Deffenbaugh Indus. v. Unified Gov't of Wyandotte County/Kansas City, Kan.
| Decision Date | 23 December 2021 |
| Docket Number | 20-2204-EFM |
| Court | U.S. District Court — District of Kansas |
| Parties | Deffenbaugh Industries, Inc., Plaintiff, v. The Unified Government of Wyandotte County/Kansas City, Kansas, Defendant. |
Deffenbaugh Industries, Inc., Plaintiff,
v.
The Unified Government of Wyandotte County/Kansas City, Kansas, Defendant.
No. 20-2204-EFM
United States District Court, D. Kansas
December 23, 2021
MEMORANDUM AND ORDER
ERIC F. MELGREN, UNITED STATES CHIEF DISTRICT JUDGE.
Plaintiff Deffenbaugh Industries and Defendant Unified Government (UG) of Wyandotte County/Kansas City, Kansas entered into a Contract for Deffenbaugh to provide trash collection services for Wyandotte County residents. Beginning in May 2019, the UG began to deduct from Deffenbaugh's monthly invoices substantial penalties, pursuant to Section 7.02(b) of the Contract, for missed pickups. Deffenbaugh eventually notified the UG it was terminating the Contract in February 2020, stating that the UG had defaulted by, among other things, imposing excessive penalties. The following month, Deffenbaugh brought the present action under the Declaratory
Judgment Act, [1] along with a claim for breach of contract. The UG has counterclaimed, seeking declaratory relief, an injunction to prevent Deffenbaugh from terminating the Contract while the action is pending, and damages for Deffenbaugh's alleged breaches of the Contract.
The parties have filed cross-motions for summary judgment. Deffenbaugh seeks declarations that the Contract was validly terminated as of March 22, 2020 (Count 1), and that the penalty clause in Section 7.02 of the Contract is unenforceable (Count 2). It also argues that the UG breached the contract (Count 3).[2] The UG seeks a determination that it is not in default under the Contract, which remains in effect, and that it is entitled to recover damages for Deffenbaugh's various breaches of the Contract.[3]
I. Factual and Procedural Background
A. The Contract
On January 27, 1993, the City of Kansas City, Kansas entered into a contact with Deffenbaugh providing for city-wide collection and disposal of residential solid waste for a twenty-year period expiring on June 30, 2013.
On January 1, 2012, the UG and Deffenbaugh entered into another waste contract. Deffenbaugh was represented in the negotiations by attorney Pete Heaven of Lathrop & Gage. The agreement was intended to “provide Customers with service of the highest possible quality, ” and Deffenbaugh agreed to “employ an adequate number of employees to efficiently and properly perform the services contemplated by this Contract, ” and to make collections “between the hours of 7:00 a.m. and 5:00 p.m. Monday through Friday.”[4]
Deffenbaugh agreed that it would provide collection services “for Waste which is placed Curbside by 7:00 a.m.”[5] In practice, Deffenbaugh picked up trash from a residence if the trash was placed at the curb before its truck came by.[6] Deffenbaugh
could refuse to pick up Waste which was “not secured contained or packaged in Containers, Bags or Bundles, other than bulk items which cannot be so packaged.” If Deffenbaugh refused to pick up waste as noncompliant, it agreed under Section 5.04(c) to notify the customer by placing “a red tag [on] the uncollectible Waste” and providing a copy to the UG.
Section 2.06 of the Contract provided that Deffenbaugh would be paid $9.67 per Residential Unit per month for 2012 and 2013, and the amount would increase to $11.23 for 2014. Deffenbaugh was to “invoice the UG for one twelfth the annual fee for services performed on a monthly basis” and “[t]he UG shall have thirty (30) calendar days from the date of receipt of the invoice to approve the invoice and make payment.”
B. The Penalty Clause
Section 7.02 established procedures for Deffenbaugh to process Customer complaints. The key dispute in the present action is Subsection (b), which provides a stipulated charge of $200 per residence, if a complaint of a missed collection is not remedied within 24 hours. Entitled “Complaints, ” this section provides:
(a) The Contractor shall be responsible for receiving Customer's inquiries, requests for service and complaints related to service under this Contract. The Contractor shall provide the UG with a telephone number which will be published in informational literature and in the Government section of the local telephone book. Any calls received by the UG concerning the services provided under this Contract shall be referred to this number
The Contractor's telecommunications system must be capable of handling Customer calls during peak periods of activity.
