The opinion of the court was delivered by: B. Lynn Winmill Chief Judge United States District Court
MEMORANDUM DECISION AND ORDER
Before the Court are: Motions for Summary Judgment by Defendant Encompass Services Corporation (Encompass) (Dkt. 159), Third-Party Defendant The Ballard Group (Ballard) (Dkt. 162), Third-Party Defendant Bingham Mechanical, Inc. (Bingham) (Dkt. 163), Third-Party Defendant E.K. Bailey Construction, Inc. (E.K. Bailey) (Dkt. 169), Defendant Sahara, Inc. (Sahara) (Dkt. 225), Defendant Siemens Industry, Inc. (Siemens) (Dkt. 257), Defendant United Team Mechanical, LLC (UTM) (Dkt. 292), and Defendant Davis Partnership, P.C. (Davis) (Dkt. 297); Motions for Partial Summary Judgment by Ballard (Dkt. 298), and Plaintiff Mountain View Hospital, LLC (Mountain View) (Dkt. 299); Motions to Strike by Encompass (Dkts. 280, 390), and Mountain View (Dkt. 352); and a Motion to Supplement (Dkt. 331) by Siemens.
The matters are fully briefed and at issue. The Court heard oral argument on May 24, 2011. Having conducted a thorough review of the record before it, and after full consideration of the parties' written and oral arguments, the Court now rules as follows.*fn1
In 1999, a group of Idaho doctors initiated the development of a specialty surgical hospital in Idaho Falls, Idaho. Heywood Dec., Dkt. 304, ¶¶ 1-3; Erickson Dec., Dkt. 303, ¶ 1. The doctors, with help from development firm ASC Group, formed two entities: Community Hospital Properties, LLC (to secure financing for the project), and Idaho Falls Community Hospital, LLC (to operate the facility). Id. In September 2001, after failed attempts to secure conventional financing, Idaho Falls Community Hospital formed a joint venture with Health Care Properties, Inc., to finance and own the facility. Heywood Dec., Dkt. 304, ¶ 20; Erickson Dec., Dkt. 303, ¶ 19. The facility was ultimately named Mountain View Hospital, and Idaho Falls Community Hospital, LLC changed its name to Mountain View, LLC. It is that latter entity which is the Plaintiff here.
1. Project Design and Construction
On September 14, 2000, Mountain View -- through Community Hospital Properties -- entered into a design-build contract with general contractor Sahara, Inc. Ex. Ato Counsel Dec., Dkt. 302-1. Under the design-build contract, Sahara agreed to procure and manage architectural and engineering services, and furnish construction and administration of the work. Ex. A to Counsel Dec., at Article 5.2, Dkt. 225-5. For architectural services, including designs and specifications for the project, Sahara subcontracted with Davis. Sahara hired The Ballard Group as the project's mechanical engineer, to prepare specifications, drawings, and plans for the project's mechanical systems, including its humidification systems. Ballard Facts, Dkt. 162-2, ¶ 4.
On November 9, 2001, Sahara subcontracted with Encompass to furnish and install all mechanical systems, including heating, ventilating, and air conditioning (HVAC), and plumbing systems. UTM Facts, Dkt. 193-1; Ex. 130 to Taylor Dep., Ex. A to Counsel Aff., Dkt. 159-4 at 12. Sahara subcontracted with E.K. Bailey to provide framing, drywall installation, insulation, and doors. Ex. H to Counsel Aff., Dkt. 225-12. For all plumbing on the project, Encompass subcontracted with Bingham Mechanical. Ex. B to Counsel Aff., ¶ 3, Dkt. 159-5. Encompass hired Siemens to furnish and install controls for the mechanical system. Ex. C to Counsel Aff., ¶ 4, Dkt. 159-5. And to test and balance the system, Encompass hired Diamond Test & Balance. Ex. D to Counsel Aff.,¶ 5, Dkt. 159-6.
On November 19, 2002, facing financial difficulties, Encompass filed for bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas. Encompass Facts, ¶ 11, Dkt. 159-2. Prior to Encompass filing for bankruptcy, a group of Encompass employees who worked on the Mountain View project decided to form a new business which would assume some of Encompass's contractual obligations. Encompass Facts, ¶ 5, Dkt. 159-2. That business, United Team Mechanical (UTM) registered as a limited liability company on October 16, 2002. Id. Encompass entered into an agreement with UTM on November 14, 2002, to transfer assets and the trade name "Team Mechanical" to UTM. Purchase &Sale Agreement, Ex. J to Counsel Aff., Dkt. 201-1. UTM agreed to pay $562,500, and to assume liabilities and obligations on behalf of Encompass. Assum'n of Liab. Agreement, Ex. K to Counsel Aff., Dkt. 202-1.
