The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
RIVER PARISH CONTRACTORS, INC. * CIVIL ACTION NO. 22-723
*
VERSUS * SECTION: “A”(3)
*
BLACK DIAMOND CAPITAL * JUDGE JAY C. ZAINEY
MANAGEMENT L.L.C. *
* MAGISTRATE JUDGE EVA J. DOSSIER
*
*
ORDER AND REASONS
The following motion is before the Court: Motion for Summary Judgment (Rec. Doc.
7) filed by Defendant, Black Diamond Capital Management L.L.C. (“Black Diamond”). River
Parish Contractors, Inc. (“RPC”) opposes the motion. The motion, submitted for consideration
on May 8, 2024, is before the Court on the briefs without oral argument. For the reasons that
follow, Black Diamond’s Motion for Summary Judgment is DENIED.
I. Background
This suit arises out of a series of oral representations, following which RPC provided
services to a steel mill for which it allegedly remains unpaid. BD LaPlace, LLC (“Bayou Steel”)
operated a steel mill with related facilities in LaPlace, Louisiana. (Complaint, Rec. Doc. 1, ¶ 8).
The facility provided various steel services, including melting and alloying scrap steel, and
transforming it into rebar beams and finished steel plates. (Id.). These products were then
shipped from the LaPlace facility. (Id.). Black Diamond is an investment advisory firm that
provides support and management to its portfolio companies. (Id. ¶ 4). At all relevant times,
Bayou Steel was owned by Bayou Steel BD Holdings II, L.L.C., which was owned by Black
Diamond Opportunity Fund IV, L.P. (Id.). Black Diamond was a general partner with a 2.5%
stake in Opportunity Fund IV. (Deposition of Gregory Schunk, Rec. Doc. 73-3, at 12:16-18;
Deposition of Stephen Deckoff, Rec. Doc. 73-4, at 22:21-25).1
RPC asserts that Black Diamond, despite only having a 2.5% stake in Opportunity Fund
IV, exercised complete control over Bayou Steel, including selecting multiple board members,
one of whom served as chairman, and hiring all of Bayou Steel’s executive management. (Rec.
Doc. 73, at 3). Additionally, Black Diamond-affiliated board members allegedly dismissed
Bayou Steel’s CEO, following which the position was left vacant for an extended period.
(Deposition of Alton Davis, Rec. Doc. 73-7, at 100:3-6). Alton Davis, President and COO of
Bayou Steel, referred to one Black Diamond executive, Phil Raygorodetsky, as the de facto CEO
of Bayou Steel. (Rec. Doc. 73-8, at 60:15-61:7).
In early 2019, Bayou Steel approached RPC to request turnaround services, a process that
involves refurbishing and updating equipment so that it operates safely and efficiently. (Rec.
Doc. 73, at 6). Such a capital-intensive undertaking required Black Diamond’s approval before
action could be taken. (Deposition of Alton Davis, Rec. Doc. 73-8, at 95:11-17). Black Diamond
initially proved difficult to convince. (Id. at 61:11-24). However, ultimately, Bayou Steel insisted
that the turnaround service occur for the safety and efficiency of the plant. (Id. at 61:25-62:4).
Meanwhile, RPC, aware of Bayou Steel’s financial difficulties, allegedly refused to perform
without a commitment from Black Diamond that it would provide the funds necessary to cover
the turnaround services. (Deposition of Shelley Rome, Rec. Doc. 73-14, at 48:21-49:4). Shelley
Rome, Bayou Steel’s purchasing manager, advised Davis of RPC’s request. (Deposition of Bud
Guidry, Rec. Doc. 73-15, at 49:5-13). Davis, in turn, presented the request to Sam Farahnak and
Phil Raygorodetsky, the Black Diamond-affiliated board members of Bayou Steel. (Deposition
1 Throughout this Order, all deposition cites refer to the page numbers of the deposition transcripts, not the
page numbers in the CM/ECF headers.
