C.A.F. & Assocs., LLC v. Portage, Inc.

• Decision Date: 19 December 2012
• Docket Number: Civil Action No. 5:11–CV–00074.
• Court: U.S. District Court — Western District of Kentucky
• Parties: C.A.F. & ASSOCIATES, LLC, Plaintiff v. PORTAGE, INC. and Paducah Remediation Services, LLC, Defendants.

913 F.Supp.2d 333

C.A.F. & ASSOCIATES, LLC, Plaintiff

v.PORTAGE, INC. and Paducah Remediation Services, LLC, Defendants.

Civil Action No. 5:11–CV–00074.

United States District Court, W.D. Kentucky,

Paducah Division.

Dec. 19, 2012.

Anthony M. Zelli, Michael M. Hirn, Dinsmore & Shohl LLP, Louisville, KY, for Plaintiff.

David L. Kelly, Denton & Keuler, LLP, Mark C. Whitlow, Whitlow, Roberts, Houston & Straub, PLLC, Paducah, KY, for Defendants.

MEMORANDUM OPINION AND ORDER

THOMAS B. RUSSELL, Senior District Judge.

This matter is before the Court upon Plaintiff C.A.F. & Associates, LLC's Motion for Partial Summary Judgment, (Docket No. 35), and Defendants Paducah Remediation Services, LLC, and Portage, Inc.'s Motions for Summary Judgment, (Docket Nos. 34 & 36, respectively). Defendants have responded to Plaintiff's Motion, (Docket Nos. 38 & 40), and Plaintiff has replied, (Docket No. 43; 47); Plaintiff has also responded to Defendants' Motions (Docket Nos. 41; 42), and Defendant Portage, Inc., has replied, (Docket No. 48). This matter is now ripe for adjudication. Because the parties' several motions are necessarily related, the Court will address the parties' respective arguments collectively in this Opinion. For the reasons that follow, Plaintiff's Motion for Partial Summary Judgment, (Docket No. 35), is DENIED; and Defendants' Motions for Summary Judgment, (Docket Nos. 34 & 36), are each GRANTED IN PART and DENIED IN PART.

BACKGROUND

This matter centers on a dispute between Plaintiff C.A.F. & Associates, LLC (CAF), and Defendants Portage, Inc. (Portage), and Paducah Remediation Services, LLC (PRS) (collectively “Defendants”). PRS was formed by Shaw Environmental, Inc. (Shaw), and Portage Environmental, Inc. (now known as Portage) for the purpose of bidding on a Department of Energy (DOE) contract (DOE Contract) to manage the environmental cleanup operation at the Paducah Gaseous Diffusion Plant (PGDP). Management of PRS was shared between Portage and Shaw, but Portage was the controlling member. PRS won the bid and began managing cleanup at the PGDP in July 2005.

After performing under the DOE Contract for nearly four years, PRS terminated its PGDP site manager in February 2009, citing poor performance. ( See Docket No. 35–2, at 6.) Michael Spry, president of both PRS and Portage, took over as interim site manager until April 2009 when Dan McDonald was hired. McDonald quit approximately six weeks later. The parties offer varying characterizations of how the relationship between Portage and Dennis Ferrigno, CAF's principal, began. In effect, Portage and Ferrigno began talks in late spring or early summer of 2009 about Ferrigno serving as site manager and CAF providing site-management services at the PGDP site. ( See Docket Nos. 35–1, at 2–3; 36–1, at 1–2; 34–2, at 1–2.) Negotiations among Ferrigno/CAF, Portage, and PRS (who were all represented by counsel during the negotiation process) carried on over several months and produced successive versions of variously styled draft agreements among the parties. The last of these took the form of a “Memorandum of Understanding” (MOU), which was signed by Ferrigno and CAF on September 1 and by PRS and Portage on September 15, 2009. ( See Docket No. 36–2, at 6.) This MOU is at the heart of the instant debate and the parties' respective Motions.

The MOU consists of four pages of substance plus twenty-some-odd pages of attachments. It opens with the following two paragraphs (altered only to simplify the parties' names):

This Memorandum of Understanding hereby states the mutual understanding and intent of [Portage, PRS, CAF, and Ferrigno], to enter into a business relationship. The business relationship defined in this Memorandum of Understanding (MOU) is structured to allow Portage, Ferrigno and CAF to meet multiple short-term and long-term strategic goals and provide benefit to all parties.

This MOU is created solely for purposes of outlining the general terms for the business relationship, including the possible acquisition of certain assets of CAF by Portage and is not intended to be an offer to sell or to purchase securities or any other interest. Neither party shall be bound to take any specific action other than what is described in this MOU unless and until definitive subcontracts, offer letters, employment agreements and an asset purchase agreement has been executed by the parties (collectively, the “Additional Agreements”).

