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SecTek, Inc. v. Diamond

United States District Court, E.D. Virginia, Alexandria Division

August 19, 2016

SECTEK, INC. Plaintiff,
v.
JEANETTE S. DIAMOND, Defendant.

          MEMORANDUM OPINION & ORDER

          Gerald Bruce Lee United States District Judge.

         THIS MATTER is before the Court on Plaintiff SecTek's Motion for Partial Summary Judgment (Doc. 70), Defendant Jeannette Diamond's Motion to Strike Alleged Facts and Evidence Supporting Plaintiffs Motion for Partial Summary Judgment (Doc. 85), and Defendant Jeannette Diamond's Motion for Partial Summary Judgment (Doc. 100). This case arises from SecTek's purchase of The Diamond Group ("TDG") from Defendant Jeanette S. Diamond, pursuant to a Stock Purchase Agreement ("SPA"). (Doc. 71 at 1). SecTek seeks indemnification for a New Mexico Tax Assessment. (Doc. 71 at 1). The assessment allegedly resulted from a TDG office in New Mexico that Diamond allegedly concealed from both the state of New Mexico and SecTek before she sold TDG. (Doc. 71 at 1-2). There are two issues before the Court.

         The first issue is whether summary judgment is appropriate even though discovery had not concluded at the time SecTek moved for summary judgment. The Court DENIES SecTek's Motion for Partial Summary Judgment (Doc. 70) for because SecTek moved for summary judgment while discovery was still open, forcing Diamond to oppose the motion on an incomplete record.

         The second issue is whether there remains a genuine issue of material fact on SecTek's indemnification and fraud claims given that neither party has presented sufficient evidence demonstrating (1) whether the Tax Assessment is a "fixed and established" amount, making SecTek's early indemnification claims acceptable, (2) whether SecTek's failure to respond in the 90-day window substantially burdened Diamond, making the assessment no longer contestable, and (3) whether the allegedly hidden Albuquerque, New Mexico TDG office was actually the cause of the Tax Assessment. The Court DENIES both SecTek and Diamond's Motions for Partial Summary Judgment because, the uncertain amount of the Tax Assessment, the options, if any, for reducing the Tax Assessment; the existence of a TDG office in New Mexico, instead of a post; and the true cause of the Tax Assessment are all remaining genuine issues of material fact. Thus, this Court cannot grant summary judgment.

         Finally, having denied SecTek's Motion for Partial Summary Judgment, the Court DENIES as moot Diamond's Motion to Strike Alleged Facts and Evidence Supporting Plaintiffs Motion for Partial Summary Judgment (Doc. 85).

         I. BACKGROUND

         Plaintiff SecTek, a Virginia corporation, provides security services to businesses and governments. (Doc. 67 at 1-2). Until 2012, Defendant Diamond was the owner of TDG, a Texas corporation also in the security business. (Doc. 67 at 2-3). On February 3, 2012 (the "Closing Date"), SecTek, Diamond, and TDG entered into a Stock Purchase Agreement ("SPA") whereby SecTek purchased TDG from Diamond. (See Doc 1, 71, 101). Pursuant to the section 3.9 of the SPA, by signing, Diamond warranted that TDG had paid and was up to date on all of its taxes. See SPA 3.9.1. On July 10, 2014, SecTek received notice from the New Mexico Tax Department that TDG owed the New Mexico $1, 180, 483.47 in Gross Receipts Taxes. See Doc. 71-1 at 69 (hereinafter "2014 Tax Assessment"). The 2014 Tax Assessment stated that, if SecTek disputed the total amount due, it should contact the New Mexico Department within 90 days. Id. On September 26, 2014, the Department issued TDG a statement of the account, which included a month-by-month breakdown of the total gross receipts tax owed per month. Doc. 71-1 at 73. Of the months occurring before the Closing Date, TDG owed $533, 085.23, not including taxes and penalties. Id.; see also Doc. 71 at 8-9. In spite of receiving both items, SecTek did not dispute the Tax Assessment until October 14, 2014, six days after the 90-day dispute period expired. Doc. 101-1 at 35-36. From the time SecTek received the Tax Assessment on July, 14, 2014 until October 24, 2016, SecTek did not inform Diamond of the Tax Assessment, nor attempt to contact her to assist in defending it. Id.

