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Keystone Dedicated Logistics v. Flexaust Co.


April 16, 2010


The opinion of the court was delivered by: Magistrate Judge Lisa P. Lenihan

Doc. No. 16


I. Summation

The Motion for Summary Judgment filed by Defendant Flexaust Company, Inc. ("Flexaust") will be denied as to Count I, Breach of Contract, but granted as to Counts II and III, Unjust Enrichment and Quantum Meruit, as more fully set forth below.

II. Factual and Procedural History

Plaintiff ("KDL") alleges that Flexaust breached the parties' Transportation Services Agreement (hereafter the "TSA") and obtained improper benefit from KDL's product transportation-related efforts. The record presently before this Court indicates that:

KDL is a Carnegie, Pennsylvania based transportation "logistics service" provider which analyzes a client's existing product shipping needs, practices and expenses; maintains carrier-industry contacts and negotiates - through a client bid package prepared by KDL - for lower shipping rates with many carriers (utilizing, e.g., volume discounts); provides oversight and weekly billing/payment services regarding the client's product shipments through selected third-party carriers; and makes its profit under contracts entitling it to a percentage of the client's transportation cost savings. Flexaust is a Warsaw, Indiana based manufacturer and supplier of industrial/commercial hoses which ships its products.

On October 2, 2007, the parties entered into a two-page Transportation Services Agreement, governed by Pennsylvania law, the Effective Date of which was left blank. See Complaint Exhibit 1. The TSA provides that KDL would perform services and be compensated as set forth on Schedule A. Id. at ¶ 2. Schedule A, executed concurrently, provides in turn that KDL would analyze one to three months of Flexaust's existing transportation requirements by modes (i.e., less than truckload, truckload, local cartage, expedite, international, and parcel).*fn1

Thereafter, "KDL [was] authorized to negotiate rates on behalf of Flexaust and Flexaust agree[d] to utilize those freight companies when said freight companies provide[d] a cost savings over current programs and [met] expected service levels defined by Flexaust." Schedule A at ¶ 2 (emphasis added). Agreed-upon carriers were referred to as "compliant carriers". Id.

KDL was to "process Flexaust freight bills weekly"; invoice Flexaust and distribute funds to KDL/compliant carriers; and "track all non-compliance carriers and provide cost of non-compliance usage." Id. at ¶ 3.*fn2

In accordance with the TSA, cost savings were determined by reference to the parties' agreed upon "Benchmark Rate Calculations" to be set forth on Schedule B. Although the record contains no schedule B, it contains Appendix B, B-1, B-2 and B-3, which appear to set forth the parties' agreements regarding baseline or "benchmark" prior transportation expenses and anticipated freight savings (the "transportation cost savings"), which were to be divided between the parties.*fn3 Flexaust was to "compensate KDL by the formula set forth below for all recognized freight savings" and KDL was to "calculate transportation savings defined as 'Benchmark Rate Calculation' less KDL transportation arrangements or other transportation arrangements that are less than 'Benchmark Rate Calculations.'" Schedule A at ¶ 4 (emphasis added). But "IF THERE [WERE} NO SAVINGS THEN THERE [WERE] NO FEES DUE TO KDL" other than weekly processing fees and expense reimbursements. Id. (emphasis in original).

The TSA further provides for an initial term of 48 months "from the date that the parties agree on carrier pricing", but permits a "one year trial period - early termination" pursuant to which Flexaust could elect to terminate during the 12th to 15th months of the contract. TSA at ¶ 4.

Early termination required that Flexaust "deliver a written cancellation notice" and provide KDL an "opportunity to meet Flexaust in person." Id. And cancellation under this provision would take effect ninety (90) days from the date of notice. Id. A party might also terminate "for cause", provided that it permitted a thirty (30) day window for remedy of any default. Id.

Finally, the "Exclusivity" paragraph of the TSA provides that for the term of the TSA and, if early termination were elected, for one year thereafter, Flexaust "agrees not to directly solicit the services of any transportation companies that KDL has introduced to service Flexaust." Id. at ¶ 5.

