C & E Services, Inc. v. Ashland, Inc.

• Decision Date: 02 August 2007
• Docket Number: Civil Action No. 03-1857 (EGS).
• Citation: 498 F.Supp.2d 242
• Parties: C & E SERVICES, INC. and Carl L. Biggs, Plaintiffs, v. ASHLAND, INC., Defendant.
• Court: U.S. District Court — District of Columbia

498 F.Supp.2d 242

C & E SERVICES, INC. and Carl L. Biggs, Plaintiffs, v. ASHLAND, INC., Defendant.

Civil Action No. 03-1857 (EGS).

United States District Court, District of Columbia.

August 2, 2007.

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Daniel Marino, Jay M. McDannell, Sutherland Asbill & Brennan LLP, Washington, DC, for Plaintiffs.

Peter Hugh White, Lucius T. Outlaw, III, Patricia H. Becker, Mayer, Brown, Rowe & Maw LLP, Paul Desmond Flynn, Crowell & Moring LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION

SULLIVAN, District Judge.

Plaintiffs, C & E Services, Inc. ("C & E") and Carl L. Biggs, filed a complaint against defendant, Ashland, Inc. ("Ashland"), alleging that defendant engaged in an unlawful scheme whereby plaintiffs were deceived into placing defendant's defectively priced products on plaintiffs' federal government contract for eventual resale to the federal government. Plaintiffs allege that defendant misrepresented and concealed material facts with regard to the status of its products' prices, which, unbeknownst to plaintiffs, had previously been alleged to be "defective" by the federal government. As a result of defendant's scheme, plaintiffs were investigated by federal agencies and the U.S. Attorney's office and their government contracting rights were suspended. Plaintiffs' complaint states six counts against defendant, alleging fraud, negligent misrepresentation indemnification, equitable indemnification, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. Pending before this Court are defendant's Motion for Summary Judgment and plaintiffs' Motion to Strike Ashland's Motion for Summary judgment. Upon consideration of the motions, the responses and replies thereto, the applicable law, and the entire record, the Court GRANTS in part defendant's motion for summary judgment with regard to Count Three (indemnification) and Count Four (equitable indemnification), DENIES in part defendant's motion with regard to all other counts, and DENIES plaintiffs' motion to strike as moot.

BACKGROUND

I. Parties

Plaintiff, C & E, is a minority-owned Virginia corporation that provides wastewater treatment products and services to commercial and federal, state, and local government customers.2d Am. Compl. ¶ 3. Plaintiff Carl L. Biggs is the owner and chief executive officer of C & E. Id. ¶ 4. Plaintiffs¹ conduct their business in Washington, D.C., Virginia, and Maryland among other places. Id. ¶ 3. Prior to becoming the owner and chief executive officer of C & E, Biggs was employed by defendant,_ Ashland, in one of its business units, Drew Industrial Division, from April 1977 to August 1987. Biggs Dep., Ex. 9 to Def.'s Mem. in Supp., at 16:22-17:10.

Defendant is a publicly-traded company, incorporated in Kentucky.2d Am. Compl. ¶ 5. Defendant has its principal office in Covington, Kentucky, and also has one of its several main offices in Washington, D.C. Defendant's corporation is comprised of five large industry divisions, including Ashland Specialty Chemical Company, which manufactures water treatment chemicals. Id In addition, defendant's business units include, Drew Industrial Division, which supplies specialized chemicals and consulting services for the treatment of water. Id.

II. Defendant's GSA Contract and Audit

In December 1991, the U.S. General Services Administration ("GSA") awarded defendant a Multiple Award Schedule ("MAS") contract, through which defendant, from 1991 to 1997, sold water treatment products directly to government customers.2d Am. Compl. ¶ 16. The GSA administers the contractual MAS program whereby the federal government purchases commercial products and services. Pls.' Opp'n at 7. The GSA negotiates MAS contracts with suppliers for delivery of commercial products or services commonly used by the federal government in order to provide a simplified process of acquiring supplies and services and obtaining volume discounts. Id

After the award of a MAS contract, a contractor must submit to audits by the GSA. Koehl Dep., Att. 3 to Pls.' Opp'n, at 16-17. As a result of an audit, a contractor may be required to provide price adjustments to the government similar to any discounts offered to comparable commercial customers. Id. at 43. In addition, audits can also find that detailed pricing information submitted prior to the award of a MAS contract is "defective," meaning that the contractor provided false or misleading data to the government for use in evaluating proposed prices. Id.; see also Gelco Space, App. 1 to Pls.' Opp'n, General Services Board of Contract Appeals Nos. 7916 & 7917, 91-1 BCA ¶ 23,387.

