Util. Lines Constr. Servs. Inc. v. HOTI, Inc.

799 F.Supp.2d 331

UTILITY LINES CONSTRUCTION SERVICES INC., Plaintiff,

v.HOTI, INC. f/k/a Highlines Construction Company, Inc., and Diversified Group, LLC, Defendants.

Civ. No. 11–93–SLR.

United States District Court, D. Delaware.

July 29, 2011.

Somers S. Price, Jr., Esquire of Potter Anderson & Corroon, LLP, Wilmington, DE. Counsel for Plaintiff. Of Counsel: Ben W. Subin, Esquire of Holland & Knight, LLP.

Matt Neiderman, Esquire and Gary William Lipkin, Esquire of Duane Morris LLP, Wilmington, DE. Counsel for Defendants. Of Counsel: Robert Redfearn, Jr., Esquire of Simon, Peragine, Smith & Readfearn, LLP.

MEMORANDUM OPINION

SUE L. ROBINSON, District Judge.I. INTRODUCTION

Plaintiff Utility Lines Construction Service, Inc. (“ULCS”) brought claims against defendants HOTI, Inc. (“HOTI”) f/k/a Highlines Construction Company, Inc. (“Highlines”), and Diversified Group, L.L.C. (“Diversified”) for fraud, fraudulent misrepresentation, and breach of contract. (D.I. 1 at ¶¶ 30, 40, 53) ULCS is also seeking enforcement of a guaranty between ULCS and Diversified. ( Id. at ¶ 63) In the complaint, ULCS alleges that defendants had knowledge about liabilities associated with the sale of Highlines' material assets to ULCS, yet failed to disclose those liabilities in compliance with the contracted terms of sale. ( Id. at ¶ 14) Presently before the court is defendants' motion to dismiss or, in the alternative, transfer or stay the litigation to allow a co-pending Louisiana suit (the “Louisiana lawsuit”) ¹ to resolve before proceeding. (D.I. 10) The court has jurisdiction pursuant to 28 U.S.C. § 1332 and § 1367. For the reasons that follow, the court denies defendants' motion.

II. BACKGROUNDA. The Parties

ULCS is in the business of providing maintenance and construction services to the gas and electric utilities markets. (D.I. 15 at ¶ 5) It is a subsidiary of Utilicon Solutions, LTD (“Utilicon”) which, in turn, is a subsidiary of Asplundh Tree Expert Co. (“Asplundh”). (D.I. 13, ex. A at ¶ 15) ULCS is incorporated under the laws of the Commonwealth of Pennsylvania with its principal place of business in Willow Grove, Pennsylvania. (D.I. 1 at ¶ 1) HOTI, f/k/a Highlines, is a wholly owned subsidiary of Diversified. ( Id. at ¶ 11) Both Highlines (a corporation) and Diversified (a limited liability corporation) are incorporated under the laws of the State of Louisiana. ² ( Id. at ¶¶ 2–3)

On December 14, 2009, ULCS and Highlines entered into an Asset Purchase Agreement (the “APA”) ³ under which ULCS agreed to purchase Highlines' material assets. (D.I. 1 at ¶ 50) In addition to the APA, ULCS and Diversified executed a written Guaranty Agreement (the “Guaranty”) ⁴ under which Diversified promised Highlines full performance of the APA. ( Id. at ¶ 63) The APA and Guaranty contain choice of law provisions designating Delaware as the proper venue for disputes relating to these documents when the amount in controversy exceeds $175,000.⁵ (D.I. 14 at 3)

B. The Louisiana Lawsuit

The Louisiana lawsuit was filed in Civil District Court for Orleans Parish, Louisiana, by Herbert D. Hughes, II (“Hughes”).⁶ See id. Hughes is the President, CEO and sole shareholder of Diversified, which owned Highlines as a subsidiary. (D.I. 12 at ¶ 2) Hughes alleges violation of the Louisiana Unfair Trade Practice Act, fraud, detrimental reliance, tortious interference with a contract, civil conspiracy, and unjust enrichment. (D.I. 13, ex. A at ¶ ¶ 26–27, 33, 37–38, 40–41, 43–45, 46–47) The Louisiana lawsuit centers on the contractual relationship(s) between Highlines and Entergy. (D.I. 16 at ¶ 7)

For forty years, Highlines has been doing business with various Entergy entities.⁷ (D.I. 13, ex. A at ¶ 7) Highlines derived between 75–90% of its revenue from these contracts. (D.I. 12 at ¶ 4) In an effort to further their business relationship, and with assurance of continued business from Entergy, Entergy requested that Highlines invest $7 million in specialized equipment explicitly for use on Entergy contracts. ( Id.) Highlines obliged. ( Id.)

In February 2009, Diversified sought buyers for Highlines' material assets. Diversified entered negotiations with a few companies, including ULCS, an acquisition arm of Asplundh. By May 2009, Highlines received two offers: a $32 million deal with Mastec; and a deal valued at over $45 million from Asplundh. Highlines did not accept either offer. ( Id. at ¶ 5)

In the spring of 2009, Highlines submitted bids for several Entergy entities' projects. The bids had significant reductions in the allotted overhead expense to secure the award of the Entergy contracts. ( Id. at ¶ 6) Despite having the lowest bid and highest safety record of all the subcontractors bidding on the Entergy contracts, Highlines was not awarded the contracts. ( Id.)

