Vanguard Stimulation Services, LLC v. Trican Well Service, L.P. et al
Filing
41
MEMORANDUM OPINION AND ORDER denying 27 MOTION for Summary Judgment, granting in part and denying in part 29 Cross-Motion for Summary Judgment, mooting in part and granting in part 34 MOTION to Strike 29 Response in Opposition to Motion, den ying in part and mooting in part 38 MOTION to Strike 37 Reply. Court declares "Release Event" has occurred. Wells Fargo Bank, N.A. is ordered to release $24,647.00 plus interest to Plaintiff. (Joint Pretrial Order due by 2/6/2015. Docket Call set for 2/13/2015 at 03:00 PM in Courtroom 9B before Judge Sim Lake.) (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
VANGUARD STIMULATION
SERVICES, LLC
Plaintiff,
v.
TRICAN WELL SERVICE, L.P. and
WELLS FARGO BANK, N.A.
Defendants.
§
§
§
§
§
§
§
§
§
§
CIVIL ACTION NO. H-13-0507
MEMORANDUM OPINION AND ORDER
Plaintiff
Vanguard
Stimulation Services,
LLC
("Vanguard")
brought this action against Defendant Trican Well Service,
("Trican"),
L.P.
seeking a declaration that Vanguard is entitled to
funds held in escrow following Trican's purchase of Vanguard's
assets.l
Motion
Pending before the court are Trican Well Service, L.P.'s
for
Judgment")
Summary
Judgment
(Docket Entry No.
("Trican's
27),
Summary Judgment")
(Docket Entry No.
L.P.'s
and
Motion
to
for
Summary
Plaintiff Vanguard Services,
LLC's Cross-Motion for Summary Judgment
Objections
Motion
("Vanguard's Motion for
29),
Strike
Trican Well Service,
Vanguard
Services, LLC's Evidence ("First Motion to Strike")
Stimulation
(Docket Entry
No. 34), and Defendant Trican Well Service, L.P.'s Objections and
IPlaintiff's Original Complaint and Jury Demand ("Complaint"),
Docket Entry No.1.
Motion to Strike Vanguard Stimulation Services,
LLC' s
Reply in
Support of its Cross-Motion for Summary Judgment and Evidence in
Support of Same ("Second Motion to Strike")
(Docket Entry No. 38).
For the reasons stated below, Trican's Motion for Summary Judgment
will be denied,
Vanguard's Motion for Summary Judgment will be
denied in part and granted in part, Trican's First Motion to Strike
will be granted in part and is otherwise moot, and Trican's Second
Motion to Strike will be denied in part and is otherwise moot.
I .
A.
Background
Factual Background
Trican purchased Vanguard's assets in March of 2010.
Vanguard
agreed to indemnify Trican for any taxes payable by Vanguard for
periods before the closing date,2 and the parties agreed to hold
approximately $6 million of the purchase price in escrow. 3
Two
scheduled distributions have been made, leaving $2,211,921 in the
escrow account.
represents
the
According to the parties,
estimated
amount
of
the remaining amount
Vanguard's
potential
tax
liability to the State of Texas as of the time of the sale. 4
2Asset Purchase Agreement,
Entry No.1-I, p. 22.
Exhibit A to
Complaint,
Docket
3Escrow Agreement, Exhibit B to Complaint, Docket Entry No. 12, p. 1.
4See Equipment Tax, Sales and Use Tax Liability Estimate,
attachment to March 1, 2010, email from Gerik Degner to Bill
Twomey, Exhibit B to Trican MSJ, Docket Entry No. 27-7, p. 4.
-2-
Section 1.3 of the Escrow Agreement requires Vanguard, within
five business days of closing, to file with the Texas Comptroller
"an application for a 'Certificate of No Tax Due' with respect to
[Vanguard]
Separately,
and its operations."
Section 1.4, which
governs disbursements from the escrow account, provides four ways
for Vanguard to receive payments related to Texas tax liability:
Under Sections 1.4(j) and 1.4(k), Vanguard can either (1) obtain a
Certificate of No Tax Due "that indicates [Vanguard] has no further
liability with respect to Tax owed to the State of Texas," or (2)
if
applying
for
such
a
certificate
results
in
an
audit,
and
Vanguard has to pay taxes, Vanguard can provide proof of payment
and seek reimbursement from the escrow account.
under Section 1.4(1), Vanguard can either
(1)
Alternatively,
pay any amount of
successor liability tax itself and submit proof of payment, or (2)
provide
"reasonably satisfactory evidence"
to
Trican
that
any
amount of successor liability tax has been "resolved" and that no
further
liability exists.
