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CMS Mechanical Services LLC v. PetSmart Inc.

United States District Court, D. Arizona

March 31, 2018

CMS Mechanical Services, LLC, Plaintiff,
v.
PetSmart, Inc., Defendant.

          ORDER

          Neil V.Wake, Senior United States District Judge

         Table of Contents

         I. SUMMARY ................................................................................................................ 1

         II. FACTUAL BACKGROUND ..................................................................................... 2

         A. The Parties ............................................................................................................. 2

         B. The Complete Contract: A Master Agreement and a Statement of Work ............. 3

         1. The 2011 Master Agreement .............................................................................. 3

         2. Negotiations in 2012 Leading to the Relevant Statement of Work .................... 4

         3. The Finalized 2013 Statement of Work ............................................................. 6

         C. CMS Immediately Breaches the Contract, but the Parties Resolve the Dispute with Capped Billing Arrangements ................................................................................. 8

         D. CMS Belatedly Claims It Is Entitled to an Arrearage Above the Capped Billings .......................................................................................................................... 11

         E. This Action ........................................................................................................... 12

         III. SUMMARY JUDGMENT STANDARD ............................................................... 13

         IV. ANALYSIS ............................................................................................................. 14

         A. The parties' original contract consisting of the merged Master Agreement and Statement of Work was valid and enforceable. . ............................................................ 14

         1. The contract's price terms were clear and unambiguous and CMS breached them. . ......................................................................................................................... 14

         2. The contract may not be modified by extrinsic evidence to say Exhibit

         C was not binding. . ............................................................................................................... 15

         3. The original 60-month term in the Statement of Work was invalid as conflicting with the Master Agreement's termination-for-convenience clause. . ...... 16

         B. The parties substituted their fixed-price agreement with two capped-billing arrangements, which were valid because they are undisputed and were fully performed. . .................................................................................................................... 17

         C. PetSmart does not owe CMS for “deferred billings.” .......................................... 18

         1. There is no evidence that PetSmart ever agreed to pay for deferred billings in addition to the capped amount each month. . ............................................................. 18

         2. CMS's deferred-billings invoice is barred because it was itself in breach of contract as untimely and inaccurate. . ........................................................................ 19

         3. The business circumstances and the parties' course of conduct show that CMS had no reasonable basis to think it was entitled to deferred billings. .. ...................... 20

         D. The parties did not subsequently orally agree to a fixed 60-month term. . .......... 20

         1. There is no evidence of a subsequent oral agreement for a minimum 60-month term. . ......................................................................................................................... 21

         2. The Statute of Frauds defeats CMS's claims that the parties agreed orally to a 60-month term. . ......................................................................................................... 21

         3. Promissory estoppel also fails for lack of evidence and because CMS's supposed reliance was unjustifiable. . ........................................................................ 22

         E. Reforming the contract to apply the additional-stores formula to all stores fails because there was no mutual mistake or inequitable conduct. .. .................................... 22

         F. PetSmart acted in good faith in terminating the contract after being asked continually to pay more than the contract required and more than it was willing to pay. . ............................................................................................................................. 24

         G. The termination-for-convenience clause was reasonable and valid. . .................. 25

         V. CONCLUSION ......................................................................................................... 26

         I. SUMMARY

         This is a breach of contract action by CMS Mechanical Services, LLC (“CMS”) against PetSmart, Inc. (“PetSmart”). CMS provides heating, ventilation, and air-conditioning (“HVAC”) services. The two companies entered into an agreement under which CMS was to provide PetSmart's HVAC maintenance needs for 1, 157 of its stores. That agreement consisted of two contracts. First, a Master Agreement provided general business terms that would govern any specific contract for work. It included the ability for either party to terminate “for convenience” with thirty days' notice and a requirement that all invoices be “timely and accurately submitted.” Second, a Statement of Work for specific work, which became part of the Master Agreement, contracted for CMS to perform preventative maintenance at 1, 157 listed store locations. The Statement of Work clearly and unambiguously stated the annual cost for each listed store down to the penny. Each month, CMS was to bill for 1/12 of the annual cost, which came to roughly $505, 000. In the event PetSmart wanted additional stores serviced, the Statement of Work provided a formula under which the price for each additional store would be calculated.

         CMS contends, contradicting the contract's clear language, that the prices for all stores were intended to be only estimates. CMS began to bill for every store using the additional-stores formula-breaching the contract. This billing method resulted in monthly invoices well exceeding $505, 000.

         PetSmart informed CMS that its invoices were above what PetSmart was willing to pay. To continue their relationship, the parties agreed to a capped-billing arrangement. CMS would bill, and PetSmart would pay, $525, 000 every month for six months. When CMS later sought to raise this amount for 2015, PetSmart informed CMS that its budget allowed it to pay a maximum of $550, 000 per month. CMS acceded, and the new $550, 000 billing cap stayed in place for roughly one year. A year later, CMS began to send monthly bills for north of $600, 000, claiming the bills represented a return to the normal pricing under the Statement of Work. PetSmart exercised its right to terminate for convenience.

         CMS then, for the first time, sent PetSmart a bill for amounts it had “deferred, ” notwithstanding the agreed billing caps. It asserted it was owed an arrearage of roughly $2.6 million under the additional-stores formula, which it applied to the listed stores as well as additional stores serviced. It never identified any portion of this supposed arrearage in its earlier invoices. Nothing indicates that PetSmart ever agreed to pay for these deferred billings, and PetSmart indeed did not pay them. CMS brought this action seeking to collect the supposed arrearage. Over a year after claiming it was owed $2.6 million and after initiating this litigation, CMS averred that it miscalculated under the formula and is actually owed $3.5 million. It is undisputed that neither of the claimed deferred amounts was based on the original contract as written. They were based on CMS's theory that all charges, including for the itemized stores in Exhibit C, were really owed at the higher formula for additional stores.

         On the undisputable dispositive facts, summary judgment will be granted for PetSmart against CMS.

         II. FACTUAL BACKGROUND

         The following facts are construed in the light most favorable to the plaintiff, the nonmoving party.

         A. The Parties

         PetSmart is a “specialty pet retailer and pet service provider with stores throughout the United States.” (Doc. 175 at ¶ 1.) It is a Delaware corporation with its principal place of business in Arizona. (Doc. 65 at ¶ 4.)

         CMS is “one of the largest [HVAC] service companies in the United States.” (Doc. 193 at 2-3, ¶ 2.) It is a single-member limited liability company with its principal place of business in Florida. (Doc. 65 at ¶ 2.) (Its single member is itself an LLC, and that LLC has two members. Without traversing farther, it is enough to say that all involved in CMS are citizens of Florida. Diversity of citizenship exists. See Id. at ¶ 5.)

         B. The Complete Contract: A Master Agreement and a Statement of Work

         Around 2006, CMS began to perform HVAC services for PetSmart. (Id. at ¶ 7.) PetSmart required its product and service providers to enter into a master provider agreement. A master provider agreement controls the parties' general business arrangements-for example, by including clauses on warranties and representations, inspection, ownership of work, confidentiality, indemnity, etc. (See generally Doc 175-1, Ex. 3.) A master provider agreement does not itself require any services be provided. Instead, it authorizes the parties to enter into separate contracts, in this case called statements of work.

         1. The 2011 ...


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