Opinion
Bankruptcy No. 04-13890 SR, Adv. No. 04-401.
January 5, 2005
OPINION
I. Introduction
Before the Court is Defendant Consolidated Container Company, LLC's ("Consolidated") Motion for Summary Judgment. In its Motion, Consolidated seeks judgment in its favor on (1) Counts I, II and III of the Complaint, and (2) Counts I, II and III of its Counterclaims. Plaintiff/Debtor Liberty Logistics LLC ("Liberty") opposes the Motion. The Court held a hearing on this matter on December 16, 2004. For the reasons discussed below, the Court will deny Consolidated's Motion.
II. Background
This case involves a dispute between Liberty, a trucking company, and Consolidated, a manufacturer of rigid plastic containers, over the terms of a contract governing transportation services.
As of early 2002, Consolidated was using a company called Warren C. Sauers Company, Inc. ("Sauers") to provide transportation of outbound freight from its Verona, Pennsylvania facility. In January 2002, after becoming dissatisfied with Sauers, Domenic Veneziale ("Veneziale"), then plant manager at Consolidated's Verona facility, solicited Liberty to submit a proposal to provide operational services and transportation from Verona. Veneziale knew the owner of Liberty, Dominic Marano, through an old friend of Veneziale's family from Italy.
On February 5, 2002, Liberty submitted a proposal for transportation services to Consolidated. Consolidated rejected Liberty's proposal, and on March 15, 2002 issued a Request for Proposal ("RFP") in which it solicited bids from several competing transportation companies — including Liberty — to provide transportation services from the Verona facility. The RFP sought two distinct bids: a dedicated fleet bid and acommon carrier bid. The RFP described the dedicated fleet bid as follows:
This volume will be given exclusively (emphasis in original) to a single provider. They are expected to handle all loads tendered to them. We are looking for a Dedicated Fleet concept where tractors, trailers and drivers would be assigned to the Verona Plant to handle this volume. . . .
See Complaint, Exhibit A. The RFP went on to list 10 destination cities which would be assigned to the dedicated fleet. See id. The RFP described the second bid for common carrier services as relating to awarding lanes on a "discrete basis based on price and service" and did not mention a dedicated fleet, exclusivity, or a single provider. See id.
On March 21, 2002, Liberty submitted its closed bid to Consolidated on both the dedicated fleet and common carrier components of the RFP. Liberty's proposed rates for services were higher than both the rates charged by Sauers and the rates proposed by the other competing bidders.
Following submission of the bids, Consolidated conducted a financial analysis of the competing bids that included the preparation of a worksheet comparing the proposed rates of Liberty and another bidder, Milk Transportation Inc. ("MTI"), using the rates of Sauers as a benchmark.
It is without dispute that, throughout this process, Veneziale lobbied for the selection of Liberty. It is also without dispute that, on April 2, 2002, Veneziale faxed the abovedescribed bid analysis to Dominic Marano of Liberty. On the fax, Veneziale circled the rates of Sauers, and wrote, "Dom: This is where Liberty needs to be for contract Dom V." Veneziale did not disclose to anyone at Consolidated that he faxed the bid analysis to Liberty, and Consolidated maintains that it did not learn of Veneziale's actions until August 2004 during the course of discovery in this case.
After receipt of the bid analysis from Veneziale, Liberty modified its proposed rates to match those charged by Sauers. Liberty's newly proposed rates were still higher, however, than the proposed rates submitted by competing bidder MTI. Nevertheless, Consolidated selected Liberty to provide transportation services from its Verona plant.
Marano drafted the contract at issue. The contract, titled "Contract Delivery Service (sic) Agreement", dated May 1, 2002, provides in relevant part:
I. TERMS AND CONDITIONS:
1. The initial term of this Agreement shall be for a period of Three (3) year(s) commencing July 3, 2002 . . .II. SHIPPER:
1. Shipper agrees to utilize the services of Carrier to points set forth in Schedule A.
See Complaint, Exhibit B, at ¶¶ I and II. Schedule A identified the 10 cities set forth in the dedicated fleet bid component of the RFP. See id. at Schedule A.
The Agreement also included an integration clause providing that it sets forth the entire agreement between the parties, and "any prior understandings, proposals, representations or agreements between the parties shall be deemed to have merged into [the] Agreement." Id. at ¶ X. Marano executed the Agreement on behalf of Liberty on May 1, 2002. Veneziale executed and returned the Agreement in mid-August 2002 but backdated it to May 2002.
