Sugarman v. IRZ Consulting, LLC (In re Te Velde)
| Docket Number | 18-11651-B-11,Adv. Proceeding 19-1033 DCN: DCT-1 |
| Decision Date | 16 June 2022 |
| Parties | In re GREGORY JOHN te VELDE, Debtor. v. IRZ CONSULTING, LLC (aka) IRZ Construction Division LLC, Defendant. RANDY SUGARMAN, Ch. 11 Trustee, Plaintiff, IRZ CONSULTING, LLC (aka) IRZ Construction Division LLC, Third-Party Plaintiff, v. U.S. FARM SYSTEMS; 4 CREEKS, INC., JOHN FAZIO (dba Fazio Engineering); DARI-TECH, INC.; LASER LAND LEVELING, INC.; MAAS ENERGY WORKS, INC.; GEORGE CHADWICK (dba George Chadwick Consulting); VALMONT NORTHWEST, INC.; NUCOR BUILDING SYSTEMS UTAH LLC, Third-Party Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of California |
Duncan Turner, BADGLEY MULLINS TURNER PLLC, Seattle, WA, for Dari-Tech, Inc., Third-Party Defendant.
Benjamin P. Tarczy, MILLER NASH LLP, Portland, OR, for IRZ Consulting LLC, Defendant/Third-Party Plaintiff.
Before: René Lastreto II, Bankruptcy Judge.
FINDINGS AND RECOMMENDATIONS FOR DE NOVO CONSIDERATION OF THE DISTRICT COURT AS TO DARI-TECH INC.'S MOTION FOR SUMMARY JUDGMENT
Summary judgment should not be granted unless the moving party shows both that there is no genuine dispute as to any material fact and that movant is entitled to judgment as a matter of law.[1] Civ. Rule 56 (Rule 7056). A third-party defendant, here, asks for summary judgment because it is dissatisfied that the third-party plaintiff's discovery responses did not sufficiently detail movant's fault. Finding material factual disputes remain, and for other reasons, the court recommends the motion be DENIED.
Third-Party Defendant Dari-Tech, Inc. ("Dari-Tech") moves for summary judgment against Defendant and Third-Party Plaintiff IRZ Consulting, LLC ("IRZ").[2] Dari-Tech contends that IRZ has failed to identify any aspect of Dari-Tech's work that was faulty or that was a proximate cause of damages claimed by the chapter 11 trustee in its underlying adversary complaint against IRZ. Therefore, Dari-Tech insists that it is entitled, as a matter of law, to a judgment of dismissal under Civ. Rule 56 and Rule 7056.[3]
IRZ timely filed opposition and evidentiary objections.[4]This is a "very straightforward" case, claims IRZ: Dari-Tech created and installed a wastewater management system designed to flush dairy waste. The wastewater management system failed, resulting in waste backup and overflow, and Trustee claims the estate suffered monetary damages as a result.[5] Since Dari-Tech created the system, created the plans for the system, installed the system, and the system failed, IRZ argues that this motion for summary judgment must be denied.[6]
Dari-Tech replied to both the opposition and the evidentiary objections and filed its own evidentiary objections.[7]Dari-Tech summarizes the allegations against it as relating only to the design of its portion of the waste management system.[8]Since no competent evidence suggesting that the design of the system was faulty, or that Dari-Tech's work was the proximate cause of damages, it claims that this motion should be granted.[9]
This motion for summary judgment was filed on 42 days' notice as required by LBR 7056-1 and in conformance with Rule 7056 and Civ. Rule 56.[10] This matter was heard by the court on May 25, 2022.[11] These are the court's findings and recommendations for de novo consideration by the District Court as to Dari-Tech's motion for summary judgment. The rulings on the evidentiary objections are at the end of this report.
As a preliminary matter, this motion does not comply with the local rules.
First, Dari-Tech's Memorandum of Points and Authorities in Support of Its Motion for Summary Judgment is both a motion and a memorandum of points and authorities.[12] LBR 9004-2(c)(1) requires motions, memoranda of points and authorities, and other specified pleadings to be filed as separate documents. LBR 9014-1(d)(4) does permit the motion and memorandum of points and authorities to be combined into one document provided that the document does not exceed six (6) pages. Here, the combined motion and points and authorities is fifteen (15) pages long, so each of these two documents should have been filed separately.