of Shelley Rome, Rec. Doc. 71-7, at 48:16-21). After speaking with the Black Diamond-
appointed board members, Davis returned to Rome, conveying to her that Black Diamond had
committed to funding Bayou Steel, which Rome then conveyed in some form to RPC.2
In July of 2019, RPC requested a meeting with Rome, Davis, and other management to
discuss the outstanding balance on its account; no Black Diamond employees attended the
meeting. (Rec. Doc. 73, at 8; see Deposition of Shelley Rome, Rec. Doc. 71-7, at 62:7-15 (not
listing any Black Diamond affiliates as meeting attendees)). At that time, RPC allegedly was
owed $1.1 million in outstanding charges. (Email from Shelley Rome to Michael Williams,
Alton Davis, and Kevin Kirkland, Rec. Doc. 73-17, at 1). During the meeting, Davis reconfirmed
Black Diamond’s promise to provide funds. (Deposition of Alton Davis, Rec. Doc. 71-3, at
107:22-108:1 (“[T]he statement was kind of like it had been all along with suppliers was that we
were still expecting to be funded by Black Diamond and would be able to pay them.”)). RPC
continued its work at the LaPlace Facility until Bayou Steel declared bankruptcy on October 1,
2019. (Rec. Doc. 73, at 8). At the time of the bankruptcy, RPC was owed $785,560.61. (Id.).
Accordingly, RPC filed this suit, asserting that Black Diamond’s oral representation, which
ultimately was conveyed in some fashion to RPC, qualified as an unconditional promise to pay,
and, in the alternative, that Black Diamond conveyed a promise upon which RPC detrimentally
relied.
Black Diamond has moved for summary judgment on both counts. It asserts that the oral
representation was not an unconditional promise to pay but, rather, created a suretyship
agreement, and that it was legally inoperative because such agreements must be written. In the
2 The Court notes that there is a disparity between the original promise and that conveyed to RPC. Some
fact witnesses claim that the assurance was to continue to fund Bayou Steel generally; others maintain that
it was to cover RPC’s specific invoices.
alternative, it argues that, in the event the promise is interpreted as an unconditional promise to
pay, Black Diamond never directly made such a promise to RPC, that any evidence of the
manifestation is inadmissible hearsay, and Bayou Steel’s employees lacked the agency or
authority to bind Bayou Steel in such a manner. Finally, it claims that detrimental reliance is
inappropriate for various reasons, including that no promise was ever made from Black Diamond
to RPC and that RPC was patently unreasonable in relying on the statement. RPC opposes the
motion. The Court considers these arguments below.
II. Legal Standard
Summary judgment is proper where there is “no genuine dispute of material fact” and “the
movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). That is, it is appropriate
where “the pleadings, depositions, answers to interrogatories, and admissions on file, together with
the affidavits, if any,” when viewed in the light most favorable to the non-movant, “show that there
is no genuine issue as to any material fact.” TIG Ins. Co. v. Sedgwick James, 276 F.3d 754, 759
(5th Cir. 2002) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986)). A dispute
about a material fact is “genuine” if the evidence is such that a reasonable jury could return a
verdict for the non-moving party. Id. (citing Anderson, 477 U.S. at 248). The court must draw all
justifiable inferences in favor of the non-moving party. Id. (citing Anderson, 477 U.S. at 255).
Once the moving party has initially shown “that there is an absence of evidence to support the non-
moving party’s cause,” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986), the non-movant must
come forward with “specific facts” showing a genuine factual issue for trial. Id. (citing Fed. R.
Civ. P. 56(e); Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986)).
Conclusional allegations and denials, speculation, improbable inferences, unsubstantiated
assertions, and legalistic argumentation do not adequately substitute for specific facts showing a
genuine issue for trial. Id. (citing SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1993)).
When faced with a well-supported motion for summary judgment, Rule 56 places the
burden on the non-movant to designate the specific facts in the record that create genuine issues
precluding summary judgment. Jones v. Sheehan, Young, & Culp, P.C., 82 F.3d 1334, 1338 (5th
Cir. 1996). The district court has no duty to survey the entire record in search of evidence to support
a non-movant's position. Id. (citing Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1992); Nissho-
Iwai Am. Corp. v. Kline, 845 F.2d 1300, 1307 (5th Cir. 1988)).
III. Discussion
1. Unconditional Promise to Pay
Black Diamond first argues that this promise was one of suretyship, under which it would
pay RPC’s invoices in the event that Bayou Steel could not. Louisiana law dictates that a
suretyship contract “is an accessory contract by which a person binds himself to a creditor to
fulfill the obligation of another upon the failure of the latter to do so.” LA. CIV. CODE art. 3035.
