Harrisburg Auth. v. Cit Capital USA, Inc.

• Citation: 869 F.Supp.2d 578
• Decision Date: 27 June 2012
• Docket Number: Civil No. 4:08–cv–180.
• Parties: The HARRISBURG AUTHORITY, et al., Plaintiffs, v. CIT CAPITAL USA, INC., et al., Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

869 F.Supp.2d 578

The HARRISBURG AUTHORITY, et al., Plaintiffs,

v.CIT CAPITAL USA, INC., et al., Defendants.

Civil No. 4:08–cv–180.

United States District Court, M.D. Pennsylvania.

June 27, 2012.

Ronald M. Katzma, Royce L. Morris, Steven E. Grubb, Goldberg Katzman, P.C., Charles B. Zwally, Ronald L. Finck, Mette, Evans & Woodside, Harrisburg, PA, Daniel Lawrence Sullivan, Saidis Sullivan Law, Carlisle, PA, for Plaintiffs.

Norman E. Greenspan, Stephanie C. Chomentowski, Blank Rome LLP, Philadelphia, PA, for Defendants.

MEMORANDUM OPINION

JOHN E. JONES III, District Judge.

I. FACTUAL BACKGROUND

The case sub judice involves The Harrisburg Authorities' (“THA”) project to upgrade and modernize the Harrisburg Materials, Energy, Recycling and Recovery Facility, a trash-to-steam waste treatment facility (“the incinerator”). (Doc. 35 ¶¶ 1, 10). To finance the incinerator project, THA issued a series of bonds, including its Guaranteed Resource Recovery Facility Revenue Bonds, Series D of 2003 (the “2003D Bonds”), Guaranteed Federally Taxable Resource Recovery Facility Revenue Bonds, Series E of 2003 (the “2003E Bonds”), and Guaranteed Federally Taxable Resource Recovery Facility Revenue Bonds, Series F of 2003 (the “2003F Bonds”), under a Trust Indenture dated December 1, 2003 (the “Retrofit Indenture”) between THA and Commerce Bank/Pennsylvania, National Association. ( Id. ¶ 11). Dauphin County (“Dauphin” or the “County”), recognizing the countywide benefits of the project and its responsibilities for municipal waste planning, entered into agreements with THA to provide secondary guarantees for the 2003D Bonds and 2003E Bonds, for a total amount not to exceed $110,980,000. ( Id. ¶ 12).

THA contracted with Barlow Projects, Inc. (“Barlow”) to design the incinerator, retrofit the facility, and provide state-of-the-art “Combustion Technology.” ( Id. ¶¶ 14, 16.) The agreement between THA and Barlow was memorialized in three separate contracts in May 2004. In the “Equipment Contract,” THA agreed to pay almost $52 million for the proprietary and other specialized equipment necessary to retrofit the incinerator. ( See id. ¶ 18(I)). In the “Services Contract,” THA agreed to pay almost $13 million to Barlow for engineering, construction, and start-up of the incinerator. ( See id. ¶ 18(II)). Finally, in the “Sublicensing Agreement,” THA purchased a nonexclusive license for the use Barlow's proprietary Combustion Technology which was to be installed in the incinerator. ( See id. ¶ 18(III)).

The retrofit of the incinerator was originally scheduled to be completed in twenty-four months, and the facility was to be restarted in late 2005. ( See id. ¶ 21). This was not to be. Plaintiffs THA and Dauphin allege that Barlow was negligent in its work, breached its contract with THA, and that Barlow's design flaws, unsuitable equipment, construction delays, poor project management, and lack of financial resources prevented the incineratorproject from being completed.¹ ( Id. ¶ 17). In late fall of 2005, Barlow was increasingly behind schedule and out of money, despite having received substantially all of the contract price from THA. ( Id. ¶¶ 22–23). Barlow eventually obtained additional capital in the amount of $25 million from defendant CIT Capital USA Inc (“CIT”). ( Id. ¶ 24).²

To secure CIT's funding, a “Restated Sublicensing Agreement” (“RSA”) replaced the original Sublicensing Agreement (“SLA”). ( See id. ¶ 26.) Through the RSA, Barlow Projects Harrisburg, LLC (“Barlow”), the Barlow entity which had licensed the rights to the Combustion Technology from Barlow for purposes of the incinerator project, licensed that technology to THA in exchange for $25 million in fees. ( See Doc. 36 ¶¶ 19, 24–25). Barlow then assigned its rights to payment from THA to a newly created Barlow entity, Aireal Technologies of Harrisburg, LLC (“Aireal”). ( Id. ¶ 24(b)). THA consented to this assignment. ( Id. ¶ 24(c)). Finally, CIT purchased Barlow's interest in Aireal for $25 million. ( Id. ¶ 24(e)). The $25 million from CIT was used by Barlow to continue work on the incinerator project. ( Id. ¶ 28). As a result of these transactions, THA allegedly became obligated to pay the restated $25 million license fee to Aireal, which is now owned by CIT.

