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Ada County Highway District v. Rhythm Engineering, LLC

United States District Court, D. Idaho

April 25, 2017

ADA COUNTY HIGHWAY DISTRICT, Plaintiff,
v.
RHYTHM ENGINEERING, LLC, Defendant.

          MEMORANDUM DECISION AND ORDER RE: MOTION FOR LEAVE TO SERVE SUPPLEMENTAL RESPONSES (DKT. 39); AND MOTION TO AMEND COUNTERCLAIM (DKT. 40)

          Honorable Candy W. Dale United States Magistrate Judge

         INTRODUCTION

         Pending before the Court are Defendant Rhythm Engineering, LLC's Motion for Leave to Serve Supplemental Responses to Plaintiff's First Set of Requests for Admission and Motion to Amend Counterclaim. (Dkt. 39, 40.) The motions are fully briefed and the Court heard oral argument from the parties on April 12, 2017. After review of the record, consideration of the parties' arguments and relevant legal authorities, and otherwise being fully advised, the Court issues the following memorandum decision and order granting both motions.

         FACTUAL BACKGROUND[1]

         On January 8, 2014, the Ada County Highway District (ACHD) and Rhythm Engineering, LLC (Rhythm), entered into a purchase agreement[2] for the installation of an adaptive signal control technology (ASCT) system on roads throughout Ada County. Adaptive signal control technology systems are made up of hardware and software, which together, help control the flow of traffic over busy roads.

         The Purchase Agreement between ACHD and Rhythm contained a two year warranty. Compl., ¶ 9. Rhythm agreed to provide a full refund if, after three months of adaptive operation, ACHD believed the ASCT system did not reduce travel time and emission and fuel consumption, while also improving safety. To receive a full refund, ACHD had to: (1) collect before and after data using the same collection method; (2) allow Rhythm time to "fine tune" the ASCT; and (3) provide a written list of concerns to Rhythm. Id.

         The Purchase Agreement provided specific terms for ACHD's acceptance of the ASCT system. (Dkt. 39-5 at 7-61.) In part, the Purchase Agreement detailed explicit terms for ACHD to perform validation testing (VAL-T) prior to acceptance of the ASCT system by ACHD. The last day of successful VAL-T was also defined as the contractual acceptance date of the ASCT system. This contractual acceptance of the system would occur when the ACHD Traffic Engineer granted final approval of the VAL-T process, indicating successful completion. Id.

         VAL-T involved two distinct testing processes to be completed sequentially over 60 days. The first phase was called Systems Communication Testing (SCT). SCT involved testing "the virtual system server software, the system network communications, and all other elements of the ASCT, through the use of the client workstation in controlling all of the project intersections." Id. at 21. The second phase, called Field Operational Testing (FOT), involved "observation of the two main ASCT project corridors, State Street and Chinden Boulevard. . . . [to] ensure the intersections on the two main corridors are operating as required [for 60 days] in the ACHD Concept of Operations and per the System Requirements." Id. at 22.

         Between December of 2014 and October of 2015, ACHD and Rhythm corresponded in writing and discussed in-person problems with the ASCT system. Compl., at ¶ 11. Rhythm attempted to correct the system's problems; however, ACHD claims Rhythm's attempts were not successful.[3]

         On November 9, 2015, ACHD notified Rhythm of its rejection of the ASCT system and termination of the Purchase Agreement.[4] Id. at ¶ 19. ACHD identified Section C.12 of the Purchase Agreement as the basis for termination, [5] asserting the ASCT system failed FOT three times by failing to automatically adjust based on the traffic conditions and reducing side street delays. Id. In its termination notice, ACHD demanded a full refund. Id.

         Three days later, Rhythm responded to the termination notice, informing ACHD it did not have the right to terminate the Purchase Agreement under Section C.12, ACHD's rejection of the ASCT system was untimely under the Idaho Uniform Commercial Code, and ACHD failed to comply with the conditions of the warranty. Id. at ¶ 20. Rhythm demanded ACHD return the ASCT system equipment within 30 days for a refund under the warranty. On December 8, 2015, ACHD attempted to return the ASCT system equipment to Rhythm via Federal Express overnight delivery; Rhythm refused to accept delivery of the equipment. Id. at ¶¶ 24-25.

         PROCEDURAL BACKGROUND

         On December 16, 2015, ACHD filed its Complaint against Rhythm asserting the following claims: (1) breach of contract; (2) breach of express warranty; (3) breach of implied warranty of merchantability; (4) breach of implied warranty of fitness for a particular purpose; and (5) unjust enrichment. ACHD seeks a full refund of the costs of the ASCT system and attorney fees.