Suretyship contracts are subject to strict procedural requirements, including that they “must be
express and in writing.” Id. art. 3038. A corollary to the strict writing requirement is that “[p]arol
evidence is inadmissible to establish either a promise to pay the debt of a third person or a
promise to pay a debt extinguished by prescription.” Id. art. 1847. Therefore, to the extent that
this obligation was a suretyship agreement—that is, a promise to pay RPC in the event Bayou
Steel failed to do so—the claim must fail because there was no writing. (Deposition of Shelley
Rome, Rec. Doc. 73-14, at 51:2-7; Deposition of Alton Davis, Rec. Doc. 71-3, at 47:19-25
(noting that Black Diamond only made verbal agreements to fund Bayou Steel)).
However, this Court does not find this promise to be one of suretyship. Black Diamond’s
arguments and evidence suggest that the agreement was to continue funding Bayou Steel
generally to help it operate—not to specifically cover RPC’s invoices or Bayou Steel’s expenses
in the event of financial difficulties. (See Statement of Contested/Uncontested Facts, Rec. Doc.
73-1, at 7 (admitting that Alton Davis testified that the commitment was to fund Bayou Steel,
“which [would] keep [it] in business and allow [it] to pay,” a different commitment from a
suretyship)). Article 1847’s Revision Comment (d) suggests that “a writing is not required to
prove a promise to pay the debt of a third person when the promisor had a material interest in
making the promise and has received something in return therefor.” LA. CIV. CODE art. 1847 rev.
cmt. (d). This exception is known as the unconditional promise to pay.
Louisiana’s jurisprudence for unconditional promises to pay suggests that the form of the
obligation is different from that of a suretyship. The Louisiana Second Circuit has described it as
follows:
[I]f the promisor has bound himself as principal with the person to whom credit is
extended, the rule [against parol evidence] is different. The obligation then is
independent and primary. The fact that both parties are responsible for the debt does
not alter the situation so far as primary responsibility to the creditor is concerned.
Hornsby v. Rives, 2 So. 2d 532, 534 (La. Ct. App. 2 Cir. 1941). When such a promise exists,
there is no suretyship, and parol evidence may be admitted. See Schloegel v. New Orleans
Disposal Serv., 261 So. 2d 108, 109 (La. Ct. App. 4 Cir. 1972); LA. CIV. CODE art. 1847 rev.
cmt. (d). Of course, inherent in an unconditional promise to pay in which an individual or entity
becomes the principal obligor is a promise from the obligor to the obligee.3 That is, for a promise
3 Bayou Steel understood that it was the contracting party that engaged RPC. (Deposition of Alton Davis,
Rec. Doc. 71-3, at 56:25-57:12 (noting that Bayou Steel was the direct contracting party and Black Diamond
was never the contracting party); id. at 57:24-58:20 (Black Diamond did not directly receive RPC
invoices)). Nevertheless, RPC argues that Black Diamond’s assurances to fund Bayou Steel converted it to
the principal debtor of the transaction.
to be construed as an unconditional promise to pay, that obligation must have been expressed
from Black Diamond to RPC, whether expressly or through an agent. For the reasons described
below, this Court finds that an issue of material fact exists as to the existence of apparent
authority in conveying the promise.
As an initial matter, it is uncontested that no direct or payroll employee of Black
Diamond ever directly made a promise to RPC. (Statement of Contested/Uncontested Facts, Rec.
Doc. 73-1, at 7). No Black Diamond representative was present when Bayou Steel employees
initially indicated that Black Diamond would cover the RPC invoices, nor was a representative
present when Bayou Steel reconfirmed the promise to RPC. (Id. at 8; see Deposition of Shelley
Rome, Rec. Doc. 73-14, at 51:8-18). Further, no promise was made in writing from Black
Diamond to RPC. (Deposition of Shelley Rome, Rec. Doc. 73-14, at 51:2-7). However, RPC
maintains that Bayou Steel extended the promise on Black Diamond’s behalf. For this promise to
have legal significance, Bayou Steel must have been acting with authority to bind Black
Diamond when it extended the promise.
Louisiana allows for both express4 and apparent agency, as well as apparent authority. To
establish that apparent authority exists, two elements must be met: “1) the principal must first act
to manifest the alleged agent’s authority to an innocent third party; [and] 2) the third party must
reasonably rely on the manifested authority of the agent.” Paratech, L.L.C. v. Nola Motor Club,
L.L.C., 2018 WL 1937274, at *3 (La. App. 5 Cir. 4/25/18) (citing Jefferson Par. Hosp. Serv.
