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Slavin v. Imperial Parking (U.S.), LLC

United States District Court, D. Maryland, Southern Division

March 27, 2019

MARC R. SLAVIN, et al., Plaintiffs/Counter-Defendants,
IMPERIAL PARKING (U.S.), LLC, Defendant/Counterclaimant.


          Paul W. Grimm, United States District Judge

         Plaintiffs/Counter-Defendants MarcParc Valet, Inc., and MarcParc, Inc. and their sole shareholder, Marc R. Slavin (collectively, “MarcParc”) and Defendant/Counterclaimant Imperial Parking (U.S.), LLC (“Impark”) entered into an Asset Purchase Agreement (“APA” or “Purchase Agreement”) on March 10, 2015 (retroactively effective March 1, 2015), under which MarcParc, a company that operated public parking lots and garages in Washington, D.C., Virginia, and Maryland, “sold substantially all of its assets” to Impark. Pls.' Mem. in Supp. Mot. to Confirm Arb. ¶¶ 1-2, ECF No. 35-1; Def.'s Opp'n to Mot. to Confirm Arb. 3, ECF No. 39; APA 1, ECF No. 80-4. The assets primarily included MarcParc's management contracts and leases pertaining to the parking lots it operated (“Material Contracts”). APA § 8.1(e)(1) & Sched. E, ECF No. 80-4, at 88-92. At the same time, Slavin and MarcParc entered into a Consulting Agreement (“CA” or “Consulting Agreement”), under which Slavin would “provide advice and assistance with regard to (a) the transition of the MarcParc . . . business and assets to Impark, (b) retention by Impark of MarcParc's . . . customers and (c) execution of Impark's business development initiatives and development of new customer opportunities for Impark, ” in exchange for Impark paying him $12, 500 per month for five years, for a total of $750, 000. CA §§ 1.1, 2.1, 5.1, APA Sched. K, ECF No. 80-4, at 120, 121, 123. Additionally, MarcParc Valet, Inc., and MarcParc, Inc. entered into a Transition Services Agreement (“TSA”) with Impark, agreeing to assist each other for a period of time after closing the APA with the acquisition and management of the assets Plaintiffs sold to Impark in the APA. APA Sched. T, ECF No. 80-4, at 155-65.

         Whatever harmony may have existed between the parties before the execution of these agreements soon vanished once they were signed, and they have been at sword's point ever since. Initially, MarcParc sought to resolve the parties' differences regarding payment of a “Holdback Amount”[1] due under the APA through arbitration, and it obtained an arbitration award (“Arbitration Award”) of $1 million in its favor. That only led to further disagreements, and MarcParc filed this suit. Compl., ECF No. 2.

         MarcParc claimed Impark breached the APA by failing to pay (a) the $1 million Holdback Amount, (b) $371, 500 held in escrow (“Escrow Amount”), and (c) $514, 874 from post-closing accounts receivable reconciliation (Count I). It also sought confirmation and enforcement of the Arbitration Award (Count II) and claimed breach of the Consulting Agreement between Slavin and Impark, which Impark had not paid in full (Count III). Id. Impark promptly filed a counterclaim for, inter alia, breach of the APA through fraud and misrepresentations (Count I); tortious interference with contractual relations and prospective economic advantage, based on the same allegedly fraudulent actions (Count V); and breach of the TSA by “refusing to remit sums owed to Impark” and failing to defend and indemnify Impark in a lawsuit brought against Impark and MarcParc by the owners of one of the parking lots namely, a lot at 501 K Street in Washington, D.C. (“501 K Street” and “501 K Street Litigation”) (Count II).[2] Countercl., ECF No. 33; Am. Countercl., ECF No. 52.

         MarcParc filed a Motion to Confirm Arbitration Award, which I granted, June 19, 2017 Mem. Op. & Order, ECF No. 63. I also dismissed three of Impark's counterclaims.[3] Id. The June 19, 2017 Memorandum Opinion and Order mooted MarcParc's Count I insofar as it sought to recover the $1 million Holdback Amount, and it dismissed Impark's Count I insofar as it sought to vacate the Arbitration Award, to compel arbitration, and to recover a Holdback Amount from MarcParc. I denied Impark's Motion for Reconsideration of that Memorandum Opinion and Order. Jan. 9, 2018 Mem. Op. & Order, ECF No. 75.

