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Southeastern Chester County Refuse Authority v. BFI Waste Services of Pennsylvania, LLC

Superior Court of Delaware, Kent

June 27, 2017

SOUTHEASTERN CHESTER COUNTY REFUSE AUTHORITY Plaintiff,
v.
BFI WASTE SERVICES OF PENNSYLVANIA, LLC Defendant.

          Submitted: April 11, 2017

         Plaintiff's Motion for Summary Judgment - GRANTED in Part and DENIED in Part.

         Defendant's Cross Motion for Summary Judgment - GRANTED in Part and DENIED in Part.

          Brian T.N. Jordan, Esquire, Jordan Law, LLC, Wilmington, Delaware, Attorney for Plaintiff.

          Joseph C. Schoell, Esquire, Drinker, Biddle & Reath, LLP, Wilmington, Delaware, Attorney for the Defendant.

          MEMORANDUM OPINION

          Clark, J.

         I. Introduction

         Before the Court are cross-motions for summary judgment filed by Southeastern Chester County Refuse Authority (hereinafter "SECCRA") and BFI Waste Services of Pennsylvania, LLC (hereinafter "BFI"). BFI entered into an Asset Purchase Agreement (hereinafter "Purchase Agreement") with Signature Waste LLC (hereinafter "Signature") and Signature's sole member, Brian Lockhart (hereinafter "Mr. Lockhart"). Separately, Signature allegedly owes money to SECCRA for landfill fees (hereinafter "tipping fees"). These tipping fees were an excluded liability in the Purchase Agreement.

         To ensure BFI did not incur losses for the SECCRA Claim, BFI and Signature, along with Mr. Lockhart, executed a modification agreement, which created "Retained Funds." BFI accordingly retained $50, 000 as security for any losses from SECCRA's claims for the tipping fees. Upon resolution of the SECCRA claims, the funds were to be reimbursed to Signature and Mr. Lockhart. In this case, BFI and SECCRA dispute entitlement to the $50, 000.

         SECCRA argues that it deserves this $50, 000 because Signature and Mr. Lockhart's assigned their interest in the Retained Funds to SECCRA. Alternatively, SECCRA also argues that it is entitled to the money as a third-party beneficiary to the modification agreement. In contrast, BFI argues that SECCRA has no right to the funds because the assignment was not valid and SECCRA was not a third-party beneficiary to the modification agreement. In the alternative, BFI argues that if SECCRA is entitled to the Retained Funds, the modification agreement permits BFI to offset any losses incurred as a result of the SECCRA claim before it must relinquish the remaining funds. For the reasons set forth below, SECCRA is entitled to the Retained Funds, but BFI is entitled to offset its losses (as defined in the Purchase Agreement) up to the full $50, 000.

         II. Facts and Procedural Background

         The facts cited herein are as stipulated by the parties and as found in the documents included within the record. In 2011, Signature utilized SECCRA's landfill for trash disposal services. In exchange for allowing Signature to use its landfill, SECCRA charged Signature tipping fees. Signature allegedly failed to pay for some of these services incurred prior to its sale to BFI.

         Around June 15, 2011, BFI entered into a Purchase Agreement with Signature and Mr. Lockhart, as Signature's sole member. The parties closed on the Purchase Agreement on July 29, 2011. In the beginning of August 2011, after the closing, SECCRA notified BFI that it claimed $315, 458.14 in tipping fees and finance charges that Signature accumulated for disposal services, prior to the sale, in June and July 2011. However, under the Purchase Agreement, BFI did not assume Signature's obligation to SECCRA. Within days of the sale, SECCRA sued Signature and Mr. Lockhart for these unpaid tipping fees in the Court of Common Pleas of Chester County, Pennsylvania.

         To ensure that BFI did not incur losses as a result of this SECCRA dispute, BFI, Signature, and Mr. Lockhart entered into a modification of the Purchase Agreement on November 29, 2011. This modification set aside the Retained Funds. Namely, the parties agreed that BFI was entitled to retain $50, 000 from the monies due "as security for any Losses that Buyer may incur in connection with the SECCRA Claim . . . ."[1] The language in the provision creating the Retained Funds provides that BFI is entitled to retain this money until Signature satisfies certain conditions.[2] The conditions include that Signature must provide

a copy of a written settlement agreement executed by Buyer and SECCRA that (a) fixes the amount of disposal fees due from Seller to SECCRA in connection with the SECCRA Claim, and (b) includes an express acknowledgement that Buyer will not have any liability to SECCRA in connection with the SECCRA Claim.[3]

         Once these conditions occur, the modification agreement requires BFI to transfer the money remaining in this fund to Signature, after it offsets its losses (as defined in the Purchase Agreement).[4]

         The Court of Common Pleas for Chester County subsequently entered judgment against Mr. Lockhart for $337, 963.70. It also entered judgment in favor of Signature regarding all claims. After its judgment against Mr. Lockhart, SECCRA began garnishment proceedings in its Chester County action against BFI and pursued discovery. As a direct result of those proceedings, BFI incurred $6, 637.50 in legal expenses.