In 1996, the GSA began an audit of defendant's MAS contract. Draft Audit Report, Ex. 1 to Def.'s Mem. in Supp., at ASH 014635, 014642. On May 13, 1997, the GSA submitted its Draft Audit Report² to defendant alleging that, prior to the contract award in 1991, defendant submitted pricing data that was "inaccurate and incomplete, and [defendant] misled GSA contracting officials during negotiations." Draft Audit Report at ASH 014642. The GSA, therefore, concluded that defendant's prices were "defective," and that Ashland owed the government $814,841.00 for the pricing violations. Id. Specifically, the GSA determined that defendant had offered non-government customers discounts off of defendant's list prices between 16 and 67 percent, while defendant told the GSA that 15 percent was the highest discount it had offered to any customer. Id. at ASH 014643. Although defendant disputed the GSA's claims, on December 11, 1997, defendant executed a settlement agreement with the GSA. Settlement Agreement, Ex. 4 to Def.'s Mem. in Supp., at 3. Defendant was required to pay the government $1,798,274.00 but there was no admission of wrongdoing or liability. Id. at 3, 6.

III. 1987 Agreement, 1997 Discussions, and 1998 Agreement

Sometime in 1997,³ while defendant was negotiating its settlement agreement with the government, plaintiffs and defendant began discussions in regard to whether plaintiffs were interested in taking over defendant's sales operation as a distributor of defendant's water treatment products. Biggs Dep., Att. 6 to Pls.' Opp'n, at 24-25. Defendant asserts that plaintiffs were a "natural choice" to take over defendant's government contracting business because Biggs had sold defendant's water treatment products as defendant's employee prior to 1987 and C & E had its own GSA-approved MAS contract for distributing water treatment chemicals. See Biggs Dep., Ex. 9 to Def.'s Mem. in Supp., at 16:22-17:10. In addition, pursuant to a 1987 sales agreement between plaintiffs and defendant, C & E was an authorized sales representative for defendant. 1987 Agreement, Att. 5, Ex. A to Pls.' Opp'n. The 1987 Agreement defined the relationship between plaintiffs and defendant as "that of principal and agent." Id. at ASH 002430. During the discussions in 1997, plaintiffs and defendant were still under contract pursuant to the 1987 Agreement. See id.

According to defendant, during these discussions, defendant was open about its reasons for getting out of the government contracting business, specifically informing plaintiffs that: (1) the GSA audited defendant's MAS contract; (2) the auditors found pricing issues with defendant's MAS contract, including sales by defendant to non-government customers at prices lower than those that had been offered to defendant's GSA customers; (3) the auditors alleged damages of at least $600,000 to $800,000; (4) defendant paid a settlement to resolve the government's claims arising from the audit; and (5) defendant was cancelling its GSA contract. Def.'s Statement of Material Facts ¶ 2.

Plaintiffs, however, assert that defendant never informed plaintiffs that the GSA auditors found defendant's prices defectively negotiated in the first place `and that defendant knew that plaintiffs would not be able to sell defendant's products at the prices listed in defendant's GSA contract. See Draft Audit Report; Post Award Audit; Saunders Dep., Att. 4 to Pls.' Opp'n, at 75. Plaintiffs further assert that defendant never informed plaintiffs that defendant was under investigation by the U.S. Attorney's Office and the government was considering a False Claims Act action against defendant as a result of the defective pricing. See Answer and Countercl. ¶ 26. Finally, plaintiffs assert that defendant neither informed plaintiffs that defendant settled with the government for over $1.7 million in double damages under the False Claims Act nor informed plaintiffs that the government provided defendant with both a draft and final audit report detailing the defective pricing allegations. See Biggs Aff., Att. 5 to Pls.' Opp'n, at ¶ 6; see also Draft Audit Report; Post Award Audit; Answer and Countercl. ¶ 31. In effect, plaintiffs assert that defendant did not inform them of general pricing issues or problems, but rather made specific representations regarding the nature of the problem: "during the performance of [defendant's] GSA contract some [of defendant's] salespersons gave commercial customers a better price than the government received." Pls,' Statement of Genuine Issues ¶ 2. Furthermore, plaintiffs assert that in December 1997, defendant informed Biggs that there would be no problem submitting defendant's products onto plaintiffs' GSA contract at the very same prices found on defendant's GSA contract which, allegedly unbeknownst to plaintiffs, had previously been determined to be "defective." Biggs Aff., Att. 5 to Pls.' Opp'n, ¶ 7; Kuchinski Dep., Att. 7 to Pls.' Opp'n, at 151-54.

At the conclusion of these discussions, plaintiffs and defendant signed a distributorship agreement effective January 1, 1998 ("1998 Agreement"). Def.'s Statement of Material Facts ¶ 3. Pursuant to the relevant terms of the 1998...