         The parties then stipulated to the dismissal of MarcParc's claim in Count I of the Complaint for $514, 874 from post-closing accounts receivable reconciliation. ECF No. 82. They also stipulated to the dismissal of Impark's claims in Counts I, II and V of the Amended Counterclaim for future defense expenses arising from and indemnification for the 501 K Street Litigation. ECF No. 81.

         But what remains at issue is still significant, and it is the subject of the parties' pending cross-motions for partial summary judgment. ECF Nos. 80, 85.[4] Because genuine disputes of material fact exist regarding MarcParc's alleged misrepresentations and fraudulent actions and their effect on the contracts between the parties, the parties' cross-motions for partial summary judgment are, for the most part, denied as to MarcParc's Complaint and Counts I and III of Impark's Amended Counterclaim. MarcParc's motion is granted only as to Impark's counterclaim for tortious interference (Count V) and any counterclaim Impark sought to bring in its substantive briefing for breach of the duty of good faith and fair dealing. Impark's motion is granted, as to liability only, on (1) its APA counterclaim in Count I against Plaintiffs for costs and fees from the 501 K Street Litigation (the amount of those costs and fees await further determination), (2) its TSA counterclaim in Count II against the MarcParc Companies for the same; and (3) its claim in Count I of the Amended Counterclaim for pre- and post-closing liabilities. The motions otherwise are denied.

         Standard of Review

         Summary judgment is proper when the moving party demonstrates, through “particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations . . . admissions, interrogatory answers, or other materials, ” that “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a), (c)(1)(A); see Baldwin v. City of Greensboro, 714 F.3d 828, 833 (4th Cir. 2013). If the party seeking summary judgment demonstrates that there is no evidence to support the nonmoving party's case, the burden shifts to the nonmoving party to identify evidence that shows that a genuine dispute exists as to material facts. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87 & n.10 (1986). When considering cross-motions for summary judgment, “the court must view each motion in a light most favorable to the non-movant.” Linzer v. Sebelius, No. AW-07-597, 2009 WL 2778269, at *4 (D. Md. Aug. 28, 2009); see Mellen v. Bunting, 327 F.3d 355, 363 (4th Cir. 2003).

         Breach of APA and CA

         The crux of the parties' dispute is how MarcParc's conduct (and Slavin's in particular) before the Holdback Period ended affected the terms of the parties' agreements and Impark's and Slavin's obligations under the agreements. MarcParc claims that Impark breached the APA and the CA by failing to pay the remaining amounts due under the contracts ($371, 500 under the APA and $650, 000 under the CA) and seeks summary judgment for those amounts. Impark counters that MarcParc and Slavin materially breached representations and warranties they made in both contracts before Impark ceased performing under the contracts, thereby releasing Impark from its contractual obligations and entitling it to damages. Def.'s Reply 1.

         The relevant representations and warranties MarcParc made in the APA were that

. the “Books and Records fairly and correctly set out and disclose[d] in all material respects the financial position and condition of the Seller and all material financial transactions of the Seller relating to the Business have been accurately recorded in such Books and Records in the Ordinary Course of Business”;
. there had “not been any default in any term, condition, provision or obligation to be performed under any Material Contract, and to Seller's Knowledge, each such Material Contract is in good standing”;
. “neither the Seller nor Slavin [wa]s aware of any existing ground on which any action, suit or proceeding [could] be commenced with any reasonable likelihood of success”; . it was not violating any law; and
. there were no disclosures that the Seller or Slavin should make to ensure that “the representations and warranties [were] not misleading” or because they could “materially and adversely affect the Business or would operate to prevent the Purchaser from using the Assets to operate the Business in the manner in which the Seller has operated the Business prior to the date of this Agreement.”

APA § 8.1(f), (n), (p), (aa), (cc). In the Consulting Agreement, Slavin agreed to

. provide “reasonable consulting and sales representative services, ” including “work[ing] with employees of Impark and its affiliates in a competent and professional manner to promote the interests of Impark and its affiliates and their customers”;
. “exercise the degree of skill and care as would be expected of someone providing such services, but in any case . . . exercise no less than a reasonable degree of care”;
. “[d]iligently promote the goodwill and reputation of Impark and its Business . . . and . . . diligently use his efforts and such time, skills, energy and attention as is reasonably necessary, required or advisable to satisfactorily provide the Services”; and
. “use his best efforts not to do anything to affect adversely the goodwill or reputation of Impark or its Business.”

CA §§ 1.2, 1.3, ECF No. 80-4, at 120-21. Thus, the issue is whether MarcParc and Slavin materially breached these provisions of the APA and the CA and if so, whether their breach excused Impark's non-performance and imposed liability on MarcParc.