KDL obtained pricing models from various carriers, including UPS Freight ("UPS"), and carriers were selected. Compare Hammel Affidavit at ¶ 13 (attesting that KDL recommended carriers with similar rates to Flexaust, which then selected carriers (other than UPS)) with Memorandum in Support of Motion for Summary Judgment at 6 ("KDL did not accept the bid submitted by UPS Freight . . . .").

The parties began performance under the contract in January, 2008. See Complaint at ¶ 8 (asserting that KDL "arranged for services at . . . reduced rates to be performed beginning January 1, 2008"); Affidavit of Robert Hammel of KDL ("Hammel Affidavit") at ¶ 9 (same); Memorandum in Support of Motion for Summary Judgment ("Memorandum in Support") at 5 ("Beginning on January 2, 2008, KDL published rates for transportation services for carriers . . . on a website that could be reviewed by Flexaust . . . [and] then arranged for services . . . and Flexaust began using KDL's carriers . . . .").

Flexaust represents that, beginning in May, 2008, it complained to KDL about (1) "increasing costs under the [TSA]" and (2) its discovery that it was "routinely being charged a significantly higher price than" agreed upon by compliant carriers. Hammel Affidavit, Ex. B (Flexaust legal counsel's letter of December 16, 2008) (hereafter the "Termination Letter");*fn4 see also Memorandum in Support of Summary Judgment at 6.

The parties agree that in Summer 2008, fuel charges increased, as did Flexaust's transportation expenses. In July, the parties met to discuss transportation costs, which KDL maintains were still significantly below the benchmark rates. See Hammel Affidavit at ¶ 21.*fn5

That same month, Flexaust discontinued its use of compliant carriers, and began using UPS. The parties dispute whether this change in carriers resulted from Flexaust's direct solicitation of UPS. Compare Complaint at ¶ 12 (asserting that in July, 2008, Flexaust "advised KDL that Flexaust was soliciting bids from other carriers not obtained by KDL") with Memorandum in Support of Motion for Summary Judgment at 3 (asserting entitlement to summary judgment because "nothing in the TSA precludes Flexaust from accepting quotations from . . . carriers not affiliated with KDL"); id. at 6 ("After KDL rejected UPS Freight as one of their [sic] carriers for Flexaust, UPS Freight . . . pursued Flexaust's business directly. Thereafter, UPS Freight did agree on pricing with Flexaust and Flexaust began making shipments . . . .").

On December 16, 2008, Flexaust, through its legal counsel, advised KDL that it was entitled, under the TSA, "to engage UPS Freight on its own initiative" because KDL-referred carriers "regularly provided no cost savings" and its performance "regularly failed to meet Flexaust's expected service levels." Hammel Affidavit, Ex. B (Letter of December 16, 2008) (hereafter the "Termination Letter").*fn6 KDL disputes both these assertions. See Hammel Affidavit at ¶ 26. The Termination Letter also indicates that "Flexaust will continue exercising its right to utilize the more favorable pricing structure offered by UPS Freight - a right that is specifically granted by paragraph 2 of Schedule A to the Agreement" and that the letter "further serves as written cancellation notice pursuant to the early termination right granted in Section 4 of the [TSA]." Id.*fn7

Plaintiff's Complaint, filed in the Court of Common Pleas of Allegheny County asserts claims for (1) breach of contract, (2) unjust enrichment, and (3) quantum meruit.*fn8 It was removed to this Court by Defendant in May, 2009. Defendant has filed a Concise Statement of Material Facts, to which Plaintiff responded, and currently pending is Defendant's Motion for Summary Judgment. Defendant asserts that Plaintiff's claims fail for the following reasons:

(1) breach of contract because the "TSA was not exclusive; rather, Flexaust had the right to use or not use transportation services through KDL" and did not "require Flexaust to pay KDL for savings obtained on shipments made through non-KDL provided carriers";*fn9

(2) unjust enrichment and quantum meruit because, under Pennsylvania law, these doctrine are inapplicable to claims when the relationship between the parties is governed by the terms of a written contract.

