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Jacobson Warehouse Co., Inc. v. Schnuck Markets, Inc.

United States District Court, E.D. Missouri, Eastern Division

June 21, 2019

SCHNUCK MARKETS, INC., Defendant/Counterclaim Plaintiff.



         This matter is before the Court on the following motions: Schnuck's Motion for Summary Judgment on its Breach of Contract Claims for True-Up Damages (Doc. No. 154); Schnuck's Motion for Partial Summary Judgment on XPO's Claims for Breach of Contract and Action on Account (Doc. No. 161); Motion for Partial Summary Judgment on XPO's Claim for Union Avoidance Costs and Schnuck's Affirmative Defense of Offset (Doc. No. 164); and XPO's Motion for Partial Summary Judgment as to Counts I Through V of Second Amended Counterclaim and Count I of XPO's Complaint (Doc. No. 173). The motions have been extensively briefed and are ready for disposition.

         I. Background

         The background of this case is set out in detail in the Court's November 29, 2017 Order and incorporated by reference herein. (See Doc. No. 64). Briefly, in May 2015, XPO and Schnuck (also referred to herein as “SMI”) entered into an Amended and Restated Operating Agreement (the “Agreement”) setting forth the terms and conditions under which XPO would provide Schnuck with certain warehouse management services for its new distribution facility known as NorthPark. Each side contends the other breached their contractual and other obligations under the Agreement. XPO asserts claims against Schnuck for breach of contract (Count I); declaratory judgment (Count II); and action on account (Count III).[1] (Complaint (“Compl.”), Doc. No. 1). Schnuck counterclaims for breach of contract (Count I); breach of the covenant of good faith and fair dealing (Count II); negligence (Count III); fraud (Count IV); conversion (Count V); and breach of contract - transition services agreement (Count VI). (Second Amended Counterclaim (“SAC”), Doc. No. 69). In previous rulings, the Court has limited Schnuck's recovery for damages under Counts I - V of its counterclaim to direct damages as set forth in a limitation of liability provision in Section 5(b) of the Agreement. (Doc. Nos. 64, 116).

         II. Legal standard

         Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The Court must view the evidence and inferences that “may be reasonably drawn from the evidence in the light most favorable to the nonmoving party.” Enter. Bank v. Magna Bank of Mo., 92 F.3d 743, 747 (8th Cir. 1996). The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials, but must set forth specific facts in the record showing there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986).

         III. Discussion

         The parties' dispute is primarily focused on the interpretation and application of certain key provisions of the Agreement, which will be addressed with the parties' respective motions. This Court has previously found the Agreement to be an unambiguous contract between sophisticated parties and notes that the goal of contract interpretation is to give effect to the parties' intent as evidenced by the language of the agreement.

         A. Schnuck's Motion for Summary Judgment for True-Up Damages

         Schnuck seeks summary judgment on its breach of contract counterclaim regarding XPO's “true-up” obligations under the Agreement. Schnuck contends that XPO was required to reconcile, or “true-up, ” its actual operating expenses at NorthPark with the parties' budget, on a monthly basis, based on “cost-per-case.” Pursuant to Section 4(a)(i)[A] of the Agreement, “[t]he operating budget shall be prepared by XPO for Schnucks' approval each year during the term in advance of the commencement of Schnucks' fiscal year, which commences on or about October 1st and ends on or about September 30th … Once the budget is set for the upcoming year, Schnucks agrees to pay XPO the Warehousing Fee on a weekly basis.” Under Section 4(a)(i)[C], each budget presented by XPO “shall have cost-per-case that XPO shall meet each accounting period.” The cost-per-case “shall be calculated by dividing the sum of the period's fixed and variable operating costs … by the cases shipped during that period.” If, in any month, XPO came in under the budgeted cost-per-case, Schnuck agreed to pay XPO 50% of that amount as a reward for operating efficiently. If XPO exceeded the established cost-per-case in a given month, then it agreed to repay Schnuck 50% of the overage as a penalty the next month. Under the Agreement, “[a]ny penalty deductions or rewards shall be accounted for in the Period True Up process pursuant to Section 4(a)(1)(D)[.]” Section 4(a)(1)[D] provides that, “[u]pon completion of each Schnuck accounting period, a review will take place to ‘true up' to the actual costs for the period. The true up shall consist of a review of the actual period costs to operate the Facility compared to the amount paid via the weekly invoices for the month, including the resulting Management Fee.” Invoice adjustments to account for true-ups were to be made “in the next weekly invoice after the true-up process.” It is undisputed that XPO did not conduct any true-ups for NorthPark. As a result, in January 2017, Schnuck withheld approximately $1.7 million from XPO invoices to account for amounts it contends XPO owed it under the Agreement's true-up provision. In addition, Schnuck claims entitlement to another $248, 289 in “clawback” damages for amounts due in true-up penalties for period 5 in FY 2017.[2]