         Impark argues that MarcParc and Slavin breached the warranties and representations in these contracts through undisclosed fraudulent conduct at 501 K Street beginning in 2011 and also through their failure to disclose, “[p]rior to the APA closing, . . . that four particular properties/contracts faced substantial risk of being canceled, in whole or in part, after the HoldBack Period expired, ” despite their awareness of plans for cancellation or redevelopment (“Cancelled and Redeveloped Properties”). Defs.' Opp'n & Mem. 9; see also Id. at 24. One lot was, in part, “under contract for sale to the District of Columbia in 2014 for development of a soccer stadium” (plans that fell through and, in 2015, the District of Columbia condemned the property). Id. at 9 & n.11. Another property “was pursuing redevelopment plans as of August 2014.” Id. at 9. And, “the management company of two other properties . . . likely was going to cancel its contracts for those properties after the APA closed” because “[t]he property manager was highly suspicious of many practices implemented by Slavin/MarcParc and she was looking for an opportunity to replace MarcParc, which she ultimately did shortly after the Holdback Period expired.” Id. at 10. As for 501 K Street, it is undisputed that Slavin allowed an “entity known as Tag-B to valet park cars at the Lot [at 501 K Street] after hours” and did not inform 501 K Street's owners (Steuart Investment Corporation and Boston Properties) about this income, which amounted to $1500-2000 per month, beginning in 2011 at the latest. Pls.' Mem. 18; Def.'s Opp'n & Mem. 5-6; Pls.' Reply & Opp'n 3; Slavin Dep. 106:19-107:14, ECF No. 89-25. 501 K Street's owners learned about the arrangement with Tag-B through a May 29, 2015 audit report, months after the APA's effective date of March 1, 2015, Slavin Dep. 106:19-107:14, 117:7-8; Pls.' Mem. 18; Def.'s Opp'n & Mem. 5-6, and eventually filed suit against MarcParc and Impark, Def.'s Opp'n & Mem. 8; Pls.' Reply & Opp'n 15.

         Under D.C. law, which applies to the Purchase Agreement, to prevail on a claim for breach of contract, a party must “prov[e] the necessary elements of a breach of contract: ‘(1) a valid contract between the parties; (2) an obligation or duty arising out of the contract; (3) a breach of that duty; and (4) damages caused by the breach.'” Battles v. Washington Metro. Area Transit Auth., No. 16-CV-1655 (EGS), 2019 WL 1296944, at *3 (D.D.C. Mar. 21, 2019) (quoting Mesumbe v. Howard Univ., 706 F.Supp.2d 86, 94 (D.D.C. 2010)). Notably, the prior-material-breach doctrine provides that “a party may defend against a breach of contract claim on the ground that its performance was excused by the other party's prior breach of the contract.” Donald Marshall Berlin v. Bank of Am., N.A., 101 F.Supp.3d 1, 15 (D.D.C. 2015) (quoting United States v. Kellogg Brown & Root Servs., Inc., 856 F.Supp.2d 176, 185 (D.D.C. 2012)). Indeed, “if a party to a contract fails to perform, the other party may not be required to perform, ” as “a party's failure to perform can mean that the other's party's performance ‘did not come due.'” Burks Companies, Inc. v. Howard Univ., No. CV 16-2312 (DLF), 2018 WL 4193640, at *3 (D.D.C. May 9, 2018) (quoting Sununu v. Philippine Airlines, Inc., 638 F.Supp.2d 35, 38, 40 (D.D.C. 2009)).

         Not just any breach will do, however, and one party's nonperformance does not automatically excuse that of the other party. See Id. (“the other party may not be required to perform” (emphasis added)).