Plaintiffs allege that the RSA is unenforceable for lack of consideration because THA had already paid Barlow $2.7 million in full satisfaction of the original license fee six months prior to entering into the RSA. (Doc. 35 ¶¶ 40, 50–51). Plaintiffs also assert that THA's execution of the RSA was an ultra vires act in violation of THA's authority and Pennsylvania's Municipal Authorities Act (“MAA”), 53 Pa. Cons.Stat. § 5601, et seq., in that THA agreed to pay for a license for which it had already paid in full and, effectively, agreed to guarantee the debts of its private party contractor. ( Id. at ¶¶ 52, 70). Plaintiffs also contend that, pursuant to Amendment Number 9 (“Amendment 9”) to the Equipment Contract, Barlow and its associated entities assumed all of THA's payment obligations, and that THA's only obligation was to forward payments from Barlow to CIT. ( Id. ¶ 57, 61).

In March 2007, THA failed to make payments to Aireal as purportedly required by the RSA. (Doc. 35 ¶ 101; Doc. 36 ¶¶ 31, 32.) In June 2007, THA, Aireal, and CIT entered into a Forbearance Agreement, which acknowledged THA's obligations under the RSA. (Doc. 35 ¶ 101). Plaintiffs allege that the Forbearance Agreement merely repeats the invalid and unenforceable provisions of the RSA and therefore it is void. ( Id. ¶¶ 101, 103). Upon expiration of the forbearance period in November of 2007, CIT and Aireal provided notice to THA of its default under the RSA, gave THA the required sixty-day (60) period to cure the default, and notified THA of their intent to seek legal remedies if the default was not cured. ( Id. ¶ 107, Ex. J.)

Before expiration of the sixty-day grace period, Plaintiffs THA and Dauphin filed suit asserting two claims against CIT and Aireal: one seeking a declaratory judgment that, inter alia, the RSA is void and unenforceable, ( id. at Counts I, III), and one seeking a permanent injunction enjoining CIT and Aireal from enforcing, inter alia, the RSA. ( Id. at Counts II, IV). CIT and Aireal both counterclaimed against THA for breach of the RSA in Counts I–III, promissory estoppel in Count IV, unjust enrichment in Count V, injunctive relief in Count VI, fraud in Count VII, and tortious interference with contract in Count VIII. (Doc. 36).

II. PROCEDURAL HISTORY

The instant suit was originally filed in the Dauphin County Court of Common Pleas on January 3, 2008. (Doc. 1, Ex. 1). Defendants ³ timely filed a notice of removal with this Court on January 30, 2008. (Doc. 1). A motion to remand the case to state court filed by THA on February 14, 2008 was denied on May 30, 2008. (Doc. 26). Thereafter, an amended complaint was filed by THA on October 31, 2008, (doc. 35), and an amended answer and counterclaim was filed by CIT and Aireal on November 1, 2008. (Doc. 36). THA and Dauphin then filed answers to CIT's counterclaim on December 11, 2008. (Docs. 42, 43). On March 11, 2009, the Court granted Dauphin's motion to amend/correct its answer to the counterclaim to assert the affirmative defense of governmental immunity, (doc. 56), which it subsequently filed on March 18, 2009. (Doc. 58).

After the filing of a motion to compel on March 30, 2009, (doc. 59), we referred the motion and any forthcoming discovery disputes to Magistrate Judge J. Andrew Smyser. (Doc. 70). On July 14, 2009, Judge Smyser granted in part and denied in part the motion to compel. (Doc. 78). Subsequently, THA filed an appeal of the magistrate judge's decision on July 24, 2009, (doc. 79), which we affirmed on June 14, 2010, 716 F.Supp.2d 380 (M.D.Pa.2010). (Doc. 96). On November 3, 2010, THA and CIT filed cross motions for summary judgment, (docs. 102 and 121), which we denied in their entirety on May 18, 2011. (Doc. 149).

Also on November 3, 2010, Dauphin filed a motion for summary judgment in its capacity as counterclaim Defendant. (Doc. 105). Dauphin also filed a motion for partial summary judgment in its capacity as Plaintiff, (doc. 112), and supporting brief, (doc. 114), on November 3, 2010. CIT filed a cross motion for summary judgment on November 3, 2010. (Doc. 119). After full briefing of the motions for summary judgment, we issued a memorandum and order on June 21, 2011 granting Dauphin's motion for summary judgment in its capacity as counterclaim Defendant, denying Dauphin's motion for partial summary judgment in its capacity as Plaintiff, and denying CIT's motion for summary judgment against Dauphin on its claims. (Doc. 150 at 30–31).

Thereafter, Dauphin filed a motion in limine, (doc. 162), on December 6, 2011, and together with THA filed a motion in limine regarding whether undisputed facts admitted at summary judgment are deemed admitted for purposes of trial. (Doc. 164). Also on December 6, 2011, CIT filed a motion in limine concerning inadmissible parol evidence. (Doc. 166). After full briefing on the motions, we issued an order dated December 28, 2011 denying Dauphin's motion in limine to preclude the testimony of Thomas F. Smida Esq. (“Smida”), denying THA's and Dauphin's motion in limine regarding whether undisputed facts admitted at summary judgment are deemed admitted for purposes of trial, and denying CIT's motion in limine regarding inadmissible parol evidence. (Doc. 176 at 13).

Moreover, on December 28, 2011, David Unkovic, the now former Receiver for the City of Harrisburg (the “City”), filed a Motion to Intervene pursuant to Federal Rule of Civil Procedure 24. (Doc. 177). We granted the motion to intervene on December 29, 2011. (Doc. 178). From January 4, 2012 through January 12, 2012 the Court conducted a bench trial for this case. At the conclusion of trial, the Court ordered that the parties submit post-trial briefs within...