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Sodexo America, LLC v. Regional West Health Services

United States District Court, D. Nebraska

October 21, 2019

SODEXO AMERICA, LLC, Plaintiff,
v.
REGIONAL WEST HEALTH SERVICES, Defendant.

          MEMORANDUM AND ORDER

          CHERYL R. ZWART UNITED STATES MAGISTRATE JUDGE

         Plaintiff and Counterclaim Defendant, Sodexo America, LLC (Sodexo) moves the court for partial summary judgment in its favor and to exclude testimony on Daubert and related grounds. (Filing No. 53; Filing No. 76). Sodexo's summary judgment motion argues:

1) Regional West's claimed damages on the pharmacy project are barred by a waiver of consequential damages clause in the parties' agreement; and
2) Regional West's claims for damages resulting from an alleged failure to load data are based on pure speculation and conjecture and are thus barred as a matter of law.

(Filing No. 53, at CM/ECF p. 1). Sodexo's motion in limine seeks to exclude testimony of Roy Gifford (Gifford), or any other witness proffered by Defendant and Counterclaim Plaintiff, Regional West Health Services (Regional West) “regarding or relating to the standard of care applicable to construction project manager(s).” (Filing No. 76, at CM/ECF p. 1).

         For the reasons stated below, Sodexo's motion for partial summary judgment (Filing No. 53) will be denied in its entirety; Sodexo's motion to exclude testimony on Daubert and related grounds (Filing No. 76) will be granted to exclude any Regional West witness from testifying to the standard of care applicable to construction project managers at trial.

         STATEMENT OF FACTS

         The following facts are undisputed or considered undisputed for the purposes of this motion.

         On November 6, 2015, Sodexo and Regional West entered a five-year Management Agreement (Agreement) for Sodexo to provide facilities and housekeeping services at Regional West. (Filing No. 1 ¶ 7); (Filing No. 33 ¶ 3). The agreement commenced on January 11, 2016 and was scheduled to end on January 10, 2021. (Filing No. 1 ¶ 8); (Filing No. 33 ¶ 3). The Agreement was amended December 2, 2015, and again on January 26, 2016 (January 2016 Amendment). (Filing No. 1 ¶ 9); (Filing No. 33 ¶ 3).

         Pursuant to the January 2016 Amendment, Sodexo was contractually obligated to provide a project manager for plant operations and maintenance services. (Filing No. 55-7, at CM/ECF p. 1). Sodexo provided Brian Sullivan as a project manager. (Filing No. 55-8, at CM/ECF p. 3).

         On March 29, 2016, the Agreement was amended a third time (March 2016 Amendment), changing the financial terms of the agreement from a “Management Fee” to a “Contract Price” financial arrangement effective April 2, 2016. Exhibits B (Housekeeping Services) and C (Plant Operations and Maintenance and Groundskeeping Services) of the Agreement were replaced in their entirety by Exhibits B and C to the March 2016 Amendment. (Filing No. 1 ¶ 10); (Filing No. 33 ¶ 3).

         Section 3.2 of the Agreement governs termination for cause and provides, in relevant part:

3.2 Termination for Cause: A. If either Party breaches a material provision hereof (“Cause”), the non-breaching Party shall give the other Party written notice of such Cause. If the Cause is remedied within ten (10) days in the case of failure to make payment when due, or thirty (30) days in the case of any other Cause, the notice shall be null and void. If such Cause is not remedied within the specified period, the Party giving notice shall have the right to terminate this Agreement upon expiration of such remedy period. The rights of termination referred to in this Agreement are not intended to be exclusive and are in addition to any other rights or remedies available to either Party at law or in equity.

(Filing No. 1 ¶ 15); (Filing No. 33 ¶ 3); (Filing No. 55-5, at CM/ECF p. 2).

         Section 3.3 of the Agreement governs termination without cause and provides, in relevant part:

3.3 Termination without Cause: Either Party may terminate this Agreement, in whole or in part, at any time, without Cause, upon no less than sixty (60) days' prior written notice to the other Party. In the event Client terminates this Agreement without providing the full sixty (60) days' written notice required under this Section 3.3, Sodexo shall be entitled to liquidated damages in an amount equal to the average monthly billing for the prior three-month period, pro-rated to reflect the number of days for which the sixty (60) days' notice was not provided.

(Filing No. 1 ¶ 16); (Filing No. 33 ¶ 3); (Filing No. 55-5, at CM/ECF p. 3).