Dist. No. 2 v. K&W Diners, L.L.C., 65 So. 3d 662 (La. App. 5 Cir. 4/12/11)). Agency is a
question of fact in Louisiana. Legros v. Great Am. Ins. Co. of N.Y., 865 So. 2d 792, 795 (La.
App. 3 Cir. 11/12/03) (citing Venable v. U.S. Fire Ins. Co., 829 So. 2d 1179 (La. App. 3 Cir.
4 RPC does not argue that express agency existed, and no facts support that Black Diamond expressly stated
that Bayou Steel was its agent.
10/30/02)). On that basis, Louisiana courts often refuse summary judgment where the existence
of an agency relationship is at issue. See, e.g., id.; McManus v. S. United Fire Ins., 801 So. 2d
392, 396 (La. App. 3 Cir 3/21/01); Kidd v. Indep. Fire Ins. Co., 668 So. 2d 406, 409-10 (La.
App. 4 Cir. 1/19/96).
Black Diamond argues that RPC was unreasonable as a matter of law in relying on
Shelley Rome’s apparent authority because Louisiana law dictates that third parties “seeking to
benefit from the doctrine of apparent authority may not blindly rely upon the assertions of an
agent” and that they have “a duty to inquire into the nature and extent of the agent’s power.”
Boulos v. Morrison, 503 So. 2d 1, 3 (La. 1987) (citing Buckley v. Woodlawn Dev. Corp., 98 So.
2d 92 (1957)). Buckley, the case upon which Boulos relied in declaring that third parties have
such a duty to inquire, noted that the ignorance of the third party could not be excused because
“the attendant facts and circumstances show[ed] that he was aware of the fact that [the purported
agent] required express and special authority” to commit the principal. Buckley, 98 So. 2d at 98.
It is true that RPC never inquired into the nature or extent of Rome’s power to bind Black
Diamond. (Deposition of Chad Bourgeois, Rec. Doc. 71-9, at 58:16-59:8 (stating that no one at
RPC verified Black Diamond’s commitment with Black Diamond or verified the accuracy of
Rome’s statement)). However, Buckley and Boulos are distinguishable. Boulos involved the
failure of sophisticated business persons to verify the statements of an individual who claimed
that he would obtain certain merchandise for them on behalf of a retail store; he confirmed his
promise only with an undated receipt signed “M.” Boulos, 503 So. 2d at 4. He also assured them
that he would deliver the merchandise to the hotel at which they were staying. Id. Despite their
industry experience, the plaintiffs failed to verify the statements of this individual, who was
lingering in the front of the store and who expected cash payment. See id. at 2. Therefore, they
could not show that they acted reasonably when they relied upon his statements that he was
acting on behalf of the store. Id. at 4. In Buckley, the third party also acted unreasonably. See
Buckley, 98 So. 2d at 98. There, the third party, armed with the knowledge that it was necessary
that the particular agent have express authority to enter into an agreement on his principal’s
behalf, relied blindly on the agent’s assurances that he had such authority. Id. The court noted
that a person dealing with a corporation “is generally bound to know whether or not the person
who assumes to represent the corporation and to act in its name is authorized to do so.” Id.
Different circumstances exist here. The question is not one of express agency, but one of
apparent authority. RPC had a significant course of dealing with Bayou Steel, including previous
dealings with and reliance on Shelley Rome. (Deposition of Chad Bourgeois, Rec. Doc. 71-9, at
58:1-21). According to the Louisiana Supreme Court, apparent authority is, in its truest sense, a
form of estoppel rather than agency. See Broadway v. All-Star Ins. Corp., 285 So. 2d 536, 538
(La. 1973) (“Apparent authority is a principal of estoppel, which operates in favor of third
persons seeking to bind a principal to an unauthorized act of an agent. In this context, it is both
fair and equitable to govern mutual rights and liabilities by the apparent scope of an agent’s
authority, because third persons, who are not privy to the actual terms of the agency agreement,
must rely entirely upon the indicia of authority with which the agency is vested.” (emphasis
added)). That is, implicit in the concept of apparent authority—whereby a third party relies upon
the “apparent scope” of the agent—is a factual determination of whether the surrounding
circumstances could cause a third party to reasonably believe that the agent could bind the
principal, even if the agent actually had no such authority.