3. Humidification System Problems
From 2001 to November of 2002, Encompass performed work on the Mountain View project, including installation of in-duct humidifiers. On November 10, 2002, before completion of construction and before Mountain View was open to the public, the humidification system malfunctioned. Webber Dep., Ex 235, Ex. F to Counsel Aff., Dkts. 159-7, 159-8; see Smith Dec., ¶ 5, Dkt. 220; Fabrick Dec., ¶ 6, Dkt. 221. In November 2002, Mountain View had discussions with with Sahara, Encompass, and UTM, concerning problems with humidifiers leaking. Ex. I to Counsel Aff., ¶ 10, Dkts. 200-1, 159-10. From November of 2002 through the start of 2005, UTM performed HVAC work on the project, including remediation and modification of the humidification system. Smith Dep., Ex 59, Exs. H and N to Counsel Aff., Dkts. 159-10 at 27, 159-13.
4. Occupancy And Substantial Completion
A Temporary Certificate of Occupancy was issued on October 30, 2002. Ex. A to Mills Aff., Dkt. 162-5. On January 15, 2003, Mountain View received its Certificate of Occupancy from the City of Idaho Falls. Ex B to Mills Aff., Dkt. 162-6; Webber Dep. 89:7 -- 92:20, Ex 238, Ex. F to Counsel Aff., Dkt. 159-7. Also on January 15, 2003, UTM acknowledged to Sahara by letter that UTM would honor the project's warranty per the Encompass Contract. Smith Dep., Ex. 59, Ex. H to Counsel Aff., Dkt. 159-10.
Between January 28, 2003 and March 13, 2003, Sahara transmitted all the as-built drawings for the Project to Mountain View. Ex M to Counsel Aff., Dkt. 159-13. A final report by Diamond on the testing and balancing of the mechanical system was completed March 20, 2003. Webber Dep., Ex. 103, Ex. F to Counsel Aff., Dkt. 159-7.
On July 17, 2003, two certificates of substantial completion were signed by Jayson Newitt of ASC Group. Ex. J to Counsel Aff., Dkt. 227-13. In a letter also dated July 17, 2003, Newitt noted acceptance and completion of "punchlist" items related to design of the project as of December 29, 2002, excluding humidification system and soffit/insulation. Ex. G to Counsel Aff., Dkt. 223-8.
5. Problems After Occupancy
It is undisputed that, during the latter stages of construction, there were problems with the humidification system. "Daily rounds sheets" noting Mountain View's daily equipment readings, indicate that the steam boiler, which supplies steam to the humidifiers, was out of service over a dozen times in late winter to spring of 2005. See Smith Dec., Dkt. 220; Fabrick Dec., Dkt. 221; Counsel Dec., Ex. C, Dkt. 222-3. Also, an April 7, 2005 letter from Mountain View to Sahara notes problems with the humidification system. Ex. D to Counsel Dec.,¶ 5, Dkt. 222-4. In a July 4, 2005 letter to Mountain View, Scott Webber -- Sahara's Project Manager for the Mountain View project -- stated that work was done after April 7, 2005, relating to humidification system leaks, but the HVAC system was fully operational as of July 4, 2005. Ex. C to Mills Aff., Dkt. 162-7. Mountain View asserts that Sahara's work did not fix the humidification system. Smith Dec., Dkt. 220; Fabrick Dec., Dkt. 221.
There were also problems with the project's insulation. On January 19, 2004, Sahara's Scott Webber faxed a letter to E.K. Bailey, the framing subcontractor, saying that Sahara investigated and found areas with "small breaks in the insulation barrier," which they filled, but with which they were still "having problems." Ex. 2 to Skinner Aff., Dkt. 172-2. In addition, the letter mentions problems with doors. Id. According to the Complaint, the main entry's auto sliding doors allowed cold air to infiltrate the main hospital lobby. Also, Davis contends that the soffits were not built according to Davis's drawings, and were inadequately insulated so that exterior air infiltrated interior spaces. Erdmann Report, Ex. 5 to Counsel Dec., Dkt. 297-6.
Another concern was with the fire protection provided by the walls separating Mountain View's entry/exit vestibule from the first floor corridor. The walls were built to withstand fire penetration for one hour rather than two, as required by the applicable fire code. At issue is whether this deficiency is attributable to the walls' construction or design.
Finally, Mountain View alleges problems with Siemens' maintenance of the HVAC system, under post-occupancy maintenance agreements. Siemens entered into an agreement with Mountain View to maintain the installed control system, first from 2003-08, and then from 2008 to present. Exs. C and D to Counsel Dec., Dkts. 257-9, 257-10. Mountain View asserts that Siemens has breached its agreements, noting -- as evidence -- that employees and visitors experience uncomfortably cold temperatures. Counsel Dec. ¶ 19, Dkt. 257-3. Also, Mountain View contends that the building's energy usage dramatically exceeded Idaho energy codes, in violation of the maintenance agreements. Ex. E at 551 to Counsel Dec. ¶ 5, Dkt. 257-11.