         XPO responds that Schnuck is not entitled to summary judgment on its claim for “true up” damages because an approved budget was required before any true-ups could occur, and Schnuck admittedly never approved any of XPO's proposed budgets. (See SMI True-Up SOF ¶ 28). Schnuck does not dispute it was obligated under the Agreement to approve a budget or that the true-up was dependent upon having an approved budget. Rather, Schnuck argues that the undisputed facts demonstrate it “accepted” XPO's FY 17 budgets and satisfied any and all preconditions necessary to trigger XPO's true-up obligation.[3] Specifically, XPO circulated draft budgets in September 2016; Schnuck and XPO held in-person meetings about these budgets; Schnuck sought two corrections in late September 2016; and XPO sent budgets titled “NP FY Budgets Final.092916.xlsx” to Schnuck a little before 5:00 p.m. on September 30, 2016, the day before the beginning of Schnuck's 2017 fiscal year.[4] Schnuck's corporate representative Steve Carroll testified that consistent with its past practice with XPO at other facilities (Park 370 and ColdStor) regarding budgets, Schnuck had never formally “approved” a budget. Schnuck contends that these facts, together with the undisputed fact that XPO submitted invoices to Schnuck and Schnuck paid them, demonstrate that Schnuck had accepted XPO's budget.

         XPO further argues that even if a budget had been approved, Schnuck's true-up calculation does not deduct certain labor costs as required by the Agreement, namely, costs associated with XPO employees who have not completed a 90-day training period.[5] According to XPO, when these costs are deducted from Schnuck's calculation, XPO would owe nothing under the true-up for the damages period. Schnuck replies that XPO has waived application of the 90-day labor provision by failing to conduct true-ups or alternatively, is estopped from relying on the 90-day labor provision by virtue of its breach of the covenant of good faith and fair dealing by hiring only temporary labor for NorthPark.

         The Court finds there are disputed issues of material fact concerning the satisfaction of prerequisites for application of the true-up obligation, including whether Schnuck actually “approved” a budget for FY 2017. As for Schnuck's waiver and estoppel argument, while evidence that XPO hired an all-temporary workforce may be relevant and admissible on the issue of the application of the true-up provision, it does not establish waiver as a matter of law. Accordingly, Schnuck's motion for summary judgment for true-up damages will be denied.

         B. Schnuck's Motion for Partial Summary Judgment on XPO's Claims for Breach of Contract and Action on Account

         In Counts I and III of its Complaint, XPO alleges that Schnuck breached the Agreement by failing to pay certain of XPO's invoices. Schnucks admits it did not pay the disputed amounts, but contends it is entitled to summary judgment on XPO's claims for two reasons. First, any portion of the disputed amounts that pertains to “union avoidance” costs is barred as a matter of law.[6] Second, with respect to the remaining amounts, none of the invoices comply with XPO's obligation to invoice on a budgeted weekly basis. Moreover, XPO has not produced admissible evidence to support the amounts sought with sufficient particularity.

         Section 4(a) of the Agreement required XPO to invoice on a budgeted weekly basis. “Upon completion of each Schnucks accounting period, ” XPO was required to prepare a true-up of weekly amounts invoiced to actual costs: (1) that XPO incurred to provide the warehousing services; and (2) for which XPO was entitled to be reimbursed under Schedule 2 to the Agreement. As discussed above, XPO did not perform true-ups in connection with its work at NorthPark. Instead, XPO submitted its invoices to Schnuck on a “cost-plus” basis. Schnuck asserts it did not agree to pay XPO's invoices on a cost-plus basis, nor was the Agreement amended to allow XPO to invoice Schnuck on a cost-plus basis. Thus, Schnuck argues, the invoices are defective and it has neither an obligation, nor the ability, to evaluate and pay them as submitted. Schnuck further argues that even if it had permitted XPO to invoice on a cost-plus basis, XPO has failed to show that the amounts on the invoices correspond to expenses incurred for the operation of NorthPark during the period applicable to the Agreement; that XPO was authorized under the Agreement to incur the expense; that the vendor actually did the work; that the vendor invoiced XPO for the work; that XPO paid the vendor invoice; and that XPO is entitled to reimbursement on the amounts invoiced. Schnuck urges the Court to grant summary judgment because the evidence is insufficient for XPO to survive a directed verdict at trial. See Celotex, 477 U.S. at 323; Anderson, 477 U.S. at 250 (because the standard for granting summary judgment mirrors the standard for a directed verdict, summary judgment is appropriate if the moving party establishes there is insufficient evidence favoring the non-moving party for a jury to return a verdict for that party).