The Louisiana Supreme Court has found certain manifestations to be relevant in
determining whether apparent authority exists, including considerations of prior dealings
between the parties, activity permitted by the principal, ratification by the principal, failure of the
principal to stop the agent from acting, and belief by the agent that it could act on the principal’s
behalf. See Tedesco v. Gentry Dev., Inc., 540 So. 2d 960, 962 n.5 (La. 1989). Some of these
circumstances exist here. For instance, Alton Davis believed that Black Diamond was the 100%
owner of Bayou Steel, suggesting that actions taken by Bayou Steel may have been taken on
behalf of Black Diamond, or may otherwise have been authorized by Black Diamond due to its
extensive control of Bayou Steel activity. (See Deposition of Alton Davis, Rec. Doc. 73-8, at
89:25-90:2). He also testified that he believed Rome to be honest and reliable. (Id. at 93:13-24).
Members of RPC similarly testified to their longstanding relationship with Rome, as well as her
trustworthiness. (Deposition of Chad Bourgeois, Rec. Doc. 71-9, at 58:1-21 (twice noting a
“longstanding relationship with Shelley” and that he “[did not] believe she would lie to
[RPC]”)). Moreover, third parties were aware of Bayou Steel’s financial difficulties and the role
that Black Diamond played in its operational structure. (Deposition of Alton Davis, Rec. Doc.
73-8, at 96:4-11). In fact, Bayou Steel required Black Diamond money to fund large-scale capital
expenditures (Deposition of Kevin Kirkland, Rec. Doc. 73-25, at 41:5-10), with Black Diamond
“expected to fund the long-term issues.” (Id. at 41:22-24). Taking these facts together, it cannot
be said as a matter of law that RPC’s belief that authority existed was patently unreasonable;
rather, a reasonable jury could find that these manifestations were sufficient to cause a
reasonable person to believe that an agency relationship existed. Therefore, summary judgment
is not appropriate at this stage.5
5 The Court notes that there is a disparity between the promise given by Black Diamond to Bayou Steel,
and that which was ultimately passed to RPC by Bayou Steel. Some testimony states that the initial promise
was to fund Bayou Steel as an entity—not to specifically fund the projects performed by RPC or to act as
the principal debtor in any service agreement. Alton Davis’s deposition testimony clearly suggests such an
understanding. (Deposition of Alton Davis, Rec. Doc. 71-3, at 73:4-13 (describing his understanding that
“Black Diamond was going to continue to fund [Bayou Steel]”)). He answered that no one from Black
2. Detrimental Reliance
In the alternative, RPC claims that it detrimentally relied upon Black Diamond’s promise
that it would continue funding Bayou Steel in choosing to provide services to Bayou Steel.
Detrimental reliance requires the satisfaction of five elements: “(1) the defendant (promisor)
made a promise to the plaintiff (promisee); (2) the defendant knew or should have known that the
promise would induce the plaintiff to rely on it to his detriment; (3) the plaintiff relied on the
promise to his detriment; (4) the plaintiff was reasonable in relying on the promise; and (5) the
plaintiff suffered damages as a result of the reliance.” Masita v. Maumoulides, 341 So. 3d 11, 25
Diamond ever told him that Black Diamond would pay suppliers in the event that Bayou Steel could not.
(Id.). He also testified that he never informed RPC that Black Diamond would cover the RPC invoices in
the event Bayou Steel could not; instead, he said that Bayou Steel was told that it would be funded and
therefore be able to cover costs. (Id. at 73:14-20). When asked again about the promise, he repeated that
the promise was that Black Diamond would fund Bayou Steel whenever it needed money; indeed, he would
not commit to a statement that Black Diamond would specifically pay for the work performed by RPC. (Id.
at 111:1-112:13). Phil Raygorodetsky, a Black Diamond-placed member of Bayou Steel’s board of
directors, noted that support payments were never expressly granted. (Deposition of Philip Raygorodetsky,
Rec. Doc. 71-6, at 300:11-301:11 (stating that he has no recollection of Alton Davis, Shelley Rome, or any
other Bayou Steel employee asking Black Diamond to commit to paying RPC invoices in the event Bayou
Steel lacked sufficient funds to pay RPC); id. at 301:12-19 (stating that he was unaware of Black Diamond
ever committing to backstop payments to any vendor of a portfolio company, including Bayou Steel)).