On October 26, 2007, Mountain View filed suit against Sahara and Davis, for breach of contract and negligence. Compl., Dkt. 1. Mountain View settled with Davis and, in a sealed settlement agreement, agreed to indemnify Davis against claims by Sahara or other party to the lawsuit. Sahara filed a cross-claim against Davis on July 7, 2008, asserting breach of contract, breach of the covenant of good faith and fair dealing, breach of warranty, negligence, and contribution and indemnity. Answer, Dkt. 22. Sahara also filed its third-party complaint against Ballard and UTM for breach of contract, breach of the covenant of good faith and fair dealing, breach of warranty, negligence, and contribution and indemnity. Id.
On July 30, 2008, Davis filed a counterclaim against Sahara, asserting breach of contract, breach of express indemnity, and contribution and equitable indemnity. Answer, Dkt. 33.
Mountain View filed an amended complaint on September 28, 2009, against Sahara, Davis, Siemens, and UTM, asserting breaches of contract and negligence. Am. Compl., Dkt. 97. UTM filed a third-party complaint on September 29, 2009, against Bingham, Diamond, and Siemens, asserting indemnity and contribution. Third Party Compl., Dkt. 100. On October 5, 2009, Sahara filed an amended third-party complaint against Ballard, UTM, Encompass, and E.K. Bailey, asserting breach of contract, breach of the covenant of good faith and fair dealing, breach of warranty, negligence, and contribution and indemnity. Am. Third Party Compl., Dkts. 101, 103.
The Clerk of Court entered an order of default against Diamond, on January 5, 2010. Entry of Default, Dkt. 133. On June 18, 2010, Encompass filed a cross claim against Bingham, Diamond, Siemens, and UTM, asserting contribution and indemnity. Cross Claim, Dkt. 152. Encompass filed an amended cross claim on July 8, 2010. Am. Cross Claim, Dkt. 153.
One of the principal purposes of the summary judgment "is to isolate and dispose of factually unsupported claims . . . ." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). It is "not a disfavored procedural shortcut," but is instead the "principal tool[ ] by which factually insufficient claims or defenses [can] be isolated and prevented from going to trial with the attendant unwarranted consumption of public and private resources." Id. at 327. "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
The evidence must be viewed in the light most favorable to the non-moving party, and the Court must not make credibility findings. Id. at 255. Direct testimony of the non-movant must be believed, however implausible. Leslie v. Grupo ICA, 198 F.3d 1152, 1159 (9th Cir. 1999). On the other hand, the Court is not required to adopt unreasonable inferences from circumstantial evidence. McLaughlin v. Liu, 849 F.2d 1205, 1208 (9th Cir. 1988).
The Court must be "guided by the substantive evidentiary standards that apply to the case." Liberty Lobby, 477 U.S. at 255. If a claim requires clear and convincing evidence, the issue on summary judgment is whether a reasonable jury could conclude that clear and convincing evidence supports the claim. Id.
The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001)(en banc). To carry this burden, the moving party need not introduce any affirmative evidence (such as affidavits or deposition excerpts) but may simply point out the absence of evidence to support the nonmoving party's case. Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 532 (9th Cir.2000).
This shifts the burden to the non-moving party to produce evidence sufficient to support a jury verdict in her favor. Id. at 256-57. The non-moving party must go beyond the pleadings and show "by her affidavits, or by the depositions, answers to interrogatories, or admissions on file" that a genuine issue of material fact exists. Celotex, 477 U.S. at 324.
However, the Court is "not required to comb through the record to find some reason to deny a motion for summary judgment." Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1029 (9th Cir.2001) (quoting Forsberg v. Pac. Northwest Bell Tel. Co., 840 F.2d 1409, 1418 (9th Cir. 1988)). Instead, the "party opposing summary judgment must direct [the Court's] attention to specific triable facts." Southern California Gas Co. v. City of Santa Ana, 336 F.3d 885, 889 (9th Cir. 2003).
1. Assignment of Design-Build Contract
Mountain View and Sahara both seek summary judgment regarding whether Mountain View is a party to the design-build contract, as the assignee of Community Hospital Properties. An assignment is "a transfer of rights or property from one person to another." See Foley v. Grigg, 164 P.3d 810, 813 (Idaho 2007). For an assignment to occur, the assignor must manifest intent to transfer to an assignee the right to an obligor's performance. Purco Fleet Svcs, Inc. v. Idaho State Dept. of Fin., 90 P.3d 346, 351 (Idaho 2004). The manifestation of intent to transfer may be made orally or through a written document, unless otherwise provided by statute or contract. Restatement (Second) of Contracts §§ 324, 317 (1981). Where an assignment is in dispute, there is a presumption in favor of assignment. TransWorld Airlines, Inc. v. American Coupon Exchange, Inc., 913 F.2d 676, 685 (9th Cir. 1990).