Section
1.4(1)
would
Satisfaction of either provision of
constitute
a
"Release
Event"
entitling
Vanguard to distribution of a "Release Amount" from escrow.
Vanguard requested a Certificate of No Tax Due from the State
of
Texas
in
March
2010. 5
The
Comptroller
responded
with
Certificates for "Franchise Tax" and "Gross Receipts - Oil & Gas
5See March 15, 2010, letter from Phil Guertin to Texas
Comptroller, Exhibit C to Trican MSJ, Docket Entry No. 27-8.
-3-
Well Servicing Tax. H6
No other certificates were issued.?
Based
on the two certificates it obtained, Vanguard asked Trican to join
it in instructing Wells Fargo to release the remaining escrow funds
pursuant to Section 1.4(j).8
Trican refused, stating that Vanguard
had other unpaid taxes: "Vanguard was not permitted for sales and
use tax because it improperly took the position during the course
of its operations that such taxes were not owing to the State of
Texas. H9
Trican argued that the two Certificates therefore did not
cover all of Vanguard's potential tax liability in Texas.
On January 22, 2013, Vanguard wrote to Trican, stating that,
based on the Certificates issued in 2010, it was Vanguard's opinion
that all successor liability tax had been resolved and that "Trican
has no further liability thereon. HlD
Arguing that a Release Event
had occurred under Section 1.4(1), Vanguard forwarded the letter to
Wells
Fargo,
requesting
that
Wells
Fargo
release
the
funds
6S ee March 18, 2010, fax from Georgina Chen to Phil Guertin,
Exhibit D to Trican MSJ, Docket Entry No. 27-9.
?Response to Request for Admission No.3, Exhibit H to Trican
MSJ, Docket Entry No. 27-11, p. 4.
8S ee July 27, 2010, letter from Wayne A. Ross to Michael
Kelly, Exhibit E to Trican MSJ, Docket Entry No. 27-10.
9S ee August 12, 2010, letter from Michael Baldwin to Wayne
Ross, Exhibit A-3 to Trican MSJ, Docket Entry No. 27-4.
lDSee January 22, 2013, letter from Michael J. Greer to Michael
Baldwin, Exhibit A-4 to Trican MSJ, Docket Entry No. 27-5, pp. 5-6.
-4-
remaining in the account. 11
funds. 12
B.
Trican obj ected to the release of
This litigation ensued.
Procedural History
Vanguard filed a complaint seeking declarations that a Release
Event has occurred and that Wells Fargo should release Uthe full
Remaining Escrow amount
ll
of $2,211,921 plus interest to Vanguard. 13
Trican counterclaimed, seeking declarations that Vanguard has not
obtained a Certificate of No Tax Due that satisfies Section 1.4(j)
of the Escrow Agreement and that a Release Event has not occurred
under Section 1.4(1), meaning that Wells Fargo should not disburse
either the remaining escrow funds or a Release Amount.14
answered the
defenses. 16
counterclaim15 but
did not
assert
Vanguard
any affirmative
Both parties have moved for summary judgment ,17 and
Trican has moved to strike portions of Vanguard's evidence. 18
11February 12, 2013, letter from Michael J. Greer to Wells
Fargo, Exhibit A-4 to Trican MSJ, Docket Entry No. 27-5, pp. 3-4.
12February 25, 2013, letter from Alan J. Perkins to Wells
Fargo, Exhibit A-5 to Trican MSJ, Docket Entry No. 27-6.
13Complaint, Docket Entry No.1, p. 6
~26.
14Trican Well Service, L.P.'s Original Answer and Counterclaim
(UCounterclaim
Docket Entry No. 25, p. 16.
ll
)
,
lSVanguard Stimulation Services, LLC's Answer to Trican Well
Service, L.P.'s Counterclaim, Docket Entry No. 26.
16See id. at 5.
17Trican MSJ, Docket Entry No. 27; Vanguard MSJ, Docket Entry
No. 29.
18First Motion to Strike, Docket Entry No. 34; Second Motion
to Strike, Docket Entry No. 38.
-5-
II.
A.
Cross Motions for Summary Judgment
Legal Standard
Summary judgment is appropriate if the movant establishes that
there is no genuine dispute about any material fact and the movant
is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(a).
