Deffenbaugh Indus. v. Unified Gov't of Wyandotte Cnty.

1

DEFFENBAUGH INDUSTRIES, INC., Plaintiff/Counter Defendant-Appellant, v. UNIFIED GOVERNMENT OF WYANDOTTE COUNTY, KANSAS CITY, KANSAS, Defendant/Counterclaimant-Appellee.

No. 22-3147

United States Court of Appeals, Tenth Circuit

July 6, 2023

(D.C. No. 2:20-CV-02204-EFM) (D. Kan.)

Before PHILLIPS, MURPHY, and ROSSMAN, Circuit Judges.

ORDER AND JUDGMENT ^[*]

Gregory A. Phillips, Circuit Judge

After new management began operating Deffenbaugh Industries' wastecollection services, residents of Wyandotte County Kansas, often trudged to their curbs after trash-pickup day to find that trash and recycling remained in their bins-rotting, festering, and beckoning pests. Naturally, the residents called to complain.

The waste-collection contract between the Unified Government of Wyandotte County and Kansas City, Kansas (Unified Government) and Deffenbaugh allows the Unified Government to charge Deffenbaugh $200 per residential unit per day when a customer complains about a late pickup and Deffenbaugh fails to correct it. So from 2019 to 2020, the Unified Government charged Deffenbaugh over half a million dollars for complaints of late pickups. Deffenbaugh disagreed with the number of charges and the way the Unified Government calculated them, so it vaguely informed the Unified Government that it planned to terminate the contract based on the Unified Government's breach.

Deffenbaugh then sued the Unified Government for breach of contract and declaratory judgments, and the Unified Government counterclaimed, alleging that Deffenbaugh had also breached the contract. Though Deffenbaugh voluntarily agreed to the contract provision allowing charges in 1993 and again in 2012, it now claims that provision is an unenforceable penalty. Deffenbaugh also claims that its notices to the Unified Government were enough to terminate the contract. But the district court ruled at summary judgment that the contract remains in effect and that the $200 charge is enforceable as liquidated damages. We agree.

The district court properly certified its summary-judgment decision as a final, appealable judgment under Federal Rule of Civil Procedure 54(b). Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

BACKGROUND

I. Factual Background

A. The parties enter a new waste-disposal contract.

In January 1993, Deffenbaugh contracted with the Unified Government to collect and dispose of residential waste until June 2013. Nearly two decades later, with the expiration of the 1993 contract looming, Deffenbaugh and the Unified Government entered a new contract. In the 2012 contract, the parties agreed that Deffenbaugh would exclusively collect and dispose of residential and municipal waste for the Unified Government from January 1, 2012, to December 31, 2032.

In the new contract, Deffenbaugh promised to "provide collection service for Waste which is placed Curbside by 7:00 a.m. on the designated collection day" and to complete its collections between 7:00 a.m. and 5:00 p.m. Monday through Friday. In return, the Unified Government promised to pay Deffenbaugh $9.67 per residential unit per month from January 2012 to January 2014, and $11.23 per residential unit per month in 2014. After 2014, the parties agreed to calculate the price per residential unit per month through a price index. Kansas law governed the contract.

Under the contract, Deffenbaugh assumed responsibility for receiving customer complaints. And it promised to provide a phone number for complaints to the Unified Government. Section 7.02(b) of the 2012 contract allows the Unified Government to charge Deffenbaugh if Deffenbaugh fails to timely respond to certain customer complaints^[1]:

[Deffenbaugh] shall make and retain a record of each complaint received, including the name, address and telephone number of the complainant, date and time of the complaint, date and nature of the occurrence complained of and disposition of the complaint. Upon receipt of a complaint, [Deffenbaugh] shall promptly investigate. All complaints shall be resolved expeditiously within the 24 hour period following receipt. If the complaint involves a failure by [Deffenbaugh] to make a scheduled collection, and if [Deffenbaugh] fails to make such collection within 24 hours after receipt of the Complaint, [Deffenbaugh] shall be penalized two hundred dollars ($200.00) for each 24 hour period in which such failure continues, which amount shall be deducted from the [Unified Government's] next payment to [Deffenbaugh]. [Deffenbaugh] may appeal this penalty to the County Administrator whose decision on the matter will be final.