During construction, Sahara reported to several entities which represented the interests of Community Hospital Properties: Health Care Properties, Inc., ASC, and The Boyer Group. Under its contract with Community Hospital Properties, Sahara agreed to procure and manage -- through subcontracts -- architectural and engineering services for the construction project. See Ex. A to Counsel Dec., Dkt. 222-1. Also, Sahara and Community Hospital Properties agreed that "warranties shall commence on the date of Substantial Completion of the Work or a designated portion thereof." Ex. A to Counsel Dec. ¶ 2, Article 3.1.1, Dkt. 222-1.
When the project known as Idaho Falls Community Hospital became Mountain View, it was the owner's intent that Mountain View be assigned the design-build contract, as the project's developer. However, counsel for Mountain View acknowledged at hearing that there is no written documentation of the assignment to Mountain View from Community Hospital Properties. The parties have differing views of what was relayed to Sahara about the assignment. Mountain View maintains that Scott Webber admitted that he was apprised of the assignment. See Mountain View Facts, Dkt. 266 at 8-10; Heywood Dec., Dkt. 304, ¶ 25; Erickson Dec., Dkt. 303, ¶ 25;Ex. G to Counsel Dec.¶ 8, Dkt. 265-7; Ex. G to Heywood Dec. ¶ 39, Dkt. 267-7 (letter of acknowledgment between Mountain View and Sahara). On the other hand, Sahara contends that it was unaware of the assignment. Mabey Dec., Dkt. 322-7, ¶ 9). Webber Aff., Dkt. 225-2.*fn2
However, it is apparently undisputed that Sahara accepted payment from Mountain View, rather than Community Hospital Properties, and that the latter entity was dissolved on October 5, 2001.
The question, then, is whether the unwritten assignment was valid, such that Sahara owed a duty of performance to Mountain View, in lieu of Community Hospital Properties.
The context for this dispute was provided by Ty B. Erickson and Bruce Heywood, both part of the group of doctors that formed Community Hospital Properties and (what eventually became) Mountain View. Mountain View Mem., Dkt. 300 at 5; Erickson Dec., Dkt. 303, ¶ 31; Heywood Dec., Dkt. 304, ¶ 32. Erickson and Heywood's declarations explain that Community Hospital Properties was originally intended to build and own the hospital, and lease it to Mountain View. See Erickson and Heywood Decs. When Community Hospital Properties was no longer able to secure the necessary funding, alternative financing was pursued and secured through Health Care Properties, Inc., and Community Hospital Properties was administratively dissolved. According to Erickson and Heywood, it was the intent of Community Hospital Properties, Mountain View, and Health Care Properties, Inc., that Mountain View take over the design-build contract with Sahara from Community Hospital Properties.
Sahara does not challenge that Community Hospital Properties and Mountain View intended the assignment. Instead, Sahara argues that the assignment was not valid without the prior written consent of the parties to the contract. Sahara Mem., Dkt. 225-1 at 9 (citing Ex. A to Counsel Aff. § 14.1, Dkt. 225-5 at 16). However, a non-assignment clause in a contract will not render ineffective an assignment intended by the assignor and assignee, but may entitle the obligor to damages for breach of contract. Dennett v. Kuenzli, 936 P.2d 219, 228 (Idaho 1997)(citing Restatement (Second) of Contracts § 322(2)). The contractual provision at issue here, requiring consent, is less restrictive than a non-assignment clause. Thus, it would seem to follow that Sahara may pursue damages it may have incurred because of the assignment, but cannot invalidate the assignment intended between Community Hospital Properties and Mountain View.
In addition, the Idaho Supreme Court has held that, where parties to a contract agree that one party will not assign "without first obtaining the written consent" of the other party, that other party implicitly agrees to act reasonably and in good faith in exercising the right of approval. Cheney v. Jemmett, 693 P.2d 1031, 1034 (Idaho 1984) (citing Mitsui & Co. v. Puerto Rico Water Resources Authority, 528 F.Supp. 768 (D.P.R. 1981)). Sahara has not provided any reasonable basis for its withholding consent to the assignment, and the Court finds none.
Sahara is also estopped from asserting the invalidity of Mountain View's assignment from Community Hospital Properties. Quasi-estoppel applies "when it would be unconscionable to allow a party to assert a right which is inconsistent with a prior position." Wilig v. Dept. of Health & Welfare, 899 P.2d 969, 971 (Idaho 1995). As distinct from equitable estoppel, quasi-estoppel does not require "concealment or misrepresentation of existing facts on the one side, [and] no ignorance or reliance on the other." Id. (citing Evans v. Idaho State Tax Comm., 540 P.2d 810, 812 (1975). Rather, quasi-estoppel "precludes a party from asserting, to another's disadvantage, a right inconsistent with a position previously taken by him." KTVB, Inc. v. Boise City, 486 P.2d 992, 994 (Idaho 1971).
