event that he was found liable for breach. The district
court confused matters further by stating at one place in its order that the defendant’s motion would
be denied and at another place that defendant’s motion would be granted. Compare R. 64-1,
Memorandum at 2, with R. 64-1, Memorandum at 14.
The bottom line is that the district court’s disposition of the case was premature. The record
shows that there is a factual dispute over whether the plaintiff transferred faulty equipment to the
defendant. The district court failed to acknowledge this dispute or to address whether it is material
to the question of breach. If the district court is going to dispose of the case on summary judgment,
it must discuss the facts and reach conclusions on the breach before it addresses damages.
- 10 -

-- 10 of 10 --