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NATIONAL UTILITY SERVICE, INC. v. CHESAPEAKE CORP.

April 14, 1999

NATIONAL UTILITY SERVICE, INC., PLAINTIFF,
v.
CHESAPEAKE CORPORATION AND WISCONSIN TISSUE MILLS, INC., DEFENDANTS.



The opinion of the court was delivered by: Walls, District Judge.

      This matter comes before the Court on the motion of plaintiff National Utility Service, Inc. ("NUS") for summary judgment on its breach of contract claims against defendants Chesapeake Corporation ("Chesapeake") and Wisconsin Tissue Mills, Inc. ("WTM"). Pursuant to Fed. R.Civ.P. 78, the Court decides this motion without oral argument. Plaintiff NUS's motion for summary judgment is granted in part and denied in part.

FACTS

NUS, a New Jersey corporation with its principal place of business in Park Ridge, New Jersey, is an energy and utility cost consultant. Chesapeake is a Virginia corporation which manufactures and sells tissue products, specialty packaging and displays, and forest and building products. Its principal place of business is in Richmond, Virginia. Chesapeake's subsidiary, WTM, also a manufacturer of tissue products, is a Delaware corporation with its principal place of business in Menasha, Wisconsin. This Court exercises diversity jurisdiction over this matter.

This action arises out of a July, 1988 contingent fee contract between plaintiff NUS and Chesapeake wherein Chesapeake engaged NUS to make recommendations concerning its utility and energy expenditures. Chesapeake agreed to pay NUS an initial service fee of $9,500 and after that fee had been recaptured, fifty percent of any refunds or savings realized from implementation of NUS's recommendations for a period of sixty months. (Compl. ¶¶ 26-27.) Each month during the five-year term of the agreement, Chesapeake was to send NUS the electric, gas, petroleum, and water/sewer usage bills for itself, all its subsidiaries and divisions to enable NUS to make cost-saving recommendations and to determine defendants' savings as a result of plaintiff's advice. (Compl. ¶¶ 34-35, 67.)

Special provisions were made for WTM in the contract, a form agreement drafted by NUS, with the exception of paragraph 11, which Chesapeake negotiated for two of its facilities. Paragraph 11 reads:

  Two of our [Chesapeake's] locations, Wisconsin Tissue
  Mills, Inc. and the Kraft Products facility at West
  Point, have substantial utility costs. Usually
  contracts for these utility services involve
  extensive negotiation and intricate agreements to
  determine charges for utilities furnished. It is our
  preference that these facilities' utility costs be
  audited rather than critiqued. Recommendations may be
  suggested, but Chesapeake is under no obligation to
  provide information or respond to such requests or
  recommendations. (Id.)

The parties understood the terms "audited" and "critiqued": an audit was an examination of the utility invoices and bills to ensure that the utility correctly calculated the bills; a critique involved an analysis of the Chesapeake facilities' usage to ensure that the facilities were utilizing the most economical rate and suggestions as to how the facilities could reduce their utility costs. (Paulette Aff. Ex. 5 ¶ 5, Ex. 6 at 29, 90, Ex. 11 at 42-43.)

After the agreement was executed, a number of Chesapeake facilities, including WTM, sent their utility bills for the previous twelve months to NUS. (Defs.' Br. In Opp. at 6.) By letter dated March 22, 1989, NUS issued its first recommendations for the Chesapeake facilities including WTM. (Id.) Some of the recommendations for WTM were forward-looking "critiques," including a recommendation that WTM improve its power factor at Plant No. 1. (Id. at 7, 9, Paulette Aff. Ex. 15 ¶¶ 9-11.) About May, 1989, Chesapeake advised NUS that these critique recommendations were outside the scope of the agreement, that Chesapeake would not respond to them, and that NUS should not follow up on them. (Paulette Aff. Ex. 15 ¶ 11.)