It is also clear from the record that Sahara knew and acknowledged that Mountain View had assumed the design-build contract from Community Hospital Properties. For example, Scott Webber acknowledged in his deposition that he was aware the owner of the design-build contract changed from Community Hospital Properties to Mountain View. Webber Dep., 281:7-16, Ex. E to Counsel Dec., Dkt. 265-5. Also, in a September 5, 2001 letter from Sahara President R. Tim Howells to Health Care Property Investors, Inc., and copied to Scott Webber, Mr. Howells wrote that Sahara, as the design-builder, was "engaged by Mountain View Hospital, LLC . . . ("Developer"), to perform contract work as part of the construction of the improvements on the premises." Letter, Ex. G to Counsel Dec., Dkt. 264-7. Although Sahara does not, by this letter, explicitly consent to assignment, it identifies Mountain View as the developer with whom Sahara is contracted to perform. This evidence demonstrates that Sahara had taken the position that Mountain View was assigned the design-build contract from Community Hospital Properties. It is undeniable that Sahara's position -- that the contract was not assigned to Mountain View -- would be to Mountain View's detriment, as it would bar Mountain View's contract claims against Sahara. The Court thus finds that quasi-estoppel applies to preclude Sahara from challenging the validity of the assignment. Accordingly, the Court will grant summary judgment to Mountain View and against Sahara on this issue.
Because the Court finds that Mountain View was assigned the design-build contract, Mountain View is not precluded from recovering attorney fees as provided by the contract. Thus, Sahara's motion for summary judgment denying Mountain View attorney fees will be denied. As to Sahara's contention that fees should be denied because fees against Sahara could not be segregated from fees and costs relating to the other nine defending parties, the Court finds that Sahara's motion is premature. The Court will therefore deny Sahara's motion regarding attorney fees against Mountain View, but the Court's decision will not preclude Sahara from raising the issue when a request for fees is being considered by the Court.
2. Indemnification Of Encompass By UTM
A. Scope of Agreements Between Encompass and UTM
Encompass seeks summary judgment on its claim for indemnification by UTM. According to Encompass, the terms of its agreements with UTM provide that UTM assumed all liabilities, and agreed to indemnify Encompass, with respect to Encompass's contract with Sahara. UTM disagrees, asserting instead that its agreements to indemnify and assume liability for Encompass were more limited in nature.
The agreement between Encompass and UTM includes a series of contracts dated November 14, 2002 -- a Purchase & Sale Agreement, an Assumption of Liabilities Agreement, and a General Subcontract & Collection Services Agreement. Under the contracts, UTM agreed to assume certain liabilities and obligations of Encompass, including performance of work under three types of contracts, identified as Schedule 3b, 3c, and 3d contracts. Gen. Sub-Contr. & Coll'n Svs. Agreement, Ex. L to Counsel Aff., Dkt. 202-2.
Schedule 3b contracts included warranty work for which UTM was to be paid on a time and materials basis. Schedule 3c contracts included contracts in which UTM agreed to accept full liability. Schedule 3d contracts involved manufacturing jobs. The Mountain View contract is identified as a Schedule 3b contract, which requires warranty work, paid on a time and materials basis. Counsel Aff. ¶ 2, Dkt. 385. Under the General Subcontract Agreement, UTM only accepted full liability for the contracts identified as Schedule 3c, which did not include Mountain View. Id., ¶ 3.
On April 25, 2003, UTM and Encompass modified their obligations to each other by executing a Contract Assumption Agreement. Contr. Assm'n Agreement, Ex. Q to Counsel Aff., Dkt. 206-1. Pursuant to the terms of the Contract Assumption Agreement, the $562,500 promissory note Encompass received as consideration for the Purchase & Sale Agreement was deemed settled in full; in consideration, UTM agreed "to provide the warranty and project services agreed in the [Purchase & Sale Agreement] and the agreements exhibited thereto as a reduction in the amount owing under the [promissory note]." Id., ¶ 1. Also, Encompass agreed to sell, assign, transfer and convey to UTM, its right, title and interest in the Contracts, id., ¶ 2, which were identified in Exhibit A to the agreement and included the Mountain View project. Exhibit A, Dkt. 206-1 at 9. UTM agreed to accept the assignment and discharge "all liabilities and obligations under the Contracts or related to the Work" on those contracts. Cntr. Asmp. Agr., ¶ 2. UTM further "agree[d] and acknowledge[d] that those liabilities and obligations include[d], without limitation, claims for warranty work on the respective jobs, which may extend for a period of months past completion." Id.
