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SITCO Enterprises, LLC v. Tervita Corp.

United States District Court, S.D. Texas, Houston Division

June 19, 2018

SITCO ENTERPRISES, LLC, Plaintiff,
v.
TERVITA CORPORATION, et al., Defendants.

          AMENDED MEMORANDUM AND ORDER

          LEE H. ROSENTHAL CHIEF UNITED STATES DISTRICT JUDGE.

         This contract-interpretation case arises from a rental contract for Sitco Enterprises, doing business as Summit Work Apparel, to supply Tervita Corporation, formerly known as CCS Midstream Services, with fire-resistant coveralls for oilfield-service workers. Sitco manufactures flame-resistant work apparel for the oil and gas industry; Tervita offers environmental solutions to companies in that industry. In April 2011, Summit and CCS entered into a three-year contract for Summit to rent and maintain fire-resistant coverall garments for CCS. In a June 2012 addendum, Summit and Tervita extended the contract and changed some terms. In February 2015, Republic Services acquired the U.S. division of Tervita, and, according to Summit, ratified and became a party to the contract. Tervita eventually needed fewer coveralls, which in turn affected Summit's margins. The contract expired in September 2015.

         Summit sued Tervita, alleging that Tervita breached by not “tak[ing] minimum requirements of uniforms, fail[ing] to pay for uniform builds, [and] fail[ing] to reimburse allowable expenses.” (Docket Entry No. 28). Tervita counterclaimed for breach of contract, fraud, fraudulent inducement, and sought an accounting. (Docket Entry No. 7).

         The parties dispute the contract interpretation and Republic's status as a party to the contract. Tervita moved for summary judgment, Summit responded and cross-moved for summary judgment, and Tervita replied. (Docket Entries No. 31, 35, 38). Based on the motion, response, reply, the record, and the applicable law, the motions for summary judgment, (Docket Entries No. 31, 35), are granted in part and denied in part. The remaining issue about which there is a factual dispute is whether the minimum-billing requirement applied; summary judgment is denied as to that issue. Neither party moved for summary judgment on Tervita's counterclaims for fraud and fraudulent inducement; those claims also remain. The motion to strike Summit's cross-motion for summary judgment, (Docket Entry No. 36), is denied as moot.

         The reasons for these rulings are explained below.

         I. Background

         The April 2011 contract provided for a three-year rental term requiring CCS to order at least 200 garments for the first 50 weeks; 150 garments for weeks 51 through 75; and 100 garments for the weeks after 76. The contract stated:

Minimum requirements: During the term of this agreement, CUSTOMER will place Orders for the following minimum quantities of garments. (Based on installation count of 200 wearers)
100% (200) employee count through week 50
75% (150) employee count weeks 51-75
50% (100) high employee count weeks 76
The foregoing amounts are minimum guarantees and it is agreed that CUSTOMER's actual orders may exceed such amounts. In the event this Agreement is terminated by either Party in accordance with the terms hereof, CUSTOMER shall have no obligation or liability for any minimum quantity following the effective date of such termination.

(Docket Entry No. 31, Ex. A § 9.2).

The contract continued:
Unless earlier terminated in accordance with the terms hereof, this Agreement will continue in effect until March 31st 2014 (“Term”) and not be subject to tacit renewal. However, if the parties agree to extend pricing and continue to transact business beyond the term of this Agreement, the term will be extended on an interim basis until the parties execute a new agreement, extend this Agreement by amendment or continue transacting business.

(Id. § 4.1).

         The contract also provided that Summit “will send weekly invoice[s] based upon initial sizing employee count. Invoicing count will remain until notified by CUSTOMER of employee reduction.” (Id. § 10.2).

         In a June 2012 addendum, Tervita and Summit extended the contract term for a year and changed the minimum-billing requirements:

Contract Term: September 1st 2012 - September 1st 2015
Unrealized depreciation of Current Inventory: Reduced from $500, 000.00 to $350, 00.00 Payment required to Summit no later than August 31, 2012
Rental rate for all U.S. Tervita Locations Full Issue Employees (11 Sets): $20.00
Loss/Replacement:Tervita will be responsible for costs associated with garments that have been lost or damaged beyond normal wear and tear and cannot be repaired.
Weeks in service:
< 10 = $125.00
11-50 = $90.00
51-75 = $70.00
76-104 = $50.00
105 = $0
Examples: Employee (A) Terminates at week 105 and does not return garments to Summit. No. charge to Tervita
Employee (B) Damages Garments at week 105 and requires replacements. At end of contract, week 156. Tervita is only responsible for buyout of garment based on L&R Schedule of 51 Weeks: $70
Contract Min. Billing Requirements: (Minimum Billing will not occur previous to 800 Wearers being installed) Based on installation count of 800 wearers 100% (800) employee count through week 50 75% (600) employee count weeks 51-75 50% (400) employee count weeks 76

(Docket Entry No. 31, Ex. B).

         The June 2012 addendum did not alter the original termination section, which provided that the seller or customer “may terminate this Agreement at any time during the Term by giving sixty (60) days' notice to the other party. Customer is responsible to pay for garments in and out of service based upon the Exhibit B loss and replacement weeks in service.” (Id. Ex. A § 17.1).

         In 2015, after acquiring Tervita, Republic asked Summit how much it would cost to terminate before the end of the contract term. Summit provided an estimated buyout invoice, totaling $1, 256, 304.26, including a $582, 520 charge for “minimum billing” for 2012 to 2015. (Id. Ex. D). Tervita alleges that, instead of paying this high buyout price, it would instead continue to rent coveralls from Summit through the end of the contract term.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The contract ended on its own terms on September 1, 2015. The same day, Summit requested payment of the buyout invoice, which, after several revisions, totaled $1, 648, 288.34, including a $521, 720 charge for &ldquo;minimum billing&rdquo; for 2012 to 2015. (Id. Ex. E). In November 2017, after this lawsuit was filed and Summit&#39;s corporate representative was deposed, Summit sent Tervita a revised buyout invoice, totaling $1, 504, 727.19, including a $389, 100 charge for &ldquo;minimum billing&rdquo; for 2012 to 2015 and a $751, 910 charge for &ldquo;Coverall TT1 (S-5X) USED.&rdquo; (Id. Ex. F). Unlike the two previous invoices, which both listed the charge for used coveralls as $329, 000, the November 2017 invoice listed that ...


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