III. Summary Judgment Standard

Summary judgment is to be granted only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). A fact is "material" if proof of its existence or nonexistence might affect the outcome of the suit under applicable law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). And a dispute is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id.

The Complaint estimates KDL's lost "commissions" for savings at approximately $240,000. See Complaint at ¶ 18.

All doubts as to the existence of a genuine issue of material fact are resolved against the moving party, and the entire record is examined in the light most favorable to the nonmoving party. Continental Ins. Co. v. Bodie, 682 F.2d 436, 438 (3d Cir. 1982). However, the nonmoving party may be subject to summary judgment under Rule 56 if, after adequate time for discovery, it "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).*fn10

IV. Analysis

A. Breach of Contract

1. Exclusivity

The TSA expressly requires Flexaust to use KDL-referred carriers when those carriers offered shipment (a) at a cost savings from the Benchmark Rate and (b) with appropriate service/performance levels. See Schedule A at ¶ 2.*fn11 KDL asserts that it was continuing to provide such carriers when Flexaust elected to discontinue its use of agreed-upon, or "compliant", carriers and to enter into a direct relationship with UPS transportation services instead. As to service levels, Flexaust attests that its use of compliant carriers was not meeting its criteria. It provides no evidence of its contemporaneous definition of "expected service levels" under the TSA, but does provide some evidence of contemporaneous carrier service complaints.*fn12 KDL attests that through July, 2008 "there were no service issues, and both KDL and Flexaust profited from their contractual relationship." Hammel Affidavit at ¶ 16. Similarly, Flexaust asserts that "the rates negotiated by KDL actually increased Flexaust's costs of freight as a percentage of its sales by approximately 17%",*fn13 while KDL asserts that although Flexaust's transportation costs rose in Summer, 2008 as a result of record-level increases in fuel prices,*fn14

Flexaust's compliance carrier transportation costs were still at a "substantial" savings.*fn15 The role of fuel pricing in the parties' calculations and agreement is not clarified for this Court by the record.*fn16 It appears to this Court that, absent a valid termination of the TSA, if Flexaust rejected qualifying carriers, it was in breach of its contract; and as to this matter there are clearly questions of material fact.

2. Entitlement to Share of Savings Regarding Non-KDL Carrier

Although the TSA clearly states the conditions requiring Flexaust's use of compliant carriers, KDL makes (as Defendant observes) conflicting statements regarding Flexaust's obligations.*fn17 And KDL asserts that even if Flexaus was free, in its circumstances, to utilize other carriers, KDL was still entitled to its share of any cost savings, in accordance with the "KDL Fees" provision of Schedule A.

The contract documentation does not expressly illustrate what non-KDL transportation arrangements the client might be utilizing. Under the plain language of the TSA, however, if KDL failed to identify, or timely identify, a carrier meeting the cost and service criteria for particular shipment/transportation projects or more generally, the client could arrange shipment through a non-KDL carrier. And Schedule A further reflects the parties' anticipation of non-compliance carriers/usage and "other transportation arrangements." Schedule A at ¶¶ 3-4. The fee provisions, as set forth supra, indicate that a percentage of any "other transportation arrangements" cost savings from the Benchmark Rate would still be passed on to KDL under the parties' agreement. Id. at ¶ 4.*fn18

KDL attests that bills which it received from UPS for services provided to Flexaust indicated that UPS was using the KDL recommended rate structure, i.e., rates "substantially below the established benchmark." Hammel Affidavit at ¶ 24.*fn19 Here too, then, questions of material fact preclude summary judgment.

