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Progressive Waste Solutions of LA Inc. v. St. Bernard Parish Government

United States District Court, E.D. Louisiana

April 11, 2017


         SECTION "L" (5)

          ORDER & REASONS

         Currently before the Court are Consolidated Defendants SDT, Inc. and Sidney D. Torres, IV's (“SDT Defendants”) Motion to Dismiss for Failure to State a Claim (R. Docs. 101, 106) and Plaintiff Progressive Waste Solution's Motion for Summary Judgment (R. Doc. 109). After reviewing the briefs, the applicable law, and counsels' statements at oral argument, the Court now issues this Order & Reasons.

         I. BACKGROUND

         These consolidated cases arise out of a contract dispute. Plaintiff Progressive Waste Solutions of LA, Inc. (“PWS”) is a Delaware corporation that specializes in solid waste removal. R. 1 at 1-2. In early 2006, St. Bernard Parish Government (“St. Bernard”) issued a Request for Proposals for Municipal Solid Waste Removal, Curb Side Pick Up. R. 1 at 2. SDT Waste & Debris Services, LLC, (“SDT”) submitted a proposal, and on July 27, 2006, contractually agreed to provide solid waste removal services to St. Bernard. R. 1 at 2. On February 7, 2007, SDT entered into a Time Contract with St. Bernard regarding both curb side pick-up services and dumpster pick-up services. The Time Contract was set to commence on January 28, 2008, and terminate on January 27, 2014. R. 1 at 3. The Time Contract also provided SDT the option to extend the agreement through July 26, 2016. R. 1 at 3.

         In June of 2011, SDT was purchased by IESI LA Corporation, which included the transfer and assignment of the July 27, 2006 Agreement and the February 7, 2007 Time Contract. Despite the purported term of the Time Contract extending to at least January 27, 2014, St. Bernard told IESI that St. Bernard intended to terminate the contractual relationship. On December 5, 2011, St. Bernard sought bids for curb side pick-up services and dumpster pick up services. R. 1 at 3-4. On December 8, 2011, IESI filed a Petition for Temporary Restraining Order, Preliminary and Permanent Injunction, and Declaratory Judgment in the Thirty-Fourth Judicial District Court for the Parish of St. Bernard. R. 1 at 4. The state court issued the preliminary injunction on December 14, 2011, and enjoined St. Bernard from requesting proposals for bids for solid waste collection. R. 1 at 4. One week later, the state court enjoined St. Bernard from entering into any new contract for the services currently being performed by IESI. R. 1 at 4.

         IESI changed its name to Progressive Waste Solutions of LA, Inc. (“PWS”) on January 12, 2012. In May of 2013, St. Bernard once again issued Requests for Proposals inviting vendors to submit proposals for the waste collection services provided by PWS. R. 1 at 4. In response, PWS filed a Motion for Contempt and a Second Supplemental and Amending Petition for Temporary Restraining Order, Preliminary and Permanent Injunction and Declaratory Judgment in state court on May 20, 2013. R. 1 at 4-5. The parties resolved their differences before the state court could rule. St. Bernard agreed to extend the Time Contract through December 31, 2020. PWS in turn reduced its rates from $20.00 per household per month to $15.50 per household. R. 1 at 5. Two months later, PWS and St. Bernard entered into a new Time Contract that extended PWS's provision of solid waste services until December 31, 2020.

         On May 19, 2016, St. Bernard wrote to PWS stating that they intended to unilaterally terminate the solid waste services contract on July 6, 2016. St. Bernard provided two reasons for the termination: (1) the St. Bernard Home Rule Charter prohibits contracts for services not covered by public bid law exceeding three years; and (2) PWS breached the contract by missing residential pickups. R. 1 at 6, 1-7. PWS filed suit in response, requesting injunctive relief and a declaratory judgment. R. 1 at 7-9. PWS also sought damages for breach of contract, detrimental reliance, and deprivation of rights under color of law. R. 1 at 9-13.