However, other evidence proves that the promise conveyed from Bayou Steel to RPC was “that
Black Diamond [had] agreed to fund the project that was happening during the shutdown.” (Deposition of
Shelley Rome, Rec. Doc. 71-7, at 47:7-9). This promise—one which suggests that Black Diamond would
act as the principal debtor by specifically funding this project—is different from a promise to generally
fund Bayou Steel. Shelley Rome, however, did not believe that what she conveyed was any different from
what Alton Davis had conveyed to her. When asked if her promise was “different from telling River Parish
that Black Diamond’s going to pay their invoices,” she said that it was not. (Id. at 47:10-15). In fact, when
questioned further about the promise and the difference between funding the plant and paying specific
invoices, she stated that she considered such a difference “mincing words” and that “the intent was that
Black Diamond was going to support the turnaround and assure that the funds would be available for the
invoices to be paid.” (Id. at 47:24-48:2). Rome went on to say that the reassurance provided to RPC was
that “Black Diamond was committed to making sure that [RPC] got paid based on the original guarantee.”
(Deposition of Shelley Rome, Rec. Doc. 73-14, at 63:10-11). One RPC representative, Chad Bourgeois,
noted that at a follow-up meeting, RPC sought reassurance that Black Diamond’s “original agreement was
still in place,” which he described as “the promise to pay.” (Deposition of Chad Bourgeois, Rec. Doc. 71-
9, at 91:15-18). He testified that Alton Davis assured RPC that the promise remained in place. (Id.).
At this time, the Court does not decide whether the promise that was ultimately conveyed to RPC
qualifies as an unconditional promise to pay or make any determination regarding the legal effect of the
disparity of the promises, except to note the potential effect on the reasonableness of RPC’s reliance.
(La. App. 1 Cir. 11/15/21); accord Wooley v. Lucksinger, 961 So. 2d 1228, 1238 (La. App. 1 Cir.
5/4/07) (citing references in note 11).6
The only way RPC’s detrimental reliance claim may succeed is if Black Diamond made a
promise to RPC. As discussed at length above, the promise assured that Black Diamond would
fund Bayou Steel in such a manner that RPC would be paid; that promise was passed from Black
6 The Court notes that this definition is not uniform across Louisiana courts. Other cases suggest that a
direct promise from the defendant promisor to the plaintiff promisee is not necessary: “[T]o successfully
assert a claim for detrimental reliance, a plaintiff must establish: ‘(1) a representation by conduct or word;
(2) justifiable reliance; and (3) a change in position to one’s detriment because of the reliance.’” Patriot
Constr. & Equip., LLC v. Rage Logistics, LLC, 215 So. 3d 844, 852 (La. App. 3 Cir. 4/6/16) (emphasis
added) (quoting Luther v. IOM Co. LLC, 130 So. 3d 817, 825 (La. 10/15/13)); accord Belin v. Dugdale, 43
So. 3d 272, 282 (La. App. 2 Cir. 6/30/10) (citing Miller v. Miller, 817 So. 2d 1166 (La. App. 2 Cir. 5/8/02)).
Nevertheless, for the reasons that follow, this Court believes that Louisiana’s detrimental reliance statute
requires that the promise be made from the defendant promisor to the plaintiff promisee.
The Louisiana Supreme Court has hinted that such a requirement is necessary to prevail under
detrimental reliance. In Barrie v. V.P. Exterminators, Inc., the Louisiana Court of Appeals for the Fourth
Circuit found that where a termite inspection report was relied upon by a third-party purchaser of real
property, claims of negligent misrepresentation (tortious) and detrimental reliance (contractual) both must
fail due to a lack of privity between the parties. 614 So. 2d 295, 296-97 (La App. 4 Cir. 1993). In reversing
the judgment, the Louisiana Supreme Court only discussed the negligent misrepresentation holding, noting
that such privity was not necessary in actions founded in tort. Barrie v. V.P. Exterminators, Inc., 625 So.
2d 1007, 1015-16, 1018 (La. 1993). Although courts have long battled as to whether detrimental reliance
is contractual or tortious in nature, it is settled that detrimental reliance in Louisiana is a contractually borne
issue. Murphy Cormier Gen. Contractor, Inc. v. State, Dep’t of Health & Hosps., 114 So. 3d 567, 598 n.11
(La. App. 3 Cir. 5/22/13) (“La. Civ. Code art. 1967 is under that portion of the Louisiana Civil Code that
pertains to contracts. Scholarly interpretation of La. Civ. Code art. 1967 buttresses the argument that
detrimental reliance sounds in contracts . . . .”).