Disputes about material facts are genuine "if the evidence is such
that a reasonable jury could return a verdict for the nonmoving
party. "
Anderson v. Liberty Lobby,
Inc.,
106 S. Ct.
2505,
2510
(1986) .
The moving party is entitled to judgment as a matter of
law if "the nonmoving party has failed to make a sufficient showing
on an essential element of her case with respect to which she has
the burden of proof."
Celotex Corp. v. Catrett, 106 S. Ct. 2548,
2552 (1986).
A party moving for summary judgment "must
\ demonstrate the
absence of a genuine issue of material fact,' but need not negate
the elements of the nonmovant' s case."
37 F.3d 1069, 1075 (5th Cir. 1994)
Celotex, 106 S. Ct. at 2553) .
Little v. Liquid Air Corp. ,
(en banc)
(per curiam)
(quoting
"If the moving party fails to meet
this initial burden, the motion must be denied, regardless of the
nonmovant's response."
this burden,
Id.
If, however, the moving party meets
"the nonmovant must go beyond the pleadings"
and
produce evidence that specific facts exist over which there is a
genuine
2553-54).
issue
for
trial.
Id.
(citing Celotex,
106 S.
Ct.
at
The nonmovant "must do more than simply show that there
-6-
is some metaphysical doubt as to the material facts."
Matsushita
Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 106 S. Ct. 1348, 1356
(1986) .
In reviewing the evidence "the court must draw all reasonable
inferences in favor of the nonmoving party,
credibili ty determinations
or weigh
Sanderson Plumbing Prods.,
Inc.,
the
120 S.
and it may not make
Reeves v.
evidence."
Ct.
2097,
2110
(2000).
Factual controversies are to be resolved in favor of the nonmovant,
"but only when there is an actual controversy, that is, when both
parties have submitted evidence of contradictory facts."
Little,
37 F.3d at 1075.
B.
Analysis
"In construing a written contract, the primary concern of the
court
is
to
ascertain
the
expressed in the instrument."
(Tex. 1983).
given a
true
intentions
of
the
parties
as
Coker v. Coker, 650 S.W.2d 391, 393
"When a court concludes that contract language can be
certain or definite meaning,
then the
language is not
ambiguous, and the court is obligated to interpret the contract as
a matter of law."
S.W.3d 96,
100
DeWitt Cnty.
(Tex.
1999).
Elec.
Co-op.,
"When parties
meaning of an unambiguous contract,
Inc. v.
disagree
Parks,
1
over the
\ [t]he intent of the parties
must be taken from the agreement itself,
not from the parties'
present interpretation, and the agreement must be enforced as it is
written.'"
2006)
Texas v. Am. Tobacco Co., 463 F.3d 399, 407 (5th Cir.
(quoting Purvis Oil Corp.
v.
-7-
Hillin,
890 S.W.2d 931,
935
(Tex.
App.-El
Paso,
1994,
"A contract,
no writ.)
however,
is
ambiguous when its meaning is uncertain and doubtful or it is
reasonably susceptible to more
than one meaning."
Coker,
650
S. W. 2d at 393. "When a contract contains an ambiguity, the granting
of
a
motion
for
summary
judgment
is
improper
because
interpretation of the instrument becomes a fact issue."
394.
the
Id. at
"A court may conclude that a contract is ambiguous even if
the parties do not contend it is."
Am. Tobacco Co., 463 F.3d at
407 n.14.
1.
Section 1. 4 (j ) is unambiguous, and Vanguard has not
satisfied its requirements, but whether Trican waived
compliance is a fact issue for trial.
Section
1.4(j)
allows
Vanguard if it "obtains a
Texas Comptroller .
for
disbursement
of
$2,211,921
'Certificate of No Tax Due'
that indicates
from the
[Vanguard] has no further
liability with respect to Tax owed to the State of Texas."
term "Tax" is defined in Section 1.6(0) of the agreement:
all taxes, charges, fees, levies or other assessments
including income, gross receipts, excise, property,
sales,
withholding,
social
security,
unemployment,
occupation, use, service, license, payroll, franchise,
transfer and recording taxes, motor vehicle tax, fees and
charges, imposed by the United States or any state, local
or foreign government or subdivision or agency thereof,
whether computed on a separate, consolidated, unitary,
combined or any other basis, including any interest,
fines, penalties or additional amounts attributable to or
imposed with respect to any such taxes, charges, fees,
levies or other assessments, whether or not disputed.