[A] party's performance need not be perfect in order to trigger the other party's obligations. Rather, “substantial performance, ” i.e., performance without a material breach, is sufficient. See Id. at 238-240; 351113th St. Tenants' Ass'n v. 351113th St., N.W. Residences, LLC, 922 A.2d 439, 445 (D.C. 2007); Landmark Health Sols., LLC v. Not For Profit Hosp. Corp., 950 F.Supp.2d 130, 137-38 (D.D.C. 2013) (“[A] party is not automatically excused from the future performance of contract obligations every time the other party commits a breach. Rather, if the breach has not contributed materially to the contract being terminated, it does not excuse performance.” (citations omitted)); see also Clayman, 518 F.2d at 1034-35 (“[A party] may demand, in the way of the other's performance, substantial compliance with the terms of the contract. In most cases-perhaps all but a relatively few-a promisor's tender in good faith of a performance fully in compliance with the contract save for minor and unimportant deviations avoids a breach enabling the promisee to escape his obligations thereunder.”) . . . . For a breach to be material, “it must ‘go to the root' or ‘essence' of the agreement between the parties, ” Landmark Health Sols., 950 F.Supp.2d at 137 (quoting 23 Williston on Contracts § 63:3), or “it must be so serious [as] to destroy the essential object of the agreement.” 351113th St. Tenants' Ass'n, 922 A.2d at 445 (D.C. 2007). That is, a material breach is “a failure to do something that is so fundamental to a contract, that not performing that obligation defeats the essential purpose of the contract, or makes it impossible for the other party to perform under the contract.” Landmark Health Sols., 950 F.Supp.2d at 137 (citing 351113th St. Tenants' Ass'n, 922 A.2d at 445).

Id. Notably, “whether a breach of contract is ‘material' is an issue of fact, and such questions ‘are the sort [courts] properly rely on juries to decide.'” Malik Corp. v. Tenacity Grp., LLC, 961 A.2d 1057, 1061 (D.C. 2008) (quoting 351113th St. Tenants v. 351113th St. N.W. Residences, 922 A.2d 439, 445 (D.C. 2007)).

         Maryland law, which applies to the Consulting Agreement, is similar, as “only a material breach [of contract] discharges the non-breaching party of its duty to perform.” Jay Dee/Mole Joint Venture v. Mayor & City Council of Baltimore, 725 F.Supp.2d 513, 526 (D. Md. 2010). And, material breach is defined the same under Maryland law as under D.C. law: “[a] breach is material ‘if it affects the purpose of the contract in an important or vital way.'” Id. (quoting Gresham v. Lumbermen's Mut. Cas. Co., 404 F.3d 253, 260 (4th Cir. 2005) (quoting Sachs v. Regal Sav. Bank, FSB, 705 A.2d 1, 4 (Md. Ct. Spec. App. 1999))). Additionally, when a party materially breaches a contract, it “is not entitled to recover damages for the other party's subsequent nonperformance . . . since the latter party's performance is excused.” Id. at 528 (quoting 23 Williston on Contracts § 63:3 (4th ed.)). In Jay Dee/Mole, this Court observed that the Fourth Circuit has held that “plaintiff could not recover for defendant's contract termination, even though termination was pursued in a manner that violated the termination process prescribed by the contract, because plaintiff had previously materially breached and ‘[t]he fact of [a material] breach was all that the Maryland rule requires to bar [plaintiff] from recovering damages for breach of contract.'” Id. at 529 (quoting Hubler Rentals, Inc. v. Roadway Express, 637 F.2d 257, 260-61 (4th Cir. 1981)). Indeed, the Maryland Court of Special Appeals has noted that a plaintiff must prove its “own performance of all material contractual obligations” to recover for breach of contract. Id. (quoting Collins/Snoops Assoc., Inc. v. CJF, LLC, 988 A.2d 49, 57 (Md. Ct. Spec. App. 2010)).

         Here, the alleged breaches concerned only five of fifty-three Parking Location Agreements (management contracts, leases and other agreements) that were a part of the assets that MarcParc sold to Impark in the APA. APA § 8.1(e)(i) & Sched. E, ECF No. 80-4, at 88-92. And, none of the agreements for those lots terminated prior to the expiration of the Holdback Period, which was intended to accommodate such terminations and allow the parties to adjust the purchase price accordingly. Additionally, with regard to the Cancelled and Redeveloped Properties, Plaintiffs offer evidence that they did not know about the redevelopment plans and that the undisclosed facts about condemnation were so widely known that it is not clear that they were under a duty to disclose. Pls.' Reply & Opp'n 10 (citing Gooch Dep. 45:11-17, ECF No. 89-18 (stating that he did not remember discussing the condemnation with Slavin, but that the “threat of condemnation was shared with . . . [t]he world” because “[i]t was in the papers”). Further, as MarcParc contends, “[t]here is no representation or warranty from Plaintiffs that the property managers/landlords in question would not develop the land at issue, nor is there any representation or warranty regarding the duration of any management/lease agreements.” Id. at 9.