         On September 16, 2016, ACHD served 57 Requests for Admission on Rhythm. (Dkt. 39-1 at 2.) After receiving an extension of time from ACHD, Rhythm responded. Id. At issue here is whether Rhythm may amend their admissions to request numbers 29, 30, and 32-all which relate to the completion and approval of VAL-T, and acceptance of the ASCT system. Id. at 4. Rhythm contends it initially admitted these three requests for admissions, because it relied on ACHD's representations that VAL-T had not been completed. Id. However, Rhythm claims later deposition testimony and other discovery revealed the information Rhythm relied upon was incorrect, and VAL-T had, in fact, been completed before ACHD returned the ASCT system equipment. Id. Consequently, because VAL-T was completed, Rhythm contends there was a contractual acceptance of the ASCT system by ACHD. Id. In contrast, ACHD contends VAL-T was never completed, and there was no contractual acceptance of the ASCT system.

         Following Rhythm's responses to ACHD's requests for admission, the parties conducted additional discovery, including depositions, over the next few months. Hess Decl. (Dkt. 44-1 at ¶5.) Rhythm conducted depositions of six ACHD employees from December 7, 2016, through February 16, 2017. ACHD deposed eight Rhythm employees between December 1, 2016, and February 13, 2017. Four of these eight depositions took place in Kansas City, Missouri, on February 6 and 7. Following the out-of-town depositions, Rhythm served the motions at issue on ACHD on the afternoon of February 7, 2017. Id.

         Rhythm contends, during the course of these depositions, it discovered pertinent information contrary to information previously provided by ACHD during the VAL-T process-which Rhythm had taken at face value, and relied upon, in drafting both its responses to requests for admissions and its counterclaim. Most specifically, Mike Boydstun, ACHD Traffic Operations Engineer, testified during his deposition he believed the second phase of VAL-T process, FOT, began on November 19, 2014, the day following completion of the SCT phase, and continued, uninterrupted, until December 23, 2014. (Dkt. 39-1 at 5.) It is undisputed that ACHD restarted FOT on February 4, 2015. Id.

         Rhythm asserts the testimony from Boydstun, combined with the undisputed FOT restart date, establishes the required 60 days of FOT, and consequently VAL-T, was completed successfully on February 28, 2015, contrary to ACHD's assertions that the VAL-T testing was not successfully completed. Id. Rhythm arrived at this date of completion based on the following testing periods totaling 60 days:

• 35 days - FOT started on November 19, 2014, and suspended December 23, 2014 by Jim Larsen, ACHD Supervisor of Suspension Management.
• 25 days - FOT resumed on February 4, 2015, and completed February 28, 2015, upon reaching 60 days with no suspension during the second time period.

         Finally, because the last day of successful VAL-T is defined as the contractual acceptance date of the ASCT system, Rhythm asserts contractual acceptance of the ASCT system also occurred on February 28, 2015. Id. ACHD disputes these calculations and Rhythm's contractual acceptance argument.

         DISCUSSION

         I. Motion for Leave to Serve Supplemental Responses (Dkt. 39)

         As part of discovery in this case, ACHD served Requests for Admission on Rhythm. Rhythm contends it answered three of these requests based on incorrect calculations regarding the number of days remaining in FOT which were provided by ACHD during the VAL-T process. Rhythm asserts it later learned, during discovery, the information it originally relied upon was incorrect. Therefore, Rhythm argues it should be allowed to amend its answers to the three requests and serve supplemental responses which conform to the newly discovered information.

         A. Standard of Law

         Fed. R. Civ. P. 36(b) provides in pertinent part:

Subject to Rule 16(e), the court may permit withdrawal or amendment if it would promote the presentation of the merits of the action and if the court is not persuaded that it would prejudice the requesting party in maintaining or defending the action on the merits.

         Under this Rule, a two-part test must be satisfied prior to permitting an admission to be withdrawn or amended: "(1) presentation of the merits of the action must be subserved, and (2) the party who obtained the admission must not be prejudiced by the withdrawal." Hadley v. United States, 45 F.3d 1345, 1348 (9th Cir. 1995).

         "The first half of the test in Rule 36(b) is satisfied when upholding the admissions would practically eliminate any presentation of the merits of the case." Id. "The party who obtained the admission has the burden of proving that withdrawal of the admission would prejudice the party's case." Id. "Courts are more likely to find prejudice when the motion for withdrawal is made in the middle of trial." Id. When the motion is made during discovery, however, amendment or withdrawal of admissions is generally an inconvenience rather than a prejudice. See id.

         B. Analysis[6]

         1. Presentation of the Merits

         Here, presentation of the merits of the breach of contract claims asserted by the parties depends, at least in part, on how the factual dispute regarding completion of the VAL-T process is resolved. Thus, presentation of the merits of this action would not likely be subserved if Rhythm's three admissions are not amended. Rhythm's admissions and ...


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