App. vol. 1, at 59. The 1993 contract contained a nearly identical provision, the only material change being the charge's increase from $100 in the 1993 contract to $200 in the 2012 contract.

A separate provision in the 2012 contract, § 3.07, allows the Unified Government to collect "liquidated damages" from Deffenbaugh if Deffenbaugh performs inadequately because of a lack of proper equipment. If Deffenbaugh fails to comply with the County Administrator's determination that it needs to use more vehicles or equipment, Deffenbaugh will "forfeit as liquidated damages the sum of one thousand dollars ($1,000) per item of equipment for each day that such failure continues." App. vol. 1, at 51-52. This liquidated-damages provision also appeared in the 1993 contract. Like § 7.02(b), the only material change to § 3.07 from 1993 to 2012 was the price-the 1993 contract charged only $300 per item per day.

The 2012 contract outlines events of default, which include either party's failure to "observe each and every term, covenant or agreement to be performed or observed by it." If one party defaults, the non-defaulting party can, under § 11.02, "terminate this Contract upon 30 days prior written notice to the defaulting party." Id. at 75. But the contract won't terminate if the defaulting party fully cures before the thirty days expire, or, for defaults that aren't reasonably curable within thirty days, if the defaulting party begins "diligent and good faith efforts to cure and continue[s] such efforts until the default is fully cured." Id.

B. Under new management, Deffenbaugh's performance declines.

In 2014, after entering its second contract with the Unified Government, Deffenbaugh was acquired by Waste Management and began doing business under that name. For continuity and clarity, as have the parties, we refer to Appellant as Deffenbaugh except when discussing the acquisition.

After Waste Management acquired Deffenbaugh, Deffenbaugh often missed collections at residential units, in part because it didn't have enough employees to consistently complete all its routes. Some of Deffenbaugh's managers internally acknowledged the downturn in service.

Missed waste collections pose more than a mere inconvenience: they threaten the health and safety of residents. When trash is left sitting on the curb for several days, the trash bags can deteriorate and expose the trash to the environment. Dogs, varmints, and wild animals can (and did) get into the trash-at least one Unified Government resident reported wild animals rifling through his trash within a day of a missed pickup. Loose trash can also threaten the health and safety of neighborhood children. And residents whose trash isn't picked up may be tempted to engage in illegal dumping.

In June 2018, to help Deffenbaugh improve its services and response times to customer complaints, the Unified Government gave Deffenbaugh access to its 311 system. And the Unified Government agreed to refer customer calls to that system. Deffenbaugh claims that the Unified Government also agreed that customers would use only the 311 system to report complaints. But Unified Government officials claim that the 311 system was never intended to be the sole avenue for customer complaints.

C. The Unified Government charges Deffenbaugh under § 7.02(b).

Unified Government staff began tracking 311 calls and investigating complaints by visiting residential addresses. Some complaints flagged that Deffenbaugh had missed pickups for entire streets, blocks, and neighborhoods. And some residents called to complain on behalf of their neighborhoods. But in other cases, the Unified Government-not a customer-called in a complaint. For example, at one point, four residents in the same neighborhood called 311 to complain about missed pickups, for which the Unified Government calculated a charge for 102 residential units after inspecting the site.

Unified Government employees followed a standard procedure by which they would visit the site of the complaint two days after the complaint was entered. If the waste bins remained by the curb, the employees would take photographs. But the employees didn't interview the residents or confirm that every bin still contained trash. Some pictures that the Unified Government relied on to charge Deffenbaugh depicted closed trash bins or improperly bagged trash.

By the time Deffenbaugh's May 2019 invoice was due, the Unified Government decided to charge Deffenbaugh under § 7.02(b). The Unified Government was partly seeking to motivate Deffenbaugh to "start performing according to the contract."

We first discuss the history of § 7.02(b) before describing how the Unified Government enforced it in 2019 and 2020.

1. Background on § 7.02(b)

Before the Unified Government imposed charges for May 2019 Deffenbaugh had at least three years' notice that the Unified Government planned to enforce § 7.02(b). As early as summer 2016, Deffenbaugh knew that the Unified Government was planning to charge for missed collections. And in June 2017, the Unified Government withheld $64,800 from its payment to Deffenbaugh for Deffenbaugh's failure to pick up...