In a separate paragraph entitled "Indemnification," UTM agreed to "indemnify and hold Encompass . . . harmless from all damages, liabilities, penalties, interest, expenses, fines, assessments, charges and costs, including without limitation reasonable attorneys' fees and court costs, related to the Contracts or the Work or resulting from UTM's breach of any provision of th[e] Agreement." Id., ¶ 7. A paragraph titled "Integration," provides that the agreement "supersedes all oral communications and prior written documents relating to the Contracts or the Work, including without limitation . . . any Contract Assignment Agreements and amendments thereto." Id., ¶ 8. The parties agreed that the Contract Assumption Agreement would be contingent upon approval by the Bankruptcy Court, id., ¶ 9, which was entered May 21, 2003. Ex. F to Encompass Am. Crossclm., Dkt. 153 at 76-87.
UTM contends that the Contract Assumption Agreement cannot be construed to mean that UTM was assuming all of Encompass's contractual liabilities, since it would have involved assuming over 100 contracts and countless millions of dollars in potential liability. Such a reading, UTM argues, would make little sense. But whether UTM's agreement was wise or foolish is immaterial. Indeed, for Encompass to retain partial liability after selling its business and trade name to UTM and declaring bankruptcy, would be similarly illogical. The only issue before the Court, then, is whether the parties' contracts unambiguously provided that UTM agreed to assume full liability and indemnify Encompass.
Where a contract's terms are ambiguous, its meaning is a question of fact for trial. Luzar v. Western Sur. Co., 692 P.2d 337, 341 (Idaho 1984). Whether a contractual term is ambiguous is a question of law to be determined by the court. Clark v. St. Paul Property and Liability Ins. Companies, 639 P.2d 454, 455 (Idaho 1981) (citation omitted). The Court finds no ambiguity here.
The "Assignment and Assumption" paragraph assigns to UTM "all of [Encompass's] right, title and interest in the Contracts identified in Exhibit "A," without limitation or qualification. Cntr. Asmp. Agr., Dkt. 206-1, ¶ 2. The Mountain View contract was clearly listed on Exhibit A. Under the paragraph titled "Indemnification," the Contract Assumption Agreement is similarly unqualified, providing that UTM will indemnify Encompass and hold it harmless from all damages and liabilities relating to the contracts. Id., ¶ 7. The "Integration" paragraph states that the Contract Assumption Agreement supersedes all prior written documents, without exception. Id., ¶ 8. This defeats UTM's argument that the parties intended -- without supporting language -- for the word "Contract" to refer only to one type of contract listed in Exhibit A. Although the prior General Subcontract Agreement distinguished between Schedule 3b, 3c, and 3d contracts, no such distinction survives in the Contract Assumption Agreement given the "Integration" provision in paragraph 8.
The Court finds that the unambiguous language of the contract requires UTM to fully indemnify Encompass, and assume all liability, with respect to the Mountain View project.
B. Effect of Bankruptcy Order
The Contract Assumption Agreement provides that the agreement is contingent on the Bankruptcy Court's approval. Cntr. Asmp. Agr., Dkt. 206-1, ¶ 9. The Bankruptcy Court entered an order approving the agreement on May 21, 2003, specifically finding it "fair and reasonable under the circumstances." Ex. F to Encompass Am. Crossclm., Dkt. 153 at 76-87, ¶ W. The Order also provides that, "[e]xcept as expressly permitted or otherwise specifically provided for in the [Contract Assumption] Agreement or this Order, the sale, transfer, assignment and delivery of the Assets to the Buyer under the new Agreement shall not be subject to any lien, claim, encumbrance or other interest . . .." Id., Dkt. 153 at 83-84.
UTM suggests that the language in the Bankruptcy Court's order
absolves it of liability under the Mountain View contract because the
Contract Assumption Agreement does not contain language expressly or
specifically providing for such an encumbrance or claim.*fn3
UTM's position ignores the plain language of the agreement,
which unequivocally provides that UTM accepts assumes and agrees to
discharge liabilities and obligations under the Contracts identified
in Exhibit A -- which includes the Mountain View contract. Cntr. Asmp.
Agr., ¶ 2 (see also ¶ 7, providing that UTM will indemnify and hold
Encompass harmless from liabilities related to the contracts
identified in Exhibit A).
UTM contends that not all projects listed in Exhibit A are "Contracts," referencing the three schedule types identified in the General Subcontract Agreement. The Court rejects this argument for several reasons. First, the General Subcontract Agreement, while identifying three distinct obligation types (denominated in Schedules 3b, 3c, and 3d), refers to all three types as "contracts." Thus, under the General Subcontract Agreement's terminology, the word "contract" does not exclude 3b contracts such as Mountain View. Second, the Contract Assumption Agreement specifically provides that it "constitutes the entire Agreement between the parties and supersedes all oral communications and prior written documents," without limitation. Cntr. Asmp. Agr., ¶ 8. The effect of this provision is to eliminate -- for purposes of the Contract Assumption Agreement -- the distinction which the General Subcontract Agreement made between 3b, 3c, and 3d contracts.