3. Termination

Although the TSA has an initial term of 48 months, it was terminable during the early opt-out window or for cause, subject to further contractual conditions. As discussed, supra, no effective date was set forth by the parties, most of the Schedules/Appendices are undated, and the record does not establish when the parties agreed on carrier pricing (by which the TSA, at ¶ 4, references the effective date). The record does suggest that the last of Appendices B was executed in January 2008. As also discussed supra, the Termination Letter indicates that it served "as written cancellation notice pursuant to the early termination right granted in Section 4 of the [TSA]."

Accordingly, the facts of record, as summarized supra, leave open questions of material fact as to, e.g., whether Flexaust communicated a valid termination notice within the 12 to 15 month early termination window and provided the contractually required opportunity to meet,*fn20 in which case termination would be effective 90 days from the valid notice. Similarly, there may remain questions as to whether the Termination Letter could, given the three (3) service-related complaints outlined therein, constitute factually-supported termination for cause, and, if so, whether the contractual requirement of a 30-day period to cure any default was provided.*fn21 An effective termination of the TSA would, of course, affect the period during which Plaintiff might be entitled to recovery for Defendant's breach, while an ineffective termination would not.

4. Direct Solicitation

Paragraph 5 of the TSA, drafted by KDL, limits itself to an agreement by Flexaust that it will not "directly solicit the services of any transportation companies that KDL has introduced to service Flexaust" during the contract term or, in the event of early termination, for one year therafter. Thus liability for breach of this provision turns on the factual question of the relationship/contact history between Flexaust and UPS, a matter of disagreement between the parties. More specifically, KDL attests that Flexaust solicited transportation services from UPS. See Hammel Affidavit at ¶ 23 (stating that when Flexaust stopped using KDL's carriers, "Steve Harvey of Flexaust stated [in a conference call] that 'we weren't saving money, so we went out and got better rates.'"). Flexaust contests that "UPS approached Flexaust". Defendant's Reply to Plaintiff's Brief in Support of Response at 2.*fn22 Due to these factual disputes summary judgment on this breach of contract question must be denied.

B. Unjust Enrichment; Quantum Meruit

As explained in Flexaust'sMemorandum in Support of Motion for Summary Judgment, the doctrines of unjust enrichment and quantum meruit are, under Pennsylvania law, inapplicable with regard to matters governed by enforceable contract provisions. See Memorandum in Support at 14-16; see, e.g., Schott v. Westinghouse Elec. Corp., 259 A.2d 443, 448 (Pa. 1969) ("[W]e note that this Court has found the quasi-contractual doctrine of unjust enrichment inapplicable when the relationship between parties is founded on a written agreement or express contract. Third National Bank & Trust Co. of Scranton v. Lehigh Valley Coal Company, 353 Pa. 185, 193, 44 A.2d 571 (1945). See also Horsham Township v. Weiner, 435 Pa. 35, 255 A.2d 126 (1969) and Wingert v. T. W. Phillips Gas & Oil Co., 398 Pa. 100, 105, 157 A.2d 92 (1959)).*fn23

As Flexaust also correctly observes, unjust enrichment is an equitable doctrine which implies a contract requiring a defendant to pay the value of benefits conferred, and quantum meruit is a form of restitution applicable in such cases. See id. at 14-15(citing cases, including Mitchell v. Moore, 729 A.2d 1200, 1203 (Pa. Super. 1999); Hershey Foods Corp. v. Ralph Chapek, Inc., 828 F.2d 989, 998 (3d Cir. 1987) (explaining that "where an express contract governs the relationship of the parties, a party's recovery is limited to the measure provided in the express contract")).

Although KDL was entitled, under Pa. R. C. P. 1020, to plead a claim for unjust enrichment/quantum meruit in the alternative,*fn24 because this Court concludes that the matters in dispute*fn25 are governed by the terms of the parties enforceable written agreement, KDL's claim is one for breach of contract.*fn26

V. Conclusion

An Order consistent with the Memorandum Opinion will be entered.

LISA PUPO LENIHAN United States Magistrate Judge

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