         But, if Plaintiffs had knowledge that the assets sold to Impark were likely to terminate, it certainly could be a misrepresentation for Plaintiffs to list those assets without disclosing their likely termination, as Impark was not purchasing them only for the Holdback Period. Moreover, Impark offers evidence to show that it was Slavin's fraudulent conduct in conjunction with managing 501 K Street that caused the lot's owners to terminate that contract, and that the 501 K Street contract was essential to the economic success of APA, from Impark's perspesctive. Specifically, Impark attached evidence, which MarcParc did not dispute, that the May 29, 2015 audit of 501 K Street revealed that Slavin was generating income (for himself, but without paying 501 K Street its percentage) by allowing Tag-B to valet park cars at 501 K Street without informing the lot's owners, and the audit also described other “operational problems” at 501 K Street. Otteni Dep. 56:6-21, ECF No. 89-24; see Slavin Dep. 112:1-11. For example, “the lot has an early bird rate [$10] and an evening rate [$10], ” and the rate was $15 “in the middle” of the day, but “the operator was left to his own devices as . . . there was no time clock to track when that switched over from 10 to $15 and from whom the operator received 10 or $15.” Otteni Dep. 56:6-15. Additionally, “different pieces [of the tickets were] being used for incorrect reasons, ” which led the auditor to conclude that “those tickets were being what they called double run, ” that is, used for more than one person so that the operator could avoid reporting to the owner the revenue generated when the ticket was re-used. Id. at 56:13-21. Laura McNulty of Boston Properties told Slavin it was “the worst audit she's ever seen.” Slavin Dep. 110:1-2. Of the findings in the audit report, Peter Otteni, a senior vice president in the development department at Boston Properties, stated that “the most egregious one in [Boston Properties'] mind was Tag B.” Otteni Dep. 13:12- 15, 78:7-12.

         After receiving the audit, Boston Properties informed Slavin at a meeting on June 17, 2015 that it “wanted him to terminate the agreement and to leave the [501 K Street] lot after some period of time where [the owner] w[a]s able to get another operator.” Otteni Dep. 76:4-8; Slavin Dep. 114:20-21, 115:2-20 (“[At the June 17, 2015 meeting], they asked me to resign from the parking lot.”).[5] Otteni stated that “[c]learly there was causation between the behavior [described in the audit] and the termination.” Otteni Dep. 80:4-6. According to Otteni, “it was clear that [Boston Properties had] come to a point where termination [was] the only option . . . on the basis of these findings.” Id. at 80:6-10.

         Yet, the 501 K Street lease remained in effect at that time, and Impark did its best to resolve the issue with the 501 K Street owners. Pls.' Mem. 19; Def.'s Opp'n & Mem. 7-8. In MarcParc's view, Impark was successful in persuading 501 K Street to stay because the lease was not terminated in July 2015, Pls.' Mem. 19; in Impark's view, the meeting was anything but a success because 501 K Street declined to renew its lease when it ended in April 2016, Def.'s Opp'n & Mem. 7-8; see Otteni Dep. 129:10-21 (noting that Boston Properties provided Impark with formal notice that it “would not be renewing the lease when it expired on April 13, 2016”). And, as noted, 501 K Street's owners sued MarcParc and Impark. Def.'s Opp'n & Mem. 8; Pls.' Reply & Opp'n 15.

         Importantly, Impark had purchased MarcParc's assets “with the intent that [it] would be able to develop the Boston Property relationship . . . .” Johnson Dep. 280:15-19, ECF No. 89-28. Christopher Johnson, Impark's Rule 30(b)(6) corporate designee, stated that the company “certainly wanted to get involved with Boston Properties since they have so many locations in D.C., and [the 501 K Street lease] was an opportunity to develop something with them and hopefully create . . . more activity.” Johnson Dep. 124:1-8. According to Johnson, the difficulties with the 501 K Street lease “really precluded [Impark] from any kind of relationship for some period of time until this is all said and done and is long past.” Id. at 124:11-14.

         There is further evidence in support of Impark's position that Slavin's fraud at 501 K Street hindered Impark's relationship with Boston Properties. Otteni explained that when Susan Cyran emailed Impark on Boston Properties' behalf following the notice of nonrenewal, stating that it hoped to “have the opportunity to partner again without the impediments that faced [the companies] at this project, ” she was

referring to the MarcPark [sic] situation. She [was] referring to the fact that, but for the cloud of . . . everything that accompanied their assumption of the operations of this lot, they had done a really good job, and that she was sorry that [Boston Properties] couldn't have continued to work with them because of the circumstances.

Otteni Dep. 130:12-131:7, 131:10-16. Otteni stated that the lease was not renewed “specifically because of what Marc Slavin ...

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