UTM contends that Encompass's claims for indemnification are an improper collateral attack on the Bankruptcy Court's Orders. However, the Court finds nothing inconsistent between the Bankruptcy Court's Orders and the Contract Assumption Agreement. In the absence of such an inconsistency, the Contract Assumption Agreement does not raise an issue of public policy concern; nor does it raise an issue of preemption under federal bankruptcy law. In light of the Court's findings, Encompass's motion for summary judgment on the issue of indemnification by UTM will be granted. UTM's motion on the same issue will be denied, as well as UTM's motion to discharge its liability to Sahara on that basis.
C. Effect Of Indemnification On Claims By UTM and Sahara
In its motion for summary judgment, UTM asserts that, where the Court finds UTM has assumed Encompass's liabilities as to the Mountain View project, as here, the Court should also find that UTM has assumed Encompass's defenses. The Ninth Circuit has held that rights to indemnity and defense follow liabilities on a transfer of assets from a manufacturing company o the purchasing corporation. Northern Ins. Co. of New York v. Allied Mut. Ins. Co., 955 F.2d 1353, 1357-58 (9th Cir. 1992) (discussing Ocean Accident & Guar. Corp. v. Southwestern Bell Tel. Co., 100 F.3d 441 (8th Cir.), cert, denied, 306 U.S. 658 (1939)). The Court agrees and will grant UTM's motion for summary judgment on that issue.
Encompass moves to dismiss Sahara's claims of breach of warranty and indemnification against it. Encompass argues that these claims are only valid against UTM, in light of UTM's assumption of rights and liabilities from Encompass regarding the project. The Court's determination that UTM assumed Encompass's rights and liabilities for the project does not affect Sahara's claims against Encompass. Rather, under the Court's finding, UTM must simply indemnify Encompass for Sahara's claims. Accordingly, the Court will deny Encompass's motion as to these claims.
D. Encompass's Motion to Strike Van Taylor's Affidavit
Encompass moves to strike the Affidavit of Van Taylor, filed by UTM on April 25, 2011 (Dkt. 385), as untimely, prejudicial, and inadmissible. UTM cites to the affidavit in support of its arguments that UTM did not assume the Mountain View project from Encompass through the Contract Assumption Agreement. Despite UTM's reference to the affidavit in its response to Encompass's motion for summary judgment (see UTM Resp., filed 11/29/10, Dkt. 193 at 8-9), UTM did not file the affidavit at that time. Encompass noted the affidavit's absence in its response (Dkt. 321 at 12) to UTM's motion for summary judgment. Ultimately, the affidavit was filed with UTM's reply brief and is now properly before the Court. Because the Contract Assumption Agreement unambiguously provides that UTM assumed Encompass's obligations under the Mountain View contract, the Court did not find it necessary or appropriate to consider the Van Taylor affidavit. Accordingly, Encompass's motion to strike the affidavit will be denied as moot.
3. Discharge of Claims Due to Encompass's Bankruptcy
Because Encompass is entitled to indemnification by UTM with respect to Sahara's claims, the Court must consider the effect, if any, of Encompass's discharge in bankruptcy on Sahara's claims.
In bankruptcy proceedings, a debtor is required to file a list of all creditors known to the debtor, as well as a schedule of liabilities and assets. 11 U.S.C. § 521(1); see In re Maya Const. Co., 78 F.3d 1395, 1398 (9th Cir. 1996). Based on this list, the bankruptcy court gives formal notice to all creditors, and advises how and by when to file a proof of claim. Fed. R. Bankr. P. 3002, 2002; In re Maya Const., 78 F.3d at 1398-99. Failure to timely file a proof of claim may result in discharge, upon confirmation of the debtor's reorganization plan. 11 U.S.C. § 1141(d)(1)(A); In re Maya Const., 78 F.3d at 1399.
On November 19, 2002, Encompass filed for bankruptcy protection in the Southern District of Texas under Chapter 11 of the Bankruptcy Code. Encompass Facts, Dkt. 159-2, ¶ 11. Encompass filed its joint plan of reorganization, which was confirmed by the bankruptcy court on May 28, 2003. Confirm. Ord., Ex. I to Counsel Aff., Dkt. 159-11. Encompass and UTM contend that Sahara's contract, tort and contribution / indemnification claims should be deemed discharged in bankruptcy.
Federal law determines when a claim arises under the Bankruptcy Code. In re SNTL Corp., 571 F.3d 826, 839 (9th Cir. 2009). "It is well-established that a claim is ripe as an allowable claim in a bankruptcy proceeding even if it is a cause of action that has not yet accrued." Id. In the Ninth Circuit, "a claim arises when a claimant can fairly or reasonably contemplate the claim's existence." Id.
