Ohio Environmental Develop. v. Envirotest Systems

• Decision Date: 14 March 2007
• Docket Number: No. 5:06-CV-742.,5:06-CV-742.
• Parties: OHIO ENVIRONMENTAL DEVELOPMENT LIMITED PARTNERSHIP, Plaintiff, v. ENVIROTEST SYSTEMS CORP., Defendant.
• Court: U.S. District Court — Northern District of Ohio

478 F.Supp.2d 963

OHIO ENVIRONMENTAL DEVELOPMENT LIMITED PARTNERSHIP, Plaintiff, v. ENVIROTEST SYSTEMS CORP., Defendant.

No. 5:06-CV-742.

United States District Court, N.D. Ohio.

March 14, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Gregory J. Degulis, Stephen H. Daniels, Michael S. McMahon, McMahon, Degulis, Hoffmann & Blumenthal, Cleveland, OH, for Plaintiff.

Stephen W. Funk, Roetzel & Andress, Toledo, OH, Thomas M. Skove, Jr., Roetzel & Andress, Cleveland, OH, for Defendant.

ORDER & OPINION

GWIN, District Judge.

On October 20, 2006, Plaintiff Ohio Environmental Development Limited Partnership ("OEDLP") filed a First Amended Complaint alleging (1) breach of contract with regard to maintenance and repair obligations; and (2) breach of contract for failure to obtain consent for assignment. [Doc. 19.] On January 12, 2007, Defendant Envirotest Systems Corp. ("Envirotest") filed a Motion for Summary Judgment. [Doc. 38.] On February 5, 2007, Plaintiff opposed the Motion for Summary Judgment. [Doc. 53.] On February 12, 2007, Defendant filed a Reply in Support of its Motion for Summary Judgment. [Doc. 56.] For the reasons set forth below, the Court DENIES Defendant's Motion for Summary Judgment.

I. Overview

Defendant moves for summary judgment on numerous grounds. First, Defendant argues Plaintiff failed to establish that Defendant breached its maintenance obligations because Plaintiff failed to demonstrate that the problems with the facilities were not attributable to wear and tear. The Court disagrees and finds Plaintiff's expert, James Watson, sufficiently qualified to give expert opinion as to whether the problems at the E-Check stations were caused by "ordinary wear and tear."

Next, Defendant argues summary judgment is appropriate because Plaintiff failed to establish that the alleged problems at the E-Check stations are not attributable to conditions that existed prior to the 1999 Settlement Agreement, which amended the Master Lease Agreement. However, the Settlement Agreement provides that "MARTA shall assume ... all responsibility ... for performing all Work not yet completed." As such, the Court finds that Defendant's alleged failure to repair problems which existed at the time of the Settlement Agreement could breach the Master Lease Agreement, as amended by the subsequent Settlement Agreement.

Defendant also argues that Plaintiff failed to establish with reasonable certainty that Defendant's alleged breach diminished the fair market value of the former E-Check stations. Initially, Defendant contends that Plaintiffs expert, Eric Gardner, improperly relied upon Watson's imprecise calculations detailing the cost to cure deferred maintenance items. Likewise, Defendant attacks Gardner's own methodology. The Court finds that Fed. R.Evid. 703 permits Gardner to rely upon the data contained within Watson's report. The Court also rejects Defendant's assertions that Gardner was required to (1) evaluate the individual repair items listed in the JDS Report in order to determine what the actual effect of each repair would be on the fair market value of the property; and (2) determine whether any alleged repair would have continuing utility for a future end user. Finally, the Court finds that Plaintiff could properly establish that Defendant's alleged breach diminished the fair market value of the former E-Check stations through "owner-opinion."

With regard to the alleged breach of the Master Lease Agreement's anti-assignment clause, Defendant argues that such clauses have generally been interpreted to preclude assignment of contractual obligations, but not contractual rights. As such, Defendant claims that its assignment of the right of repayment for the Security Deposit does not breach the terms of the Master Lease Agreement. The Court holds that the assignment in the instant case falls within two independent exceptions to the general rule; and, thus, Defendant's assignment arguably breached the terms of the Master Lease Agreement. In addition, the Court finds that Plaintiff has established a genuine issue of material fact as to whether Defendant's alleged breach of the anti-assignment clause proximately caused actual damages.

For all of these reasons, the Court DENIES Defendant's Motion for Summary Judgment.

II. Background

Plaintiff's complaint alleges that Defendant Envirotest improperly maintained thirteen former motor vehicle emissions testing stations ("E-Check stations") that were operated by Envirotest and its predecessor, MARTA Technologies, Ltd. ("MARTA"). Envirotest and MARTA operated the facilities from January 1, 1996 until December 31, 2005.