During the summer of 2009, Cleco Power, L.L.C. (“Cleco”), which is not affiliated with any Entergy entity, awarded Amperical Solutions, Inc. (“Amperical”) its Richard–Habetz 230 KV Electric Transmission Line 212 Project (the “Project”). (D.I. 1 at ¶ 16) Amperical sought a subcontractor for the Project. ( Id. at ¶ 17) Feeling pressure from the lack of contract work from Entergy, Highlines produced an under-valued bid, and won the Amperical subcontract (“Amperical subcontract”). ( Id. at ¶ 21)

According to ULCS' complaint, however, Highlines' bid calculation contained errors and discrepancies including: improper estimation of foundation work; insufficient allotment of labor and manpower; insufficient sequencing of work; insufficient delivery methods; overhead miscalculations; and miscalculations for boring costs. ( Id.) Regardless of these errors, Highlines accepted the Amperical subcontract. ( Id. at ¶ 22)

In August 2009, Entergy's Director of Supply Chain Services, Donald J. Brignac, Jr. (“Brignac”), informed Highlines that its contracts were being cancelled and the business relationship was suspended, disallowing Highlines to submit bids on future Entergy projects. (D.I. 12 at ¶ 8) As the prospect of losing this business would potentially bankrupt Highlines, Diversified requested 45 days to find a buyer for Highlines, which Entergy allowed. ( Id.)

With the Entergy contracts suspended, and in desperate need to be sold quickly, Highlines positioned itself as an attractive acquisition target. Highlines toted its Amperical subcontract as a “newly commenced, lump sum contract” despite the bid miscalculations and losses associated with the Project. (D.I. 15 at ¶ 15) Asplundh, via ULCS, again expressed an interest in acquiring Highlines and the parties entered new negotiations. (D.I. 12 at ¶ 9) As part of its due diligence, Diversified introduced Asplundh as the potential purchaser to Entergy. ( Id.) Subsequently, and throughout the acquisition negotiations, Asplundh and Entergy had meetings excluding Highlines and Diversified. ( Id.) As a result of the lost Entergy contracts, Highlines was valued by Asplundh at less that it had been worth in May 2009; the final negotiations allowed Asplundh to acquire Highlines' assets for $7 million plus other consideration. ( Id. at ¶ 11) Once the sale was closed on December 26, 2009, Entergy allowed ULCS to resume Highlines' cancelled and suspended contracts and to bid on new Entergy contracts. ( Id. at ¶ 12)

In March 2010, Hughes and Diversified brought the Louisiana lawsuit against the Entergy entities, Brignac,⁸ as well as Asplundh and its subsidiaries (Utilicon and ULCS). (D.I. 13, ex. A) Hughes alleged that Entergy, in a joint effort with Brignac and Asplundh, devised a plan to falsely devalue Highlines in retaliation against Hughes because he upset Entergy operations by engaging in disputes with Entergy and by notifying Entergy “of concerns and issues in their professional relationship.” ( Id., Second Supplemental and Amending Petition for Damages at ¶ XIV) Hughes suggests that Entergy is a monopoly in the region, putting Entergy in an advantageous position over its contractors. ( Id. at ¶ IV)

The Louisiana lawsuit is presently underway in Louisiana Civil District Court regarding whether the course of events leading up to the parties executing the APA and Guaranty could constitute fraud (committed by the Entergy entities, Brignac, Asplundh and its subsidiaries Utilicon and ULCS), or a conspiracy between the Entergy entities, Brignac, Asplundh and its subsidiaries. HOTI also asserts a series of other allegations. See Herbert D. Hughes, II, et al. v. Entergy Corp., et al., La. Civ. Dist. Ct., Civ. No. 2010–2784.

C. The Present Suit

The present litigation was brought by ULCS against HOTI and Diversified regarding the terms of the APA and Guaranty. As noted supra, ULCS and HOTI are the parties involved with the APA, and ULCS and Diversified are the parties named in the Guaranty. The terms of the APA changed Highlines' name to HOTI. (D.I. 13, ex. A, First Supplemental and Amending Petition for Damages at ¶ II) The APA further stipulated that HOTI had an affirmative obligation to ULCS to maintain its books and records in a materially complete and accurate way in compliance with good business practice, and in accordance with generally accepted accounting principles (“GAAP”). ( See APA §§ 5.1.4, 5.1.5., 5.1.27, 7.1.3, 7.1.7, 8.1.1, and 8.1.4)

ULCS alleges that HOTI never disclosed, and actively concealed, liabilities associated with the Amperical subcontract prior to the execution of the APA. (D.I. 1 at ¶ 14) ULCS further alleges that at closing, HOTI affirmatively certified in writing “that all representations and warranties, including information in any document (which includes the interim financials) provided by HOTI were true and correct in all material respects and that HOTI complied with all of the covenants in the [APA].” ( Id.)

ULCS alleges that HOTI committed fraud, made fraudulent misrepresentations regarding the Amperical subcontract, and that those misrepresentations resulted in a breach of the APA. ( Id. at ¶¶ 30, 40, 53) During the...