         SecTek sued Diamond for indemnification, claiming that prior its TDG purchase; Diamond lied to SecTek about TDG's tax status.[1] (Doc. 71 at 2-3). SecTek argued that TDG opened a New Mexico office in 2009 and concealed it from state authorities to avoid the higher tax rate applicable to in-state businesses. (Doc. 67 at 5-6, 9; Doc. 71 at 7-8, 16-19). Because the SPA warranted that TDG was current on its taxes, SecTek argues that Diamond has breached the SPA. (Doc. 71 at 1-3, 16-18). This, SecTek contends, triggers the SPA's indemnification provisions, obligating Diamond to pay the 2014 Tax Assessment and related costs for the period prior to the Closing Date. (Doc. 71 at 13-19). SPA section 5.2 sets forth the procedures for indemnification of a Third-Party Claim. (Ex. A, SPA § 5.2.)

         Diamond, on the other hand, argues that indemnification is not required because SecTek has not provided her with sufficient information detailing the pre-SPA costs under the Tax Assessment. See Diamond Decl. Diamond additionally alleges that SecTek's failure to dispute the Tax Assessment and notify Diamond of it, within the 90-day dispute window, has substantially burdened Diamond's ability to contest the assessment. Id. at 2.

         On June 2, 2016, forty-three days before the close of discovery, SecTek moved for partial summary judgment on its claim for indemnification. (Doc. 17; Doc. 71). Diamond filed her Opposition on June 29, 2016, and SecTek filed its Rebuttal on the same day. (Doc 88; Doc. 90). On June 20, 2016 Diamond moved for partial summary judgment. (Doc. 100). On August 4, 2016 SecTek filed its Opposition and on August 11, 2016 Diamond filed her Reply.

         II. DISCUSSION

         A. Standard of Review

         Under Federal Rule of Civil Procedure 56, the Court must grant summary judgment if the moving party demonstrates that there is no genuine dispute as to any material fact, and that the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c).

         A party moving for summary judgment must show, by citing to the record, that there is no genuine dispute as to any material fact. Fed.R.Civ.P. 56(c)(1)(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Once a motion for summary judgment is properly made and supported, the opposing party has the burden of showing that a genuine dispute exists. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003). "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Emmett v. Johnson, 532 F.3d 291, 297 (4th Cir. 2008) (quoting Anderson, 477 U.S. at 247-48). The court then views the evidence in a light most favorable to the non-moving party. Boitnott v. Corning, Inc., 669 F.3d 172, 175 (4th Cir. 2012) (citing Anderson, 477 U.S. at 255).

         A material fact is a fact that might affect the outcome of the case. Anderson, 477 U.S. at 248; JKC Holding Co. v. Wash. Sports Ventures, Inc., 264 F.3d 459, 465 (4th Cir. 2001). Whether a fact is material is determined by the substantive law, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248; Hooven-Lewis v. Caldera, 249 F.3d 259, 265 (4th Cir. 2001).

         There exists a genuine dispute of material fact when, in light of the evidence, a reasonable jury could return a verdict for the nonmoving party. Resource Bankshares Corp. v. St. Paul Mercury Ins. Co., 407 F.3d 631, 635 (4th Cir. 2005) (quoting Anderson, 477 U.S. at 248). Under the 2010 amendments to Rule 56, the evidence supporting a motion for or opposition to summary judgment need not be admissible in its current form. Jones v. W. Tidewater Regional Jail, No. 2:15CV316, 2016 WL 2726197, *2-3 (E.D. Va. May 6, 2016). Rather, on a motion for summary judgment, a court considers material that can "be presented in a form that would be admissible in evidence." Fed.R.Civ.P. 56(c)(2); see also Jones, 2016 WL 2726197 at *3. A party moving for or opposing summary judgment must rely on "facts that could be put in admissible form." Jones, 2016 WL 2726197 at *3 (quoting Wake v. Nat'l R.R. Passenger Corp., No. 12-1510, 2013 WL 5423978, *1 (D. Md. Sept. 26, 2013)). More specifically, an "affidavit or declaration used to support or oppose a motion must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated." Fed.R.Civ.P. 56(c)(4); see also Whittaker v. Morgan State Univ., 524 F.App'x 58, 60 (4th Cir. 2013) (unpublished per curiam opinion).

         I. Analysis

         The Court DENIES both SecTek's Motion for Partial Summary Judgment (Doc. 70) and Diamond's Motion for Partial Summary Judgment (Doc. 100) for two reasons. First, the Court denies SecTek's Motion for Partial Summary Judgment because SecTek filed its motion prior to the close of discovery, thus, forcing Diamond to respond to the motion before obtaining all relevant discovery. Second, the Court denies both SecTek and Diamond's Motion for Partial Summary Judgment (Doc. 70, 100) because there remains genuine issues of whether: the amount SecTek requests from the Tax Assessment is "fixed and established, " SecTek's failure to inform Diamond of the Tax Assessment within the 90-day period ...


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