         XPO responds that because there was no approved budget, it could not invoice based on a weekly budgeted amount and thus invoiced Schnuck based on a “cost-plus” model. In addition, XPO maintains that it has provided sufficient evidence to support its damages claims as to its invoices, and asserts that each invoice for NorthPark included an itemized summary page of all expenses, including third party expenses, as well as a page listing all third-party invoices applied to that invoice. XPO contends that copies of those third-party invoices were available upon request by Schnuck and that it did produce third party invoices for the NorthPark invoices at issue. XPO further responds that with the exception of a request from Alex Dye to Shannon Christensen on July 11, 2017 requesting ”support (invoices)” for six invoices sent on June 30, 2017, which XPO provided on July 17, 2017, Schnuck has not identified any other instance where it requested third-party invoices or whether it had any outstanding requests for backup. XPO also contends that between August 18, 2016, and June 16, 2017, Schnuck paid at least $23, 310, 898.57 of XPO's invoices without asking to see third-party invoices or any other backup - a fact among many disputed by Schnuck. (See Resp. to XPO's Supp. Invoice SOF at ¶ S1). While denying the lack of supporting documentation for its invoices, XPO further argues that at the very least there is a dispute of fact as to the backup that precludes summary judgment in Schnuck's favor.

         The evidence presented on a motion for summary judgment is construed in the light most favorable to the non-moving party. Schnuck has not established that there is no genuine dispute about the facts supporting each element of the causes of action upon which XPO will have the burden of proof at trial, including, inter alia, the reasonableness of the charges. See, e.g., Home Serv. Oil Co. v. Cecil, 513 S.W.3d 416, 419-20 (Mo.Ct.App. 2017). Furthermore, XPO's position is that without an approved budget, it could not have invoiced pursuant to the Agreement. The Court has ruled that whether there was an operating budget is a disputed issue of material fact. In light of these material factual disputes, Schnuck is not entitled to judgment as a matter of law on XPO's claims for breach of contract and action on account as they relate to expenses other than union avoidance costs, discussed below.

         C. Schnuck's motion for partial summary judgment on XPO's claim for union avoidance costs and Schnuck's affirmative defense of offset

         XPO hired Action Resources to persuade XPO employees not to unionize.[7] Action Resources submitted invoices to XPO for its union avoidance work, which it performed in February 2016, March 2016, April 2016, May 2016, June 2016, [8] and November 2016. XPO ultimately paid Action Resources $650, 000 for its union-avoidance services.

         On February 18, 2017, XPO invoiced SMI for union avoidance costs in the amount of $160, 000 and identified those costs as falling within a cost category titled “Miscellaneous G&A.” SMI paid these charges under protest, and reserved its right to recoup them in litigation. On May 31, 2017, XPO invoiced SMI for union avoidance charges in the amount of $490, 154.20. Like the February invoices, the May 31, 2017 invoices included these charges within a cost category titled “Miscellaneous G&A.” SMI refused to pay these charges.

         XPO is seeking to recover $490, 154.20 in Union Avoidance costs through its breach of contract and action on account claims. Schnuck argues it is entitled to summary judgment on XPO's claim for union avoidance costs because it never asked XPO to conduct union avoidance activities, and never agreed to pay costs associated with these activities. Schnuck further argues that because XPO wrongfully invoiced Schnuck for union avoidance costs, Schnuck is entitled to credit the amounts it paid under protest, or offset them against any damages to which XPO would otherwise be entitled.

         XPO admits that Schnuck did not affirmatively ask it to use union persuaders, but asserts that one of the primary reasons Schnuck hired XPO to manage NorthPark was because it operated on a non-union basis, had a track record of being “proactive” in keeping union activity out of its facilities, and because Schnuck wanted a non-union workforce at NorthPark. XPO argues that Schnuck is obligated to pay the Union Avoidance expenses under the Agreement because Schnuck was fully aware that XPO was incurring these expenses on Schnuck's behalf for the benefit of NorthPark. (XPO Resp. to SMI Union Avoidance SOF at ¶ 35).

         Schnuck's payment obligations are expressly set out in Section 4(a) of the Agreement, wherein Schnuck agreed to pay XPO a Warehousing Fee in exchange for managing operations at NorthPark. The Warehousing Fee is comprised of the sum of fixed and variable operating costs, plus a seven percent (7%) management fee. Schedule 2 to the Agreement lists the categories of weekly fixed and variable costs for which Schnuck is responsible: (1) salaries, wages, and benefits, including warehouse wages, warehouse office wages, and payroll taxes; and (2) general and administrative expenses, including contract mechanic labor, insurance expenses, advertising and recruiting, and safety expense. Despite XPO's contention that union avoidance costs were a variable cost “of the Facility” pursuant to ...

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