         In response, St. Bernard filed five counter claims against PWS. R. 35. First, St. Bernard alleges a breach of contract claim for overbilling for the quantity of services performed from August 1, 2006 through December 31, 2012. R. 35 at 8-9. Second, St. Bernard alleges a breach of contract claim for overbilling in pricing from January 20, 2014 to December 31, 2014 and January 21, 2015 and December 31, 2015. R. 35 at 10. Third, St. Bernard alleges that “PWS breached its obligations under the contract” by failing to collect trash on certain dates and times, and allowing spillage to occur during garbage collection. R. 35 at 11. Fourth, St. Bernard sought a declaratory judgment that the first and second SDT contracts, as well as the PWS contract were awarded in violation of Louisiana's public bid law. R. 35 at 12. Finally, St. Bernard sought a declaration that the second SDT contract and PWS contract violated the St. Bernard Charter. R. 35 at 14. PWS seeks indemnification from the SDT Defendants in relation to the first counterclaim.

         Pelican Waste and Debris, LLC (“Pelican”), filed a Motion for Leave to File Intervention on June 16, 2016. R. 11. The Court granted the Order, finding that Pelican had an interest in the litigation. Specifically, Pelican alleged that it was hired by St. Bernard to replace PWS as the provider of residential waste removal services in St. Bernard Parish, and that its interests will be frustrated and it will be prejudiced if PWS receives its requested relief.

         The Court denied the Motion for Preliminary Injunction on Friday, June 24, 2016. On August 9, 2016, the Court issued an Order resolving various motions for summary judgment filed by the parties. The Court found that St. Bernard's contract with PWS was invalid as it violated the terms of the St. Bernard Charter, and its contract with Pelican was invalid because it was reached without following St. Bernard Parish's procedures for public service contracts. See R. 97.

         Then on October 25, 2016, PWS filed this consolidated case against SDT, Inc. and Sidney D. Torres, IV, (“SDT Defendants”) seeking a declaratory judgment. No. 16-15830, R. 1. PWS alleges that at on June 1, 2011 Torres owned 100% of SDT Waste & Debris Services, LLC (“SDT Waste & Debris), when IESI LA Corp, now known as PWS, entered a Purchase Agreement to acquire 100% ownership of SDT. According to the terms of that Agreement, SDT and Torres agreed to “indemnify, defend, protect and hold harmless” IESI or its successors from any losses, liabilities, or claims, including costs and expenses, sustained by IESI or a successor corporation as a result of any intentional misrepresentations or omissions by SDT or Torres in the Purchase Agreement. R. 1 at 4. Plaintiffs allege this included an obligation to defend IESI in any proceeding that was instituted after June 1, 2011 if those claims arose before June 1, 2011. R. 1 at 4.

         According to Plaintiffs, St. Bernard Parish has a current suit pending in this Court against PWS as a result of SDT's overbilling between August 1, 2006 and December 31, 2012. Specifically, Plaintiffs allege that a dispute between SDT and St. Bernard arose during this period regarding disposal costs, and while the SDT Defendants claim this dispute was resolved, St. Bernard Parish considered litigating these issues, and each party retained a forensic accountant to evaluate these claims. Plaintiffs aver they were not notified of this dispute in the Purchase Agreement. R. 1 at 6. Plaintiffs claim St. Bernard and SDT had another dispute regarding the appropriate number of units SDT should bill St. Bernard during this same period. R. 1 at 7. Plaintiffs allege that St. Bernard reduced its payments to SDT, while SDT continued to bill St. Bernard for the same amounts. Plaintiffs aver that the parties never resolved this dispute, and it was not disclosed to PWS at the time of the purchase. R. 1 at 7.

         Plaintiffs claim that each of the above disputes led to the lawsuit between PWS and St. Bernard, as St. Bernard seeks to recover payments made as a result of services SDT did, or did not, provide prior to June 1, 2011. R. 1 at 8. Further, Plaintiffs allege that Torres' threats of a lawsuit against Mr. Taffaro, St. Bernard Parish President, constitute a threat to institute a claim, as contemplated in the Purchase Agreement. R. 1 at 9. Because PWS was not notified of these potential claims and suits at the time of the sale, it now seeks a declaratory judgment that it is entitled to indemnification and defense costs for the portion of the St. Bernard counterclaim that arises from the actions of the SDT Defendants prior to June 1, 2011. R. 1 at 10. PWS submitted a demand letter to SDT reflecting such, and SDT responded that even if the claims fell within the terms of the indemnification provision, that provision expired four years after the sales date, and thus the indemnification provision no longer applies. R. 1-6. However, SDT agreed that if the St. Bernard claims are covered by Section 9.7 of the Purchase Agreement, which sets out SDT's ongoing duty to defend, than SDT would provide a defense-but not indemnification-for the relevant counterclaim. SDT explained it had retained counsel to coordinate this defense. R. 1-6 at 2.