In an internal NUS memorandum dated October 9, 1989, Christine R. O'Neil, an NUS account analyst described NUS's position with regard to recommendations for WTM. She wrote, "we feel that our hands are tied with regard to our success in achieving the desired result (i.e., mutual profit for our companies) due to the fact that there is a clause in our contract which limits our efforts with regard to Wisconsin Tissue Mills (Paragraph 11)." (Paulette Aff. Ex. 16.) By letter dated November 7, 1989, NUS wrote the following to Chesapeake in order to clarify the meaning of paragraph 11 of the contract:

  Specifically, this paragraph is in no way intended to
  preclude our company from submitting recommendations
  on your Wisconsin Tissue Mills, Inc. and Kraft
  Products facility in West Point. . . . your company
  would welcome recommendations for cost savings on
  these two locations with the understanding that
  Chesapeake Corporation has the final determination as
  to whether or not these recommendations will be
  implemented. All we request of Chesapeake Corporation
  is that they review the recommendations and advise us
  of reasons why in certain cases they may not be
  viable. You retain the final authorization to
  implement any recommendations. It is our
  responsibility to point out these recommendations to
  you along with any supporting data as to their
  feasibility. If you are in agreement with our
  clarification of paragraph 11 as contained herein,
  please sign one copy of this letter and return it for
  our files. . . . Once we receive this information we
  will reevaluate these two facilities and submit any
  recommendations which we have at this point in time,
  and/or follow through on ideas which may have been
  suggested in the past. (Compl.Ex. B.)

John W. Kirk, Chesapeake's Controller who had executed the original agreement, signed and returned the letter copy on November 13, 1989.(Id.)

Chesapeake paid the initial service fee on August 4, 1988 and later paid NUS an additional $3,149 through July 8, 1992. (Compl. ¶ 28.) NUS seeks recovery for four utility cost saving projects allegedly implemented by Chesapeake: (1) the power factor correction at WTM's Plant No. 1; (2) purchase of transportation gas at the Roanoke facility; (3) purchase of transportation gas at the CD & P facility; and (4) a refund and elimination of sales tax on electricity at the Holly Hill facility. (Defs.' Br. In Opp. at 14-15.) Chesapeake claims that NUS is not entitled to recover for the power factor correction at WTM because critique recommendations for WTM were specifically excluded from the contract. Moreover, Chesapeake was already in the process of improving the power factor at WTM at the time NUS made the recommendation. NUS cannot recover for the Roanoke recommendation, according to Chesapeake, because it recommended a service that did not exist at the time or for several years thereafter. Even if Chesapeake were liable for the Roanoke recommendation, its obligation to pay for the resultant savings ended when it sold the Roanoke facility on May 23, 1997. (Defs.' Br. In Opp. at 35.) Chesapeake admits liability for NUS's recommendation that CD & P purchase transportation gas but disputes the period of time for which it must pay NUS for the resultant savings. Chesapeake does not dispute its liability for the sales tax savings at the Holly Hill facility but contests Chesapeake's request for prejudgment interest.

Plaintiff contends that it made at lease sixteen separate written recommendations to Chesapeake for utility cost savings, defendants acted upon several of these recommendations, received savings and refunds as a result, but failed to pay it fifty percent of those savings and refunds. Plaintiff charges defendants with breach of contract for failure to submit their monthly utility bills to it and failure to pay it the contracted amount, breach of the covenant of good faith and fair dealing, and unjust enrichment. Plaintiff seeks summary judgment on its breach of contract claim with regard to the WTM, Roanoke, CD & P, and Holly Hill facilities.

DISCUSSION

A. Summary Judgment Standard

Summary judgment is appropriate where the moving party establishes that "there is no genuine issue of fact and that [it] is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A factual dispute between the parties will not defeat a motion for summary judgment unless it is both genuine and material. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for the nonmovant and it is material if, under the substantive law, it would affect the outcome of the suit. See Anderson, 477 U.S. at 248, 106 S.Ct. 2505. The moving party must show that if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the non-moving party to carry its burden of proof. See Celotex v. Catrett, 477 U.S. 317, 318, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Once the moving party has carried its burden under Rule 56, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts in question." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The opposing party must set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of its pleadings. See Sound Ship Building Corp. v. Bethlehem Steel Co., 533 F.2d 96, 99 (3d Cir. 1976), cert. denied, 429 U.S. 860, 97 S.Ct. 161, 50 L.Ed.2d 137 (1976). At the summary judgment stage the court's function is not to weigh the evidence and determine the truth of the matter, but rather to determine whether there is a genuine issue for trial. See Anderson, 477 U.S. at 249, 106 S.Ct. 2505. In doing so, the court must construe the facts and inferences in the light most favorable to the non-moving party. See Wahl v. Rexnord, Inc. 624 F.2d 1169, 1181 (3d Cir. 1980).