         On September 8, 2017, Regional West sent a letter to Sodexo, purporting to exercise its right to terminate the contract. The letter provided alternative bases for termination citing to Section 3.3 to terminate the Agreement without cause, effective 60 days from the date of receipt, and to Section 3.2 for termination of the Agreement with cause, effective 30 days from the date of receipt. (Filing No. 1 ¶ 17); (Filing No. 33 ¶ 4); (Filing No. 55-11).

         Regional West notified Sodexo on July 24, 2017 by letter that “it is clear Regional West Health Services has suffered monetary damages as a result of the inadequate performances of Sodexo under the facilities and EVS contracts. At this time, we have decided we will pay the invoices through the end of June 2017.” (Filing No. 83-13, at CM/ECF pp. 3-4). On October 2, 2017, Sodexo sent Regional West a letter stating Regional West was in arrears in the amount of $465, 257.00 and was thereby in breach of the Agreement. (Filing No. 55-17). Regional West thereafter refused to pay certain outstanding invoices issued by Sodexo, claiming it does not owe any additional funds to Sodexo.

         Sodexo initiated this action on December 22, 2017, asserting claims against Regional West for breach of contract, breach of the implied covenant of good faith and fair dealing, and account stated. (Filing No. 1).

         On February 22, 2018, Regional West filed its Answer to the Complaint, along with a Counterclaim, against Sodexo for breach of contract. (Filing No. 12). On October 29, 2018, Regional West filed an Amended Answer and Counterclaim asserting, among other things, “Sodexo failed to fulfill the project manager services” and as a result, “Regional West had to hire additional labor, consultants, and contractors to secure the performance of what should have been Sodexo's obligations and further suffered damages as result of having to start over on projects mishandled by Sodexo.” (Filing No. 33 ¶ 35-36). Regional West claims Sodexo breached the January 26 Amendment in several respects, including by “provid[ing] an unqualified project manager with no healthcare experience, . . . [and] launch[ing] various construction projects without obtaining permits from the relevant building authorities, and without preparing appropriate scope and budget documents.” (Filing No. 55-14, at CM/ECF p. 2).

         Sodexo's motion for partial summary judgment raises arguments for judgment as matter of law regarding Regional West's claim to recover damages arising from failure to timely and properly manage the construction of the hospital's pharmacy project, and its Maximo System.

         A. The Pharmacy Project

         As described by Regional West,

The purpose of the pharmacy project was to get the space in compliance with hospital regulations. The pharmacy needed updated ductwork to allow for the regulation of temperature, air pressurization and ventilation. The ability to control the temperature and pressurization in a pharmacy is vital to ensuring the drugs contained therein are properly maintained.

(Filing No. 55-15, at CM/ECF p. 14).

Sodexo's first failure on this project came in the form of the Project Manager commencing construction without obtaining a construction permit from the relevant building authority. This led to immediate citations, and the project ultimately being shut down. After this delay, Sodexo eventually obtained the required permits and began construction on the project.

(Filing No. 55-14, at CM/ECF p. 10).

         Almost immediately after completion, Regional West began experiencing issues with the pharmacy. Employees complained of temperature fluctuations and pressurization issues. Assistant Facilities Director, Brett Frasier, attempted to manually correct the problem by adjusting various settings in the ductwork software. A competent project manager would have recognized these issues were outside his scope of his experience and immediately sought out the advice of qualified engineers to diagnose the problem.

         (Filing No. 55-15, at CM/ECF p. 15).

         In or around April 2017, Regional West hired Roy Gifford (Gifford). Gifford was initially hired by Regional West in 2015 to serve as its interim facilities director. He worked in that position until November 2015, (Filing No. 83-4, at CM/ECF pp. 3-4), and from November 2015 to April 2017, he remained available to Regional West on an on-call basis. (Filing No. 83-4, at CM/ECF p. 4). Regional West designated Gifford as their corporate representative pursuant to Fed.R.Civ.P. 30(b)(6). (Filing No. 55-9, at CM/ECF p. 3).

         Sodexo and Regional West disagree on what caused the failure of the pharmacy project. Sodexo argues any failures in the project were due to the third-party failures of mechanical engineers (Olsson Associates) and contractors, (Beckenhauer Construction). (Filing No. 84, at CM/ECF p. 9)[1]. In contrast, Regional West contends the failures were a product of Sodexo's failure to provide project management services in violation of the Agreement.

         Gifford testified that due to Sodexo's failure to provide competent project management, the pharmacy project had to be basically redone, resulting in costs incurred by Regional West, including, but not limited to costs associated with the removal and reinstallation of drywall along with additional electrical work. (Filing No. 55-9, at CM/ECF p. 12). Gifford ...


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