In its Motion, Consolidated claims that Veneziale did not have authority to execute the Agreement but nevertheless states that the issue of Veneziale's authority is not being challenged as part of the Motion. Consolidated agrees therefore that, for purposes of the Motion, the Agreement is valid and represents the agreed-upon terms between the parties. In the alternative and as discussed infra, Consolidated contends that the Agreement is void due to Liberty's unclean hands and fraud in procuring the contract.
Consolidated used Liberty on an exclusive basis for approximately nine months until March 2003, at which time Consolidated advised Liberty that it intended to transfer the bulk of transportation services to another carrier. Consolidated offered to continue to utilize Liberty's services for some of the loads. Thereafter, Consolidated tendered loads to Liberty but Liberty refused them.
At the time that Consolidated replaced Liberty, approximately 157 trailers were in use at the Verona plant or on the sites of Consolidated customers. On March 26, 2003, John Joseph, a vice president of Consolidated, sent a letter to Liberty agreeing to rapidly remove and return Liberty's trailers and "to pay the agreed rate as long as they remain in service. . . ." See Plaintiff's Opposition Memorandum, at Exhibit H. Consolidated returned all but two of the trailers to Liberty. The parties dispute what responsibilities remain over the two missing trailers. Consolidated maintains that it is no longer liable for the trailers because they are no longer "in service" with Consolidated. Liberty maintains that Consolidated is liable for paying the agreed rate for all outstanding trailers.
Liberty filed for bankruptcy under Chapter 11 of the Bankruptcy Code on March 19, 2004. On April 16, 2004, Liberty filed an Adversary Proceeding Complaint against Consolidated. In Count I of the Complaint, Liberty seeks unpaid charges for services and use of trailers, including charges for the two missing trailers at issue. In Count II, Liberty seeks lost profits for Consolidated's breach of the Agreement in transferring the bulk of services away from Liberty to another provider despite its agreement to use only Liberty for a period of three years. In Count III, Liberty alternatively seeks reformation of the Agreement to expressly provide for exclusivity on the basis of mutual mistake.
In its Amended Answer, Consolidated asserts three counterclaims against Liberty. In Count I of its Counterclaim, Consolidated seeks to have the Agreement declared void based on Liberty's fraudulent conduct in obtaining Consolidated's confidential bid analysis worksheet in order to secure the contract. Alternatively, in Count II, Consolidated seeks to have the Court declare that equitable reformation is barred by Liberty's own unclean hands. Finally, in Count III, Consolidated seeks judgment on its claim for unfair trade practices.
Consolidated seeks summary judgment on Counts I, II and III of the Complaint and on Counts I, II and III of its Counterclaim.
III. Discussion
A. Legal Standard
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgment should be granted when the "pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). For purposes of Rule 56, a fact is material if it might affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The moving party bears the burden of demonstrating that no genuine issue of fact exists. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).
The court's role in deciding a motion for summary judgment is not to weigh evidence, but rather to determine whether the evidence presented points to a disagreement that must be decided at trial, or whether the undisputed facts are so one-sided that one party must prevail as a matter of law. See Anderson, 477 U.S. at 247-252, 106 S.Ct. at 2509-12. In making this determination, the court must consider all of the evidence presented, drawing all reasonable inferences therefrom in the light most favorable to the nonmoving party, and against the movant. See United States v. Premises Known as 717 South Woodward Street, 2 F.3d 529, 533 (3d Cir. 1993); J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3d Cir. 1990), cert. denied, 499 U.S. 921, 111 S. Ct. 1313, 113 L.Ed.2d 246 (1991); Gould, Inc. v. A M Battery and Tire Service, 950 F. Supp. 653, 656 (M.D. Pa. 1997).
