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Heritage Disposal & Storage, L.L.C., v. VSE Corp.

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

January 24, 2017

HERITAGE DISPOSAL & STORAGE, L.L.C., Plaintiff,
v.
VSE CORPORATION, Defendant.

          MEMORANDUM OF DECISION

          Anthony J. Trenga United States District Judge

         In this diversity breach of contract case, Plaintiff Heritage Disposal and Storage, L.L.C. ("plaintiff' or "Heritage") seeks recovery under various legal theories for the storage of commercial grade fireworks. Heritage was hired for that purpose by Defendant VSE Corporation ("defendant" or "VSE"), which was contractually obligated to the Bureau of Alcohol, Tobacco and Firearms ("ATF") to provide that storage after ATF had seized those fireworks. The case was tried before a jury on June 27-30, 2016. On June 30, 2016, the jury returned a verdict in favor of plaintiff and against defendant on plaintiffs claims for quantum meruit (Count II) and unjust enrichment (Count III) and awarded damages in the amount of $4, 782, 265 on each claim [Doc. No. 138].[1]

         Pending for adjudication by the Court, with the parties' agreement, are VSE's affirmative defenses based on (1) accord and satisfaction; (2) unclean hands; and (3) the statute of limitations. The parties are also in agreement that Heritage's claim for quantum meruit is to be decided by the Court and that the jury's verdict on that claim is advisory. The parties disagree, however, over whether plaintiff had a right to a jury on its unjust enrichment claim; and the Court must therefore decide whether the jury's verdict on that claim is binding or advisory under Federal Rule of Civil Procedure 39 and if advisory, decide that claim together with the quantum meruit claim. Finally, the Court must decide whether Heritage is entitled to any prejudgment interest on any judgment that is ultimately entered in its favor and if so, as of what date.

         As discussed below, based on the evidence presented, [2] the Court finds and concludes that (1) the Settlement Agreement was effectively cancelled and rescinded after ATF decided not to award a work order either to VSE or Heritage for the destruction of the seized fireworks that Heritage was storing; and there was, accordingly, no accord and satisfaction that barred Heritage's claims; (2) Heritage had a right to a jury trial on its claim for unjust enrichment under the Seventh Amendment and the jury's verdict on that claim is therefore binding on the Court; and (3) Heritage is not barred from recovery under the doctrine of unclean hands. The Court finds and concludes, however, that Heritage's claims are time-barred with respect to the period before November 26, 2011, and the awarded damages are accordingly reduced from $4, 782, 265 to $3, 496, 086.29. The Court also concludes that Heritage is not entitled to prejudgment interest because Heritage's claims were for an unliquidated debt that was subject to a good faith dispute.[3] As to Heritage's quantum meruit claim, the Court renders its verdict in favor of Heritage, but only for the period after November 26, 2011, and awards damages, without any prejudgment interest, in the amount of $3, 496, 086.29, the amount Heritage invoiced to VSE for that period, less payments made.

         FINDINGS OF FACT AND CONCLUSIONS OF LAW[4]

         A. Findings of Fact

         1. In 2007, the Bureau of Alcohol, Tobacco, Firearms, and Explosive ("ATF") seized hundreds of thousands of pounds of illegal fireworks from a location near Covington, Kentucky, a seizure that came to be known as the "the Covington Seizure."

         2. VSE had entered into a prime contract with the United States Department of the Treasury, which covered the storage and manipulation of the Covington Seizure (the "Treasury Contract"). The Treasury Contract was a "cost-plus" contract that allowed VSE to pass through the cost of storage to the Treasury Department, together with an additional fee.

         3. In order to provide the storage services required under the Treasury Contract, VSE entered into a subcontract with Heritage with respect to the Covington Seizure.

         4. The Covington Seizure required highly specialized care, with unique handling requirements caused by the magnitude and volatility of those fireworks.

         5. A typical warehouse was not suitable for the Covington Seizure, which required a special facility, security, and 24-hour surveillance to ensure its safety.

         6. Heritage maintained a state-of-the-art facility to safeguard and destroy fireworks under its care and custody. The facility provided separate bunkers for storage with an electronic security system, a secure fenced perimeter, and 24-hour armed security guards. The property is approximately 880 acres with no public access.

         7. VSE was able to locate only one other suitable facility for the storage of the Covington Seizure, whose storage fees were nearly twice those of Heritage.

         8. When Heritage first took possession of the Covington Seizure in 2007, the fireworks and their packaging were not weighed. Rather, under ATF supervision, the weight of the fireworks was estimated based on the weight listed on some of the boxes of fireworks and the weight attributed to unmarked boxes of fireworks based on the weight listed on boxes judged to be comparable in weight to the unmarked boxes.

         9. Heritage and ATF both participated in the process of determining the weight of the fireworks at the time Heritage took possession; and based on that process, the total weight of the fireworks was calculated to be approximately 872, 000 pounds.

         10. ATF approved, authorized, and directed Heritage to bill for the storage of 872, 000 pounds of fireworks.

         11. Once placed within Heritage's storage facilities, ATF's consent was required for any access to or manipulation of the Covington Seizure.

         12. Heritage initially billed for its storage service pursuant to a purchase order that had been issued to it and which expired on September 30, 2010 (the "Purchase Order").

         13. On May 9, 2009, ATF directed VSE to "re-palletize the fireworks [being stored at Heritage] due to safety concerns." Pl.'s Ex. 3, at 3. The reconfiguration required more storage space to be utilized; and Heritage increased its storage billing rate under the Purchase Order from $0.10 per pound to $ 0.195 per pound in light of the additional space allocated to the fireworks. Based on that increased rate, Heritage billed VSE $170, 000 per month for storage.