The language of the detrimental reliance article in the Civil Code bolsters this interpretation. Civil
Code article 1967 reads as follows: “A party may be obligated by a promise when he knew or should have
known that the promise would induce the other party to rely on it to his detriment and the other party was
reasonable in so relying.” LA. CIV. CODE art. 1967. Although the language is not explicitly clear, the use
of “other party” in the contractual obligations section of the Civil Code suggests that the claim is not meant
to create unfettered liability in promissory estoppel claims by extending to third parties. Instead, the cause
of action is intended to reach only those parties bound by privity of contract. See Suire v. Lafayette City-
Par. Consol. Gov’t, 907 So. 2d 37, 59 (La. 4/12/05) (“[T]he basis of detrimental reliance is ‘the idea that a
person should not harm another person by making promises that he will not keep.’ Thus, the focus of
analysis of a detrimental reliance claim is . . . whether a representation was made in such a manner that the
promisor should have expected the promisee to rely on it . . . .” (emphasis added) (quoting Morris v.
People’s Bank & Tr. Co., 580 So. 2d 1029, 1036 (La. App. 3 Cir. 1991))). Such a result is also supported
by some state courts of appeals. See, e.g., Magic Moments Pizza, Inc. v. La. Rest. Ass’n, 819 So. 2d 1146,
1149 (La. App. 5 Cir. 5/29/02) (“Furthermore, contractual cause of actions [sic] based upon detrimental
reliance apply only to contracting parties, and not to third parties.”). Therefore, this Court is satisfied that
the promise must have run from Black Diamond to RPC, whether expressly or through an agent.
Diamond’s membership of Bayou Steel’s board to Alton Davis, to Shelley Rome, to RPC. As
with RPC’s first claim, an issue of material fact exists as to whether Rome had apparent
authority to bind Black Diamond in expressing a promise to RPC that it would fund the
turnaround project. Therefore, summary judgment may only be granted as to the detrimental
reliance claim if it fails as a matter of law as to one of the other elements. Black Diamond’s only
other challenge in this motion asserts that RPC was unreasonable as a matter of law in relying
upon the promise.
Black Diamond argues that RPC’s reliance was unreasonable as a matter of law because
RPC had a ready and convenient means of determining the facts concerning the representations
made but failed to do so. In support of this statement, it cites Fucich Contracting, Inc. v. Shread-
Kuyrkendall & Assocs., Inc. for the proposition that detrimental reliance claims cannot lie “[i]f
the evidence reveals that the asserting party had actual knowledge, or a ready and convenient
means of determining the facts concerning representations made.” No. 18-2885, 2019 WL
6877646, at *9 (E.D. La. Dec. 17, 2019) (citations omitted). The Court has reviewed the legal
basis for this statement and is not convinced that such a finding precludes a claim for detrimental
reliance as a matter of law. Indeed, cases discussing this requirement relate to equitable estoppel,
not detrimental reliance. See, e.g., Knippers v. Lambard, 620 So. 2d 1368, 1375 (La. App. 2 Cir.
1993); KPW Assocs. v. S.S. Kresge Co., 535 So. 2d 1173, 1180 (La. App. 2 Cir. 1988); Twillie v.
H.B. Zachry Co., 380 So. 2d 747, 751 (La. App. 4 Cir. 1980). Further, the case in which this
requirement originated noted that equitable estoppel requires an “affirmative showing that the
party pleading it was misled by the acts of the other party and forced to act to his prejudice,” and
that the only diligence necessary is that “as would reasonably be expected under the prevailing
circumstances to avoid mistake or misunderstanding.” Twillie, 380 So. 2d at 750 (emphasis
added).
As an initial matter, equitable estoppel is judicially created, see Wilkinson v. Wilkinson,
323 So. 2d 120, 126 (La. 1975), whereas detrimental reliance is founded in the Civil Code.
Further, the requirements of the causes of action are distinguishable: equitable estoppel requires
a bad-faith-type showing not necessary in detrimental reliance. Finally, even if such diligence
were also required in detrimental reliance cases to survive a motion for summary judgment, RPC
does not appear to have acted so patently unreasonably as a matter of law that it warrants the
grant of summary judgment in this instance, especially given its previous course of business with
Bayou Steel.