To successfully oppose entry of summary judgment, the nonmoving party may not simply rest on its pleadings, but must designate specific factual averments through the use of affidavits or other permissible evidentiary material that demonstrate a triable factual dispute. See Celotex, 477 U.S. at 324, 106 S. Ct. at 2553; Anderson, 477 U.S. at 247-50, 106 S. Ct. at 2509-11. Such evidence must be sufficient to support a jury's factual determination in favor of the nonmoving party. Id. Evidence that merely raises some metaphysical doubt regarding the validity of a material fact is insufficient to satisfy the nonmoving party's burden. See Matsushita Electric Indus. Co., Ltd. v. Zenith Radio Corp., 485 U.S. 574, 586, 106 S. Ct 1348, 1355-56, 89 L.Ed.2d 538 (1986). If the nonmoving party fails to adduce sufficient evidence in connection with an essential element of the case for which it bears the burden of proof at trial, the moving party is entitled to entry of summary judgment in its favor as a matter of law. See Celotex, 477 U.S. at 322-23, 106 S. Ct. at 2552-53.
B. Ambiguity
In the context of a contract dispute, the court's role is first to determine as a matter of law whether the contract terms are ambiguous. See Tuthill v. Tuthill, 763 A.2d 417, 420 (Pa.Super. 2000) (omitting citations). Where the words of a contract are clear and unambiguous, the parties' intent is to be found only in the express language of the agreement. Krizovensky v. Krizovensky, 425 Pa. Super. 204, 211, 624 A.2d 638, 642 (Pa.Super. 1993). The court must construe a contract as written and may not modify the plain language of the contract under the guise of interpretation. Little v. Little, 441 Pa. Super. 185, 657 A.2d 12, 15 (1995).
Where the contract terms are ambiguous, however, the court is free to receive extrinsic evidence, i.e., parol evidence, to resolve the ambiguity. Krizovensky, 425 Pa. Super. at 211-12, 624 A.2d at 642. A contract will be found to be ambiguous only if it is fairly susceptible to different constructions and capable of being understood in more than one sense. Id. (citations omitted).
Ambiguity within a contract may be "patent" or "latent." Krizovensky, 425 Pa. Super. at 212, 624 A.2d at 643. A patent ambiguity appears on the face of the contract and is a result of defective or obscure language. Id. By contrast, a latent ambiguity arises from collateral facts which make the meaning of a written contract uncertain, although the language appears clear on the face of the contract. Id.
To determine whether there is an ambiguity, it is proper for a court to hear evidence from both parties and then decide whether there are objective indications that the terms of the contract are subject to differing meanings. Id. The presence of an integration clause will not preclude the court from examining extrinsic evidence — including parol evidence — to interpret an ambiguous contract. Crown, Cork Seal Co., Inc. v. Employers Ins. of Wausau, 2001 WL 1243549, at *4 (E.D. Pa. Oct. 17, 2001). Extrinsic evidence the court may consider may include the structure of the contract, the bargaining history of the parties, and the conduct of the parties that reflects their understanding of the contract's meaning. CNA Ins. Group v. Nationwide Mut. Ins. Co., 2000 WL 288241, at *6 (E.D. Pa. March 8, 2000).
Here, the language of Paragraph II(1.) of the Agreement states "Shipper agrees to utilize the services of Carrier to points set forth in Schedule A." Neither party argues that the language is ambiguous — indeed, both argue that the language is clear and unambiguous. Liberty argues the words mean Consolidated agrees to utilize its services — and not the services of other companies. Consolidated, on the other hand, argues the plain language of Paragraph II(1.) does not provide for "exclusivity" and therefore the words mean only that Consolidated agrees to utilize Liberty's services for some — more than none but not necessarily all — of its transportation needs out of the Verona plant.
This is a classic case of latent ambiguity. Although the words are clear and free from defect on their face, the words as written are susceptible to two different interpretations. Based on the evidence presented by both parties, including but not limited to the language and scope of the RFP, the parties' negotiations, and the conduct of the parties during the first nine months of the contract, the Court finds that there are objective indications that the terms of the contract are subject to differing meanings and are therefore ambiguous.
Finding that the terms are ambiguous, the next question becomes what the parties intended by the language written. That question is a question to be determined not by the court as a matter of law but by the trier of fact. See CNA, 2000 WL 288241, at * 6 (citing Allegheny Int'l Inc. v. Allegheny Ludlum Steel Corp., 40 F.3d 1416, 1424 (3d Cir. 1994) (quoting Mellon Bank, N.A. v. Aetna Bus. Credit, Inc., 619 F.2d 1001, 1011 n. 10 (3d Cir. 1980))) ("Under Pennsylvania law, ambiguous writings are interpreted by the fact finder. . . ."); see also Easton v. Washington County Ins. Co., 391 Pa. 28, 35-36, 137 A.2d 332, 336 (1958) ("Whether evidence of extrinsic circumstances is sufficient to create a latent ambiguity in a contract is a matter of law for the court. Only after the court is satisfied that a latent ambiguity exists is the question of what the parties intended by language used in the contract — taking into consideration the extrinsic facts and circumstances — an issue to be submitted to the jury.").