(b) The Contractor shall make and retain a record of each complaint received, including the name, address and telephone number of the complainant, date and time of the complaint, date and nature of the occurrence complained of and disposition of the complaint. Upon receipt of a complaint, the Contractor shall promptly investigate. All complaints shall be resolved expeditiously within the 24 hour period following receipt. If the complaint involves a failure by the Contractor to make a scheduled collection, and if the Contractor fails to make such collection within 24 hours after receipt of the Complaint, Contractor shall be penalized two hundred dollars ($200.00) for each 24 hour period in which such failure continues, which amount shall be deducted from the UG's next payment to the Contractor. The Contractor may appeal this penalty to the County Administrator whose decision on the matter will be final.
(c) The Contractor shall upon within 2 business days of such request forward to the Contracting Officer a description of each complaint received by the Contractor and a description of the disposition of the Complaint.
.
For purposes of the Contract, a “Customer” is “[a]n occupant of a Residential Unit, ” which is defined as “[a] dwelling ... forming a single inhabitable unit with facilities used or intended to be used for living, sleeping, cooking and eating.”
The 1993 contact contained a penalty provision which is identical, except that the penalty was $100 per day.
The UG's representative Mike Tobin testified in his Rule 30(b)(6) deposition that the purpose of the clause in the 1993 Contract was “just to ensure performance..” The penalty amount was recommended by one of the UG's outside attorneys, William
Brashares, who has stated he thought the charge was reasonable and was customary in the industry.
The UG is not aware of any analysis of the penalty provision in Section 7.02(b) before the 1993 Contract was signed, or how the penalty amount was determined. The UG has not identified anyone and is unaware of anyone who, prior to execution of the Contract, participated in any analyses, studies, examinations, investigations, or evaluations of the penalty provision in Section 7.02(b) of the Contract. There were no discussions in which specific reasons were offered for the penalty chosen (whether $100 or $200). In particular, there was no analysis, consideration, evaluations, or studies comparing the $200 per residence penalty imposed under Section 7.02(b) to the amount per residence that the Deffenbaugh was paid for collections services.
The UG argues that Deffenbaugh internally referred to Section 7.02(b) as a “liquidated damages, ” but this substantially overstates the evidence. The UG cites to two emails, by Deffenbaugh officers, both of which document what Mayor Holland of the UG said in a private conversation. It was during that conversation, in which the mayor complained the trash service issue “damaged his political image, ” and stated he “has a LIQ invoice for $200K, not yet sent.” The context of the emails clearly indicates that the liquidated damages terminology originated with the mayor. The UG cites no evidence that, at any other time, Deffenbaugh staff considered the Section 7.02(b) penalties as liquidated damages.
In its own internal invoices calculating the deductions to be made from its payments to the collector, the UG consistently used the term “penalty” and not liquidated damages.[7]
The Contract does contain a provision (Section 3.07(a)) which expressly provides for liquidated damages.
If the UG should reasonably determine at any time that the Contractor's performance hereunder is inadequate due to a lack of proper equipment, the Contracting Officer may issue a written order requiring the Contractor to utilize additional vehicles or other equipment…. If the Contractor fails to comply with such determination within sixty (60) days of the date thereof, such failure shall constitute a breach of this Contract, and the Contractor shall forfeit as liquidated damages the sum of one thousand dollars ($1000) per item of equipment for each day that such failure continues.
The UG has not asserted a claim for liquidated damages under Section 3.07 of the Contract.
C. Early Performance
When trash is not collected and left overnight it may create a public health issue, animals such as dogs, varmints, racoons or other wildlife can get into it, or bags can deteriorate exposing trash to the environment. Further, the spillage of trash in a neighborhood affects the cleanliness, health and aesthetics of the neighborhood. At the
same time, the contract allows Deffenbaugh to refuse to collect some trash which is not compliant with pick up regulations.
UG employee Ken Mack testified that, in his over 20 years of experience, for a single missed collection, 99% of the time the Customer failed to place Waste or recycling Curbside prior to 7:00 a.m. “Because oftentimes, you know it's a late setout when the whole street is picked up and you only got one trash sitting out there. 99 percent of the time you know it's a late setout.”
In September 2014, Waste Management Holdings, Inc. entered into an “Agreement and Plan of Merger” pursuant to which it would acquire Deffenbaugh Industries, Inc. That transaction closed in or about April 2015, after which Deffenbaugh began doing business as “Waste Management.”
According to Paul Howe of...
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