         Then, on March 1, 2014, both Signature and Mr. Lockhart assigned their interests in the Retained Funds to SECCRA. This assignment included all of their "right, title, and interest in and to the balance of the "Holdback Funds" and to any and all claims and causes of action related thereto that they may have against BFI arising under and out of" both the Purchase Agreement and modification agreement. In exchange for this assignment, SECCRA released Signature and Mr. Lockhart "from all claims and demands, rights and causes of action of any kind that SECCRA now has or hereafter may have on account of or in any way growing out of its claim for unpaid tipping fees against the released parties."[5] The release stated that it included a full and complete settlement of liability and a full and complete satisfaction of the judgment SECCRA obtained against Mr. Lockhart.[6] However, SECCRA conditioned the release on obtaining the full $50, 000 of the Retained Funds from BFI.[7]

         After receiving this assignment, SECCRA sent BFI a copy of the assignment and a proposed settlement agreement between BFI and SECCRA. The proposed settlement agreement sought to relieve BFI from any liability for Signature's unpaid tipping fees in exchange for the full $50, 000 in Retained Funds. SECCRA believed that this agreement would satisfy the conditions found in the Retained Funds provision, and therefore, the agreement would require BFI to relinquish the money in that fund. However, BFI rejected the settlement agreement because it did not permit BFI to offset its losses. Instead, BFI sought to reduce the Retained Funds by $6, 637.50, the amount of legal expenses it incurred as a result of SECCRA's garnishment proceeding and discovery. In response, SECCRA filed this lawsuit seeking to obtain the full $50, 000 in Retained Funds.

         III. Standard of Review

         Before the Court are cross-motions for summary judgment. In reviewing a motion for summary judgment, "viewing the facts in the light most favorable to the nonmoving party, " the moving party must demonstrate "that there are no material issues of fact still in dispute and that the moving party is entitled to judgment as a matter of law."[8] The mere fact that both parties filed motions for summary judgment "does not act per se as a concession that there is an absence of factual issues."[9] However, "where the parties have not presented argument to the court that there is an issue of material fact, the court shall deem the motion to be the equivalent of a stipulation for decision on the merits based on the record submitted with the motion."[10]

         IV. Discussion

         For the following reasons, the Court finds that the Signature and Lockhart assignment to SECCRA was valid because consideration supported it, the clause seeking to restrict assignment did not render the assignment void, and it was not champertous.[11] Therefore, SECCRA is entitled to the Retained Funds. However, while SECCRA is entitled to this money, the Court also finds that BFI is entitled to offset its losses (as defined in the Purchase Agreement) with the money in the Retained Funds in an amount up to, but not to exceed, $50, 000.

         A. The assignment in this case is valid.

         SECCRA maintains that it provided a release from liability to both Signature and Mr. Lockhart with regard to the unpaid tipping fees, and that this constituted adequate consideration. However, BFI argues that the assignment fails for lack of consideration. While BFI acknowledges that an agreement to forebear on a claim or suit can constitute consideration for an assignment, it argues that any alleged consideration was illusory, since Signature, the relevant party in interest, prevailed in the Pennsylvania Court of Common Pleas. Namely, it argues that forbearance as to Mr. Lockhart is irrelevant because the modification agreement concerned a SECCRA Claim for unpaid disposal fees against the Seller, and the Purchase Agreement defines the Seller as Signature and does not include Mr. Lockhart.

         Extending this proposition, BFI argues that the judgment against Mr. Lockhart is not a SECCRA Claim and therefore it does not trigger a right to the Retained Funds that he could subsequently assign. Therefore, BFI argues that, at the time of the assignment, SECCRA did not have any claims against Signature to release it from. BFI argues that such a purported release is not valid consideration.

         In response, SECCRA argues that throughout the course of dealings between BFI and Signature, BFI continually acted as though it was dealing with both Signature and Mr. Lockhart. SECCRA notes that Mr. Lockhart, as Signature's sole member, was a party to every document.[12] Therefore, SECCRA argues that the consideration as to Mr. Lockhart was relevant and as to Signature it was not illusory.

         BFI further argues that even if the Court were to find valid consideration, the Court could not enforce the assignment because the Purchase Agreement contained an anti-assignment clause that prohibited assignments without BFI and Signature's consent. In response, SECCRA argues that the assignment clause cannot restrict an assignment of rights after a loss has occurred, and therefore, the anti-assignment provision at issue cannot prohibit this assignment.