Finding therefore that the contract terms are ambiguous, and leaving for the trier of fact interpretation of what the parties intended by the contract language used, the Court will deny Consolidated's Motion for Summary Judgment.
C. Unclean Hands, Fraud and Unfair Trade Practices
Even assuming arguendo that the contract is unambiguously non-exclusive as Consolidated argues, the questions of whether the Agreement should be declared void or voidable, or whether equitable reformation is barred due to Liberty's unclean hands, fraud or unfair trade practices, are undeniably rife with factual issues that make summary judgment inappropriate.
Reformation is available when clear and convincing evidence shows the parties had a shared intent to contract on a subject different from the subject they mistakenly memorialized in recording their agreement, or where their mutual mistake resulted in a written document which does not accurately reflect the terms of the parties' agreement. See Coca-Cola Bottling Co. of Elizabethtown, Inc. v. The Coca-Cola Co., 988 F.2d 386404 (3d Cir. 1993). It is well settled, however, that a party seeking equity must come with clean hands and keep those hands clean throughout the pendency of the litigation. See Shapiro v. Shapiro, 415 Pa. 503, 508, 204 A.2d 266, 268 (1964). This broad general maxim has been described by the Supreme Court of the United States in Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U.S. 806, 814-15, 65 S. Ct. 993, 997, 89 L. Ed. 1381 (1945), as follows:
In order to obtain the reformation of a contract based on mutual mistake, the moving party is required to show the existence of mutual mistake by evidence that is clear, precise and convincing. Vonada v. Long, 852 A.2d 331, 337 (Pa.Super. 2004). This requires evidence by two witnesses or by one witness and corroborating circumstances. Bugen v. New York Life Ins. Co., 408 Pa. 472, 184 A.2d 499 (1962).
This maxim is far more than mere banality. It is a self-imposed ordinance that closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, however improper may have been the behavior of the defendant. That doctrine is rooted in the historical concept of court of equity as a vehicle for affirmatively enforcing the requirements of conscience and good faith. Thus, while `equity does not demand that its suitors shall have led blameless lives,' * * * as to other matters, it does require that they shall have acted fairly and without fraud or deceit as to the controversy in issue. * * *
Shapiro, 415 Pa. at 508, 204 A.2d at 268.
Likewise, a claim to enforce a contract will be barred by the doctrine of unclean hands if (1) a party seeking affirmative relief, (2) is guilty of conduct involving fraud, deceit, unconscionability or bad faith, (3) directly related to the matter in issue, (4) that injures the other party and affects the balance of equities between the litigants. See Dickler v. CIGNA Property and Casualty Co., 1996 WL 437048, at *5 (E.D. Pa. Aug. 2, 1996) (citing Tang v. Hwang, 799 F. Supp. 499, 505 (E.D. Pa. 1992)).
Here, a predicate to deciding whether the Agreement is void or voidable, or whether equitable relief is barred, is to determine whether Liberty acted with fraud or unclean hands during the bidding process in securing its contract with Consolidated. Although the evidence thus far presented of Liberty obtaining confidential financial data of competitors during a closed bid process does not sit well with the Court, there are still factual issues that must be resolved at trial. Not until those issue are resolved can the Court decide the remaining issues concerning contract enforcement and equitable relief.
For these additional reasons, the Court will deny Consolidated's Motion.
D. Missing Trailers
Finally, the Court also finds that the question of liability for the two missing trailers is another one riddled with factual issues that make summary judgment improper. For example, which entity had control over, and the ability to reclaim, the dispatched trailers are just some of the issues that have not been answered on the record before the Court. For these reasons as well, therefore, the Court will deny Consolidated's Motion.
IV. Conclusion
For the foregoing reasons, the Court will deny Consolidated's Motion for Summary Judgment in its entirety.
ORDER
AND NOW, upon consideration of Consolidated Container Company, LLC's Motion for Summary Judgment, and opposition thereto, and after a hearing held thereon on December 16, 2004, it is hereby:
ORDERED, that for the reasons stated in the accompanying Opinion, the Motion is DENIED.