         PWS argues that the temporal limitations do not apply to the indemnification agreement, because the claims existed prior to the agreement and were intentionally not disclosed. PWS seeks a declaratory judgment from this Court as to its rights to defense and indemnification under the terms of the agreement. R. 1 at 13. Plaintiffs also seek attorney fees. R. 1 at 14.

         II. Purchase Agreement

         Before reviewing the parties' arguments, the Court finds it appropriate to discuss the relevant terms of the Purchase Agreement. On June 1, 2011, IESI (now known as PWS), SDT, Inc. and Sidney D. Torres, IV, entered a purchase agreement. The agreement contains a chapter outlining the indemnifications obligations SDT owed to IESI/PWS after the sale. The relevant sections of that chapter provide:

9.1 Indemnification by Sellers. Subject to section 9.2, each of the Sellers covenants and agrees to indemnify, defend, protect, and hold harmless Buyer . . . from and against and in respect of all liabilities, losses, claims, damages . . . and costs and expenses (including without limitation reasonable attorneys' fees) (collectively, “Damages”) sustained, incurred, or paid by the Buyer Indemnified Parties in connection with, resulting from, or arising out of directly or indirectly; (a) any misrepresentation in, omission from, breach or claim of breach or any representation or warranty of either of the Sellers set forth in Section 2.3, and any intentional misrepresentation or omission by either of the Sellers contained in this Agreement or any other document or instrument delivered in connection with this Agreement.
9.2 Limitation of Indemnification by Sellers.
(a) Notwithstanding the foregoing, (i) Sellers' aggregate liability for indemnification under this Agreement with respect to any claims under Section 9.1 shall not exceed the amount equal Ten Million and No/100 Dollars ($10, 000, 000) and (ii) Buyer may not bring any claim under Section 9.1 after the fourth anniversary of the Closing Date. (emphasis added).
(b) Notwithstanding the foregoing, the provisions contained in Section 9.2(a) shall not apply to any claim for indemnification with respect to (i) claims made under Section 9.1(a) . . . or (iii) claims made under Sections 9.1(f), (g) or (h) or Section 9.7.” (emphasis added).

         Thus, read in conjunction, Sections 9.1 and 9.2 provide that the Seller has an obligation to defend and indemnify the Buyer for any claims or damages which relate to the Seller's conduct before the Purchase Agreement. This obligation ends four years after the date of the Purchase Agreement. However, if the claim arises from a misrepresentation or omission the Seller made in the Agreement, the four year time limit does not apply. Further, Section 9.7 of the agreement provides:

(a) Sellers jointly and severally agree to defend Buyer and the other Buyer Indemnified Parties . . . against any and all claims or demands made or threatened to be made or causes of actions or proceedings instituted or threatened to be instituted against such persons in connection with any of the matters set forth on Schedule 9.7 . . . and any other claims, causes of actions or other proceedings that are either made or instituted (i) prior to the Closing Date or (ii) subsequent to the Closing Date to the extent that such claims, actions or proceedings relate to or arise out of any period of time on or before the Closing.
(d) sellers agree to pay for any costs incurred in connection with the defense of the Existing Claims, including any fines, orders, interests, penalties, settlement amounts or other damages payable in connection therewith.

         In other words, Seller [SDT] agrees to defend[1] Buyer [PWS] from claims that are made before the Closing Date, or relate to or arise out of the Seller's actions before the Closing. PWS has now filed a Complaint seeking a Declaratory Judgment that the SDT Defendants have an obligation to indemnify PWS for any liability it incurs as a result of St. Bernard's counterclaims. First, PWS argues the indemnity obligation arises from Section 9.1 of the Agreement, as the counterclaims arise from a ...

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