         In order for a contract to be legally enforceable, adequate consideration must support it.[13] In Delaware, for consideration to be valid it must benefit a promisor or constitute "a detriment to the promisee pursuant to the promisor's request."[14]

         The Court finds that there was consideration recited to support the assignment. While BFI argues that there are no documents evidencing SECCRA's release from liability in exchange for this assignment, SECCRA included one as an exhibit to its response to BFI's motion to dismiss. This document entitled Acceptance of Assignment and Release specifically states that "[t]his release is and expresses a full and complete settlement of liability claimed by SECCRA against both Signature . . . and [Mr.] Lockhart and a full and complete satisfaction of the judgment SECCRA holds against [Mr.] Lockhart . . . ."[15] It recites consideration by providing that SECCRA released Signature and Mr. Lockhart from liability in exchange for those parties assigning their interest in the Retained Funds to SECCRA.[16]

         An analysis regarding consideration rightly includes an examination of whether there was valid consideration. Generally, an agreement to forbear a lawsuit constitutes adequate consideration.[17] This is true regardless of whether or not the suit would have been successful.[18] However, "in order for the relinquishment of a claim against another to be valid consideration, the claim must be honest, genuine, advanced in good faith, and founded on some reasonable, tenable or plausible ground."[19]

         Here, in addition to the recitation of consideration, the Court finds that SECCRA's forbearance constitutes valid consideration. SECCRA obtained a judgment against Mr. Lockhart arising out of Signature's use of the SECCRA facility. Accordingly, SECCRA's agreement not to pursue legal avenues to execute on its judgment would satisfy the necessary standard. If SECCRA sought to execute on its judgment, it would be genuine, honest, and advanced in good faith because SECCRA could be legally entitled to this amount from Mr. Lockhart. Moreover, because SECCRA has a valid and enforceable judgment against Signature's sole member, a claim to execute on that judgment could reasonably be expected to impact Signature. Therefore, SECCRA's release constituted valid consideration.

         The fact that SECCRA did not independently obtain a judgment against Signature does not change this outcome. Courts generally are lenient in terms of finding that forbearance constitutes valid consideration.[20] The Delaware Supreme Court has found that a forbearance constituted valid consideration even when the claim was doubtful as long as the party brought the claim in good faith.[21] Here, given the relationship between Mr. Lockhart and Signature, SECCRA could attempt to execute its judgment against Mr. Lockhart in a manner impacting Signature.[22] Therefore, by releasing Signature "from all claims and demands, rights and causes of action of any kind, " SECCRA gave up its legal right to seek to execute on its judgment against Signature's sole member in a way that would impact the company's operations. This constitutes sufficient forbearance to generate valid consideration.

          Furthermore, BFI's argument that Mr. Lockhart did not have an interest in the Retained Funds or the purchase price is untenable. Mr. Lockhart is Signature's sole member. As this limited liability company's sole member, any profits Signature obtains benefit Mr. Lockhart. Therefore, Mr. Lockhart has an interest in BFI releasing the Retained Funds to Signature as the modification agreement required. Additionally, the course of conduct between BFI, Signature, and Mr. Lockhart evidences the fact that BFI believed that Mr. Lockhart did in fact have an interest in the Retained Funds. As Mr. Lockhart had an interest in the Retained Funds, he was able to assign that interest to a third party.

         BFI argues that even if valid consideration supported this assignment, the Court cannot enforce it. Namely, it argues that Paul v. Chromalytics Corp. controls this case.[23] In Paul, the Superior Court confronted an assignment clause which stated that "any assignment of this Agreement or the rights hereunder by Chemalytics without the written consent of Spex shall be void."[24] There, the court held that Spex's subsequent assignment to Mr. Paul was void, and therefore, Mr. Paul obtained no rights pursuant to the assignment agreement.[25] BFI maintains that the Court should reach the same outcome here. The Court disagrees however, because the assignment clause at issue here does not contain language expressly voiding assignments. Instead the clause merely states that the parties cannot assign their rights under the contract.[26] For the following reasons, this distinction is more than just form and requires a different result.

          While Delaware courts recognize the validity of clauses limiting a party's ability to subsequently assign its rights, [27] courts generally construe such provisions narrowly because of the importance of free assignability.[28] Accordingly, the modern approach to assignment clauses is to distinguish between the power to assign and the right to assign.[29]

         When a provision restricts a party's power to assign, it renders any assignment void.[30] However, in order for a court to find that a contract's clause prohibits the power to assign, there must be express language that any subsequent assignment will be void or invalid.[31] Without such express language, the contract merely restricts the right to assign.[32] When a contract limits a party's right to assign instead of the power to do so, the assignment is valid and ...


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