(Docket No. 36–2, at 2.) The MOU goes on to outline these “Additional Agreements” under the section headings “Subcontract No. 1,” “Subcontract No. 2,” “Contingent Offer Letter,” and “Asset Purchase Agreement.” (Docket No. 36–2, at 2–4.) The primary issue here relates to the first Additional Agreement, “Subcontract No. 1,” about which the MOU provides, in pertinent part:

Subcontract to be prepared in the ordinary course of business between Portage and CAF to retain the services of Ferrigno and twenty (20) additional full-time staff equivalents (FTEs) to support Portage ... or other ventures controlled or directed by [it].

• Specifically, Ferrigno shall be become [sic] the site manager for [PRS], on or about September 01, 2009 and in that capacity will represent Portage in the management and operation of [PRS]....

• Upon acceptance by the [DOE] of Ferrigno as site manager for the current work through its present period, Ferrigno shall receive from Portage/PRS joint venture $50,000 sign-on bonus for accepting the site manager position....

....

• The additional twenty (20) CAF FTEs to be provided to Portage and/or [PRS] shall be utilized in a staff augmentation role and, beginning on or about August 17, 2009. The CAF staff shall start to be placed on contracts held by Portage and/or [PRS] with the goal of placing all twenty (20) FTEs no later than December 31, 2009. Regardless of the contract period for the [PRS] Contract extension, the parties agree that the term of subcontract for these 20 staff shall not be less than 1 year starting from the date of hire, and may extend through the date of the [PRS] Contract extension. Portage will support CAF's efforts to recruit and relocate individual CAF employees and, where appropriate, may transfer to CAF some of the employees leaving Portage or [PRS].

• Attachment 1 ... is included as reference. This document summarizes the ... contract agreements, terms, conditions, compensation and expectations for all activities associated with CAF and PRS, each of which shall be individually negotiated by Portage and CAF contracts and finance departments prior to execution.

(Docket No. 36–2, at 2–3.) After addressing each of the remaining Additional Agreements envisioned by the MOU, a section appears titled “Additional Terms and Conditions,” which states, in relevant part:

The following additional terms and conditions apply to this MOU and to the Additional Agreements described herein.

• Due Diligence. All parties will hereby make available to the other all relevant information and records necessary to give full force and effect to this MOU and to enter into the Additional Agreements.

• Due Diligence Results. If for any reason the result of any party's Due Diligence are unsatisfactory, that party will have the right not to proceed with any Additional Agreements without penalty, except as provided under Asset Purchase Agreement.

(Docket No. 36–2, at 5.) And finally, the MOU concludes with a final sentence:

This MOU does not purport to summarize all of the provisions which would be contained in the definitive transaction documents, but does contain a general description of the parties' intentions for entering into the Additional Agreements.

(Docket No. 36–2, at 5.)

Of principal import to each of CAF's causes of action is the issue of the 20 FTEs. There is no dispute that no subcontracts were ever entered into for the 20 FTEs. According to Defendants, “the reason Portage entered into an MOU rather than a subcontract was because they could not yet define what opportunities it could provide for the 20 additional FTEs.” (Docket No. 36–1; see also Docket No. 50–6, at 8.) Consistent with this position, Portage's then-president Mike Spry testified that he did not promise Ferrigno that 20 FTEs would be hired because he could neither guarantee there would be sufficient work available nor that a subcontract could be negotiated for the 20 FTEs' services. (Docket No. 36–1, at 7–8; see also Docket No. 50–4, at 14–15.) Thus, from Portage's perspective, the MOU did not reflect a binding agreement to hire the 20 FTEs.

Portage also alleges that the reason no subcontracts were entered into for the 20 FTEs was ultimately CAF's fault for two reasons: (1) because CAF “refused to fill any positions requested by Portage under the guise that Portage was obligated to retain CAF only for ‘professional’ positions, a condition specifically negotiated out of the MOU,” and (2) because CAF neither provided a rate structure typical of federal contractors performing cost-plus-type contracts, nor demonstrated it had an adequate cost-accounting system typical of federal contractors. (Docket No. 36–1, at 8.) In regard to its first reason, Portage insists it presented CAF an opportunity to provide “well in excess” of 20 FTEs in August 2010 on a project in Los Alamos, New Mexico, for positions including CDL truck drivers, radiological control technicians, “persons in charge” ( i.e., project managers), operation center operators (which Portage describes as “typically engineers and scientists”), and equipment operators and laborers. (Docket No. 36–1, at 8–9.) But, says Portage, “CAF refused to supply any of these positions under the guise that Portage was obligated to offer ‘professional’ staff positions,” a term which Portage maintains “was specifically negotiated out of the MOU in relation to the 20 additional FTE's.” (Docket No. 36–1, at 9.)

CAF and Ferrigno, however, see the issue of the 20 FTEs quite differently. According to CAF, the 20...