Still, to survive summary judgment, RPC’s reliance must not have been unreasonable as a
matter of law in some other way. Whether a party’s reliance on a representation is reasonable is a
question of fact in Louisiana. See Babkow v. Morris Bart, P.L.C., 726 So. 2d 423, 428 (La. App.
4 Cir. 12/16/98); see also Drs. Bethea, Moustoukas & Weaver v. St. Paul Guardian Ins. Co., 376
F.3d 399, 403 (5th Cir. 2004).7 However, Louisiana law recognizes specific situations in which a
plaintiff’s reliance is unreasonable as a matter of law. St. Paul Guardian Ins. Co., 376 F.3d at
403. For instance, “it is unreasonable as a matter of law to rely on an offer of at-will
employment, just as it is patently unreasonable to rely on the permanency of at-will employment
once it begins.” May v. Harris Mgmt. Corp., 928 So. 2d 140, 148 (La. App. 1 Cir. 12/22/05).
Additionally, “a plaintiff’s reliance on an oral, gratuitous promise to transfer land was held
unreasonable as a matter of law because Louisiana law provides that ‘reliance on a gratuitous
7 Although Babkow noted that reasonableness is a question of fact, it noted that business acumen may be
considered in making such a determination. Babkow, 726 So. 2d at 428 (“[A] promisee’s business acumen
is properly considered when determining reasonableness of the claimed reliance.” (quoting Acad. Mortg.
Co., L.L.P. v. Barker, Boudreaux, Lamy & Foley, 673 So. 2d 1209, 1212 (La. App. 4 Cir. 4/24/96))).
promise made without required formalities is not reasonable.’” St. Paul Guardian Ins. Co., 376
F.3d at 403 n.14 (quoting Gray v. McCormick, 663 So. 2d 480, 486 (La. App. 3 Cir. 1995)).
Interpretation of a fully integrated contract is a question of law. Wilson v. Cost+ Plus of Vivian,
Inc., 375 So. 2d 683, 685 (La. App. 2 Cir. 1979). Therefore, when a plaintiff relies on promises
made outside of an unambiguous, fully integrated agreement, such reliance is unreasonable as a
matter of law. Omnitech Intern., Inc. v. Clorox Co., 11 F.3d 1316, 1330 (5th Cir. 1994).
RPC’s reliance on this manifestation does not mirror any of the examples listed above.
The evidence demonstrates that Black Diamond had extensive control over Bayou Steel,
including over its day-to-day decision-making (Deposition of Kevin Kirkland, Rec. Doc. 73-25,
at 33:7-23 (referring to the Black Diamond executives’ participation in management as “extreme
micromanaging”)); over its expenditures and capital management (Id. at 40:4-42:21; Deposition
of Alton Davis, Rec. Doc. 71-3, at 43:21-24); over its personnel decision-making (Deposition of
Alton Davis, Rec. Doc. 73-8, at 103:22-104:17); and over handling various plant issues, such as
discipline for poor performance by ground-level employees (Email from Sam Farahnak to Alton
Davis, Philip Raygorodetsky, James Hogarth, and Greg Schunk, Rec. Doc. 73-30, at 3 (asking
whether “we do anything from a disciplinary standpoint to hold the operator who made the
mistake accountable”)). On the other hand, the fact that RPC and Black Diamond are
sophisticated business entities and possess financial acumen and an understanding of corporate
structures and protocol may also be considered. The Court does not highlight these particular
facts to demonstrate that there was or was not reasonable reliance on the promise or on any
purported agency; instead, these facts merely demonstrate that a reasonable jury could find that
RPC was reasonable in relying on the promise made by Bayou Steel, especially given their
course of dealing with Bayou Steel and Black Diamond and the way in which the entities
operate. Because both agency and the reasonableness of RPC’s reliance are issues of material
fact, this Court cannot grant summary judgment as to the detrimental reliance claim.
Accordingly;
IT IS ORDERED that the Motion for Summary Judgment (Rec. Doc. 71), filed by
Defendant, Black Diamond Capital Management L.L.C., is DENIED.
June 18, 2024 C |
Ss 2 | aa EY |
(ker D STATES DISTRICT JUDGE
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