Second, Dari-Tech's original notice referenced a hearing date of May 20, 2022 which is not a date this court held scheduled hearings.[13] As result, the Clerk of the Bankruptcy Court issued a memorandum directing Dari-Tech to submit an amended notice of hearing.[14] Dari-Tech subsequently filed an amended notice on April 11, 2022 - still within the 42-day notice window required by LBR 7056-1.[15] However, it does not appear that this notice of hearing was ever served on IRZ because no corresponding certificate of service was filed for the amended notice. Failure to prove service does not affect the validity of service and the court may permit the proof of service to be amended. Civ. Rule 4(l)(3), incorporated by Rule 7004(a)(1). However, LBR 9014-1(e) requires service of all pleadings and documents filed in support of a motion to be made on or before the day those documents are filed with the court, with proof of service in the form of a certificate of service to be filed with the Clerk concurrently with the pleadings or documents served, or not more than three days after the documents are filed. LBR 9014-1(e)(1), (e)(2). But since IRZ filed opposition, it has waived any potential service or notice defect.
Third, Dari-Tech's exhibits do not contain an exhibit index and do not have consecutively numbered pages. LBR 9004-2(d)(1)-(d)(3) require exhibits to be filed as a separate document, include an exhibit index at the start of the document identifying by exhibit number or letter each exhibit with the page number at which it is located, and use consecutively numbered exhibit pages, including any separator, cover, or divider sheets. Although Dari-Tech's exhibits were all filed separately, they each omitted an exhibit index and lacked consecutively numbered pages in violation of LBR 9004-2(d)(2) and (d)(3).[16] The court notes that separate exhibits may be filed with exhibits relating to another document, or all of the exhibits may be filed in one large exhibit document. LBR 9004-2(d)(1).
Because IRZ replied, the court overlooked these procedural deficiencies in this instance. Counsel was advised to review the local rules and ensure procedural compliance in subsequent matters.
The genesis of this dispute is the chapter 11 bankruptcy of Gregory John te Velde ("Debtor"). He owned and operated several large dairies spanning thousands of acres of land across the Western United States.[17] In late-2015 Debtor hired IRZ as a general contractor to provide construction management services for the construction of a new dairy operation in Boardman, Oregon ("Lost Valley Farm"). IRZ hired sub-contractors to perform certain services. Dari-Tech was one of them.
Things did not go as planned. Soon after substantial dairy operations commenced, the wastewater management system failed. Millions of gallons of liquid and solid dairy waste backed up, overflowed, and were released onto bare soil.[18] Chapter 11 trustee Randy Sugarman ("Trustee") initiated an adversary proceeding against IRZ alleging breach of contract and negligence resulting in more than $18.8 million in construction defect damages ("Complaint").[19] The Complaint also included an objection to the allowance of IRZ's proof of claim. These claims stem from IRZ's alleged failure to competently perform construction management services for the planning and construction of a dairy waste collection, treatment, conversion, and disposal system for Lost Valley Farm. The complaint includes four claims for relief: objection to claim, breach of contract, negligence, and fraudulent transfer.[20]
Thereafter, IRZ filed a third-party complaint alleging negligence, indemnity, and contribution against nine third-party defendants whose work relates to the allegations in Trustee's complaint ("Third-Party Complaint").[21] Dari-Tech is one of those nine third-party defendants.
Dari-Tech was asked to propose a bid for a closed-loop flushing system to be integrated into the waste management system.[22] Dari-Tech maintains that it was not asked to design the overall manure handling system; rather, the scope of the proposal was limited to providing a plan for the closed-loop component of a manure management program that was to be designed by someone else.[23] Additionally, Dari-Tech was not asked to provide and did not provide specifications or designs for below-ground pipes, nor did it provide the pipes themselves.[24] A closed-loop flushing system, when working properly, clarifies and captures usable water from dairy barn waste. After screening and filtering the usable wastewater from the dairy barn, the remaining effluent goes to the lagoons.[25] The system does require the introduction of fresh water through the process for the screening and filtering function to work properly.[26] The system's equilibrium between dairy barn waste, wastewater, and fresh water is termed "steady state."
Dari-Tech proposed a bid for a "turn-key" closed-loop system marketed under the tradename "Biolynk."[27] Dari-Tech provided its initial bid to Debtor on January 26, 2016 ("First Proposal").[28] The First Proposal included:
The First Proposal did not include overall design of a waste management system; the design, selection,...
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