         14. The Treasury Contract and Heritage's Purchase Order both expired on September 30, 2010. On September 24, 2010, ATF awarded VSE a replacement prime contract for the period beginning October 1, 2010, which also covered the storage and manipulation of the Covington Seizure (the "ATF Contract"). The ATF Contract, however, did not authorize payment for storage on a cost-plus basis, as the Treasury Contract, but rather provided for payment at specified rates for various categories of items stored; and ATF took the position that the Covington Seizure fell within a category whose storage rate was substantially below Heritage's storage fees under the expired Treasury Contract and Purchase Order.

         15. The ATF Contract was negotiated and issued without Heritage's involvement, knowledge, or consent as to its rate structure.

         16. With the knowledge, consent, and at the direction, of VSE and ATF, Heritage continued to provide storage and manipulation services for the Covington Seizure after the expiration of the Treasury Contract and the issuance of ATF Contract.

         17. VSE and Heritage were never able to agree to a new subcontract with respect to the ATF Contract after the expiration of the Treasury Contract and the Purchase Order. In that regard, VSE refused to continue the storage payments to Heritage at the same level as under the Treasury Contract; and Heritage did not agree to accept as full payment the amount that VSE was paying on a monthly basis. As a result, there was a dispute between the parties concerning the amount that Heritage should be paid for storage for the period beginning October 1, 2010 through August 2015, when all of the Covington Seizure had been transferred out of Heritage's facilities.

         18. Notwithstanding their dispute over the price of storage, Heritage initially continued to invoice VSE as it did under the Purchase Order. In that regard, it initially billed VSE $170, 000 per month, calculated at the rate of $0, 195 per pound, for the months of October-December 2010. VSE paid Heritage's October and November 2010 invoices, but then, beginning for the period December 1, 2010, paid $92, 394 per month.

         19. After VSE refused to continue paying $170, 000, Heritage changed its billing rate from a per pound rate of $0, 195 per pound to a square foot storage rate of $12.19; and beginning in February 2011, for the monthly period ending January 31, 2011, Heritage billed $206, 000 per month for storage services based on its square foot storage rate of $12.19, rather than $170, 000 per month at the rate of $0, 195 per pound. It also billed that per square foot charge retroactively to the period beginning October 1, 2010. As a result, for the period beginning October 1, 2010, and continuing through September 2012, when a volume of fireworks were transferred out of Heritage's storage facilities, Heritage billed $206, 000 per month; and VSE paid $92, 394 per month (except for November and December 2010, for which it paid $170, 000 per month).

         20. In September 2012, approximately 272, 000 pounds of fireworks were transferred out of Heritage's facilities, reducing the original estimated weight from approximately 872, 000 pounds to approximately 600, 000 pounds.

         21. Following the September 2012 transfer of fireworks, for the period beginning October 1, 2012, Heritage billed $125, 069 per month (rather than $206, 000), calculated based on $12.19 per square foot of space allocated to the fireworks remaining in storage. VSE paid $60, 534 per month through August 2013, and then $57, 348 per month through February 2015.

         22. Beginning in March 2015 and continuing into August 2015, the remaining fireworks were removed from Heritage's facility and Heritage reduced its billings, and VSE, its payments, accordingly. When actually weighed, the fireworks removed from March to August 2015 (that is, the fireworks that remained in Heritage's facilities after the September 2012 transfer) weighed less than a total of 385, 000 pounds, rather than the approximately 600, 000 pounds that remained from the original estimate of 872, 000 after the September 2012 transfer of fireworks out of Heritage's facilities.

         23. There is no industry standard or consistent billing method within the fireworks storage industry for storing the type of fireworks that constituted the Covington Seizure.

         24. The rate charged by the only other vendor VSE could identify that was capable of storing the Covington Seizure in accordance with the requirements set forth in ATF Contract charged a rate of over $24 per square foot, a rate nearly 100% higher than the $12.19 per square foot rate billed to VSE by Heritage.

         25. VSE did not object to Heritage's monthly bills except on the grounds that under the ATF contract, VSE could not recover the full amount of what Heritage had been charging because it had negotiated (without Heritage's involvement or agreement) a price for storage that did not cover what Heritage had been billing, and VSE had been paying, for over 3 years.

         26. On October 24, 2013, the parties entered into a settlement agreement with respect to their dispute (the "Settlement Agreement"). Under the Settlement Agreement:

a. Heritage accepted as full payment for its storage services the payments that VSE had made. See Settlement Agreement, ¶ 1.
b. Subject to Heritage's right of rescission, Heritage released VSE "for any amount (cost, fee, otherwise), in addition [to] the amounts already paid" to Heritage. Settlement Agreement, ¶ 8; see Id. ¶ 1 ("[Heritage] releases VSE and waives any and all claims for storage, and related costs, subject to paragraph 2 ....").
c. The parties agreed that "[i]n the event the Covington seizure destruction Order is issued to a subcontractor other than [Heritage], then [Heritage] shall have the right to rescind this agreement in its entirety." Settlement Agreement, ¶ 2.
d. The parties also agreed that:
This Agreement is subject to ATF providing VSE with the destruction order to VSE based on mutually agreed pricing and terms and conditions between VSE and ATF. VSE and [Heritage] agree to cooperate in good faith to facilitate ATF accepting [Heritage] as the destruction vendor pursuant to VSE's prime contract with ATF for the Covington seizure. If ATF approves such destruction order to VSE based on [Heritage] carrying out the destruction, VSE and [Heritage] will enter into ...

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