The E-Check program was authorized by a 1993 statute, codified within the former version of O.R.C. § 3704.14 (1993). In 2001, the Ohio General Assembly amended the 1993 statute to terminate the E-Check program upon expiration of the initial 10-year contracts. See O.R.C. 3704.143 (2001). Although the Ohio General Assembly extended the E-Check program in Cleveland and Akron for two years, the Ohio EPA terminated the program in the Cincinnati and Dayton areas, effective December 31, 2005. The Defendant Envirotest leased facilities in the Cincinnati and Dayton areas.

After the enactment of the E-Check program, the Ohio EPA awarded the contract for services in the Greater Cincinnati area to MARTA. MARTA entered into an agreement with OEDLP, which financed the construction of thirteen E-Check stations and then leased them back to MARTA under the terms a ten-year Master Lease Agreement, signed September 6, 1994. For its principal claim, Plaintiff OEDLP says Defendant breached this contract by not properly maintaining the facilities.

The Master Lease Agreement was further amended by a letter from OEDLP to MARTA, also dated September 6, 1994, which stated, "Although Section 49, titled Security Deposit makes reference to a Security Deposit funded by you, it in fact is a loan to Ohio Environmental Development Limited Partnership, from MARTA Technologies, Inc." The loan "shall be non-recourse to Ohio Environmental Development Limited Partnership; except as secured by the Project." Finally, the letter established that repayment shall be triggered by the existence of proceeds from the first of either sale of the property or entrance into a new lease for the property.

On February 25, 1999, OEDLP and MARTA entered into a Settlement Agreement that amended the Master Lease Agreement. The parties agreed that "MARTA shall assume, at its sole cost and expense, all responsibility for all completed Work and for performing all Work not yet completed in a workmanlike manner within a reasonable time period, and MARTA hereby accepts the Facilities in an `as is' condition." The Settlement Agreement defined "Work" as "the construction of all or any part of the Facilities, including, but not limited to, all initial construction, punchlist, repair, maintenance and warranty items concerning the Facilities described in Sections 6, 7, 13, and 34.8 of the Master Lease and the 1995 Letter." In addition, each party

releases, remises, acquits and forever discharges [the other party] of and from any and all claims, actions, causes of action, suits, debts, compensation, promises, demands, rights, damages, costs, expenses (including attorneys' fees) and losses of every kind and nature whatsoever against [the other party], whether at law or in equity and whether fixed or contingent, arising prior to the Effective Date.

Finally, the parties reaffirmed (1) OEDLP's obligation to repay the Security Deposit; and (2) MARTA's obligation to pay monthly rent and "maintain and repair the Facilities in accordance with the terms of the Master Lease."

On March 1, 1999, Allen Telecom, Inc. ("Allen") sold all of the stock of MARTA to Envirotest, pursuant to a Stock Purchase Agreement. Subsequently, Envirotest and MARTA merged and Envirotest assumed the obligations of MARTA's Master Lease Agreement with OEDLP. On March 1, 1999, MARTA also assigned and transferred to Allen "all of MARTA's right, title and interest in and to the Security Deposit, ... subject only to OEDLP's right of set off to the limited extent and under the terms and conditions expressly set forth in Section 49 of the Lease." Section 7.9 of the Stock Purchase Agreement between Allen and Envirotest listed the "Security Deposit" as one of Allen's retained assets that was not subject to the Stock Purchase Agreement. Plaintiff alleges that MARTA failed to (1) provide OEDLP with written notice of the assignment; and (2) obtain OEDLP's written consent prior to executing the assignment.

After acquiring MARTA in 1999, Envirotest continued to operate the E-Check program until December 31, 2005, when all motor vehicle emissions testing in the Cincinnati area was terminated by the Ohio EPA. Throughout this period, Envirotest says it responded to all findings made in regular maintenance audits by the Ohio EPA performed of each E-Check station. Envirotest also claims that it was responsive to each audit throughout the tenure of its lease. By December 31, 2005, when the Ohio EPA terminated the E-Check program in Cincinnati, Envirotest had paid OEDLP all of the rent and other management fees owed under the Master Lease Agreement. Envirotest also conducted a final audit and inspection with a representative of OEDLP.

In January 2006, Envirotest ceased all use of the E-Check stations and control of the stations reverted to OEDLP. OEDLP has advertised that the E-Check stations are available for "lease or build to suit" in an "as is/where is" condition. Currently, OEDLP has successfully leased three former E-Check stations.

On March 31, 2006, Allen sued OEDLP for its refusal to repay the "Security Deposit." On that same day, OEDLP sued Envirotest in the instant case alleging breach of contract for failure to uphold its duty to maintain and repair the facilities as required by the Master Lease Agreement.

III. Legal Standards &...