For claims sounding in contract, "[i]t is within the fair contemplation of parties entering into a contract that the other party may breach it, or have made misrepresentations to induce the making of the contract." In re Hassanally, 208 B.R. 46, 53 (Bankr. 9th Cir. 1997) (quoting In re Russell, 193 B.R. 568, 571 (Bankr.S.D. Cal. 1996)). The court in Russell reasoned that this inclusive interpretation of claims best serves the Bankruptcy Code's policies, contemplated in 11 U.S.C. § 101(5). Id. Where substantial negotiation of a contract occurs before a bankruptcy discharge date, the contract will be deemed part of the bankruptcy estate, and thus discharged, even though the agreement was not reduced to writing until after the discharge date. See In re Alan Dealey Litiq., 2008 WL 4153675 (E.D. Wash. Aug. 29, 2008).
Tort claims, such as claims for negligence, are discharged under 11 U.S.C. § 1141 where the conduct complained of occurs before discharge, even if the resultant injury occurs after discharge. In re Grossman's, Inc., 607 F.3d 114, 125-26 (3rd Cir. 2010); In re Worldcom, Inc., 339 B.R. 836, 840-41 (S.D.N.Y. 2006); In re Edge, 60 B.R. 690, 701 (Bankr. M.D.Tenn. 1986).
Sahara contracted with Encompass in November of 2001, roughly a year before Encompass filed for bankruptcy in November of 2002, and eight years before Sahara filed its claims against Encompass in October of 2009. Encompass asserts that it performed work on the contract before November of 2002, when it filed for bankruptcy. Encompass Facts, Dkt. 159-2, ¶ 7. The parties do not dispute this. Thus it appears that Sahara had a relationship with Encompass before Encompass's bankruptcy petition was filed. The question is whether Sahara's relationship with Encompass was such that it was a "known creditor."
"Known creditor" implies that potential liability is reasonably ascertainable, not speculative or conjectural. In re Drexel Burnham Lamber Group, Inc., 151 B.R. 674, 680-82 (Bankr. S.D.N.Y. 1993). Known creditors are entitled to direct notice of bankruptcy proceedings; those whose potential liability was not reasonably ascertainable need receive only notice by publication,. In re: Arch Wireless, Inc., 534 F.3d 76, 80-81 (1st Cir. 2008); In re Maya Constr., 78 F.3d at 1399.
Sahara was not listed as a creditor in Encompass's bankruptcy proceedings, and received notice by publication, rather than direct notice. List of Creditors, Ex. O to Counsel Aff., Dkt. 227-18. Encompass acknowledged problems related to its work on the humidification systems for the Mountain View project on November 10, 2002, nine days before it filed for bankruptcy. Encompass Facts ¶ 7, Dkt. 159-2.However, this fact alone is insufficient to deem Sahara a known creditor. Except for the fact that Sahara ultimately named Encompass in this action, there are no other facts supporting that Encompass's potential liability -- at the time Encompass filed for bankruptcy -- was anything but speculative or conjectural. This is supported by the delay of nearly seven years, between discovery of humidification problems in November 2009, and the date when Sahara filed claims against Encompass.
The Court therefore finds that Sahara was not a known creditor, and was not entitled to direct notice. Accordingly, Sahara was given due notice, by publication, of the bankruptcy proceedings. It necessarily follows, that all of Sahara's claims against Encompass were discharged in bankruptcy.
The next question is whether UTM, as indemnitor for Encompass, enjoys discharge from liability due to Encompass's bankruptcy. The Bankruptcy Court's orders reveal that UTM's liability under Encompass's contracts was expressly approved in the reorganization plan. Bankr. Order, Dkt. 159-11. Specifically, the orders provide "that the Assigned Contracts shall, upon assignment to the Buyer, be deemed to be valid and binding and in full force and effect . . . notwithstanding any provision in any such Assigned Contract . . . that prohibits, restricts or conditions such assignment or transfer [sic], pursuant to section 365(k) of the Bankruptcy Code." Id. ¶ 14, Dkt. 159-11 at 8. Also, "each Assigned Contract shall be free and clear of all Claims, . . . charges or other encumbrances, except as specifically provided in the Purchase Agreement." Id. ¶ 11 (emphasis added), Dkt. 159-11 at 7.
The Purchase and Sale Agreement between Encompass and UTM provides that UTM shall "[a]ssume, perform, and discharge from and after the Closing Date certain liabilities and obligations of [Encompass] pursuant to an Assumption of Liabilities Agreement." Purch. and Sale Agr., Dkt. 201-1 at 3.In the Assumption of Liabilities Agreement, UTM agrees "to perform and discharge" any Assumed Liabilities (identified in the attached Exhibit A), which include the ...