B. Choice of Law

  1. Whether Plaintiff Should Be Judicially Estopped from
    Arguing that Virginia Law Applies to This Case

In its summary judgment motion, plaintiff relies almost exclusively on New Jersey contract law. In its opposition papers, defendant agrees that New Jersey law applies to this case. However, plaintiff contends for the first time in its reply that Virginia's parol evidence rules should apply and that it never argued that New Jersey law applies to this case. (Pl.'s Reply at 3.) Defendants argue that plaintiff should be estopped from taking this position because it is contrary to its reliance on New Jersey law throughout the litigation. In its January 21, 1998 answers to defendants' interrogatories, plaintiff maintained that New Jersey law applied to the July, 1988 agreement, the November 7, 1989 letter from NUS to Chesapeake, and the relationship between the parties. Before plaintiff submitted its reply papers, it had relied on the contract laws of New Jersey, not Virginia. Defendants request that the Court strike that portion of plaintiff's reply brief which discusses the parol evidence rule under Virginia law.

The Third Circuit has recognized the doctrine of judicial estoppel, "a judge-made doctrine that seeks to prevent a litigant from asserting a position inconsistent with one that she has previously asserted in the same or in a previous proceeding. It is not intended to eliminate all inconsistencies, however slight or inadvertent; rather, it is designed to prevent litigants from playing fast and loose with the courts." In re Chambers Dev. Co., 148 F.3d 214, 229 (3d Cir. 1998) (quoting Ryan Operations, G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 358 (3d Cir. 1996)) (citations and internal quotations omitted). An inconsistent position alone does not trigger the doctrine,

  unless intentional self-contradiction is used as a
  means of obtaining unfair advantage. Thus, the
  doctrine of judicial estoppel does not apply when the
  prior position was taken because of a good faith
  mistake rather than as part of a scheme to mislead
  the court. An inconsistent argument sufficient to
  invoke judicial estoppel must be attributable to
  intentional wrongdoing.

Chambers, 148 F.3d at 229, (citing Ryan, 81 F.3d at 362). "The basic principle . . . is that absent any good explanation, a party should not be allowed to gain an advantage by litigation on one theory, and then seek an inconsistent advantage by pursuing an incompatible theory." 18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Fed. Prac. & Proc. § 4477 (1981 & Supp. 1998). The party who seeks the estoppel need not demonstrate detrimental reliance on the previous position, and the party against whom estoppel is sought need not have benefitted from the earlier position. Chambers, 148 F.3d at 229; Ryan, 81 F.3d at 361.

There is a question as to whether state or federal judicial estoppel law applies in a diversity action. In Chambers, our Circuit acknowledged that New Jersey judicial estoppel law is consistent with the federal law. Chambers, 148 F.3d at 229 n. 13. The need for comparative analysis of state and federal judicial estoppel law is absent. Here, as in Chambers, because there is no relevant difference between the two rules, this Court will apply federal law.

The Ryan court developed a two part test to determine whether judicial estoppel is an appropriate remedy. First, is the position of the party against whom estoppel is sought inconsistent with a position it previously asserted in the proceedings? Second, if so, did that party assert either or both of the inconsistent positions in bad faith-i.e., with intent to play fast and loose with the court? Ryan, 81 F.3d at 361. Plaintiff contends that its position that Virginia law applies is not inconsistent with any that it has previously taken in this litigation. It asserts that its interrogatory responses that New Jersey law applied were not binding admissions, and that it has never argued in a brief that New Jersey law applies. The Court finds that plaintiff's position that Virginia parol evidence rules apply is inconsistent with its earlier reliance on New Jersey contract law. Plaintiff's argument that it never contended that New Jersey law applies to this case is disingenuous. Although plaintiff never affirmatively stated that New Jersey law applies in its moving papers, it relied on New Jersey contract law without a single reference to Virginia law. Notwithstanding plaintiff's protest, its interrogatory responses are admissions.

As to the second part of the test, whether either or both of the inconsistent positions were asserted in bad faith, plaintiff claims that it had not argued that Virginia law applies earlier because it had not fully researched the choice of law issue until preparation of its motion for summary judgment. Although this may be true, it does not explain why NUS did not assert that Virginia parol evidence rules apply in its moving papers when defendants would have had an opportunity to respond to the assertion. Plaintiff's explanation is suspect, but it does not demonstrate bad faith or an intent to play fast and loose with the Court. Because the Court has not found evidence that plaintiff took the position in bad faith that Virginia law applies, plaintiff is not judicially estopped from adopting that stance. Because plaintiff first adopted this position in its reply brief, defendants did not have an opportunity to respond to it. In the interests of justice to remedy this circumstance, the Court ...


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