-8-
to
The
Vanguard obtained
certificates
for
"Franchise
Tax"
and
"Gross
Receipts - Oil & Gas Well Servicing Tax.,,19
It did not obtain any
other certificates. 20
conditions precedent
"must
be
contract,"
Because unambiguous
performed
or
fulfilled
Trican
argues
that
exactly
Vanguard
as
set
has
not
forth
in
the
satisfied
the
requirements of 1.4(j) and is not entitled to a distribution from
escrow. 21
(a)
Read
Section 1.4(j) is unambiguous.
together
with
Section
susceptible to two interpretations:
Certificate of No Tax Due that
1.6(0),
(1)
Section
1.4(j)
is
Vanguard must obtain a
indicates that Vanguard has no
further liability for any of the taxes listed in Section 1.6(0),
i.e., a certificate that affirmatively indicates that none of the
listed taxes are "owed to the State of Texas," or (2) Vanguard only
needs a certificate indicating no further liability for those taxes
that it "owed to the State of Texas."
As discussed in greater
detail below, the court finds the second interpretation to be the
only reasonable interpretation of the contract.
19See March 18, 2010, fax from Georgina Chen to Phil Guertin,
Exhibit D to Trican MSJ, Docket Entry No. 27-9.
2°Response to Request for Admission No.3, Exhibit H to Trican
MSJ, Docket Entry No. 27-11, p. 4.
21Trican MSJ, Docket Entry No. 27, p. 10 (quoting Beard Family
P'ship v. Commercial Indem. Ins. Co., 116 S.W.3d 839, 844 (Tex.
App.-Austin 2003, no pet.).
-9-
In its Motion for Summary Judgment Trican advocated the first
reading, namely that "Vanguard is required to obtain a Certificate
of No Tax Due indicating no further liability with respect to all
taxes listed in
§
1.6 of the Escrow Agreement, including, without
limitation, sales and use taxes (including motor vehicle taxes) . ,,22
However, as Vanguard points out, this reading is not reasonable,
given
that
Section
1.6(0)
includes
social
security
tax,
and
" [c]learly, the Texas Comptroller's Office would never issue such
a certificate."23
1.4(j)
Changing course, Trican now argues that Section
requires a Certificate "not with regard to all Taxes, but
rather,
with
regard
to
all
which
are
\ owed
to
the
State
of
Texas. ,,,24
Both parties have relied extensively on extrinsic evidence of
their intent at the time they entered into the Escrow Agreement.
Under Texas law "[o]nly where a contract is first determined to be
ambiguous may the courts consider the parties' interpretation and
admi t
extraneous evidence to determine the true meaning of the
instrument."
Nat. Union Fire Ins.
22Id. at 11-12
Co. of Pittsburgh,
PA v.
CBI
~11.
23Vanguard MSJ, Docket Entry No. 29, p. 12
~31.
24Trican Well Service, L.P.'s Response to Vanguard Stimulation
Services, LLC's Cross-Motion for Summary Judgment and Reply in
Support of its Motion for Summary Judgment ("Trican Reply"), Docket
Entry No. 33, pp. 4-5 ~7. This suggests a potential third reading,
that Vanguard needs to obtain a Certificate for every category of
taxes collected by the State of Texas. As the following discussion
indicates, that is not a reasonable interpretation of the contract.
-10-
Indus., Inc., 907 S.W.2d 517,520 (Tex. 1995)
(citations omitted).
However, it is well established that "the test for determining the
meaning of contract language is not what the parties intended it to
mean but what a reasonable person in the position of the parties
when the contract was entered, aware of all relevant circumstances,
would have thought it meant." 11 Williston on Contracts
ed.).
§
30:6 (4th
Therefore, "[w]hile parol evidence of parties' intent is not
admissible to create an ambiguity, a contract may be read in the
light of
the
surrounding circumstances to determine whether an
ambiguity exists."
Balandran v. Safeco Ins. Co. of Am., 972 S. W. 2d
738, 741 (Tex. 1998)
(citation omitted) .
Section 1.4(j) provides for the release of $2,211,921 should
Vanguard
obtain
a
Certificate
of
No
Tax
Due
"that
indicates
[Vanguard] has no further liability with respect to Tax owed to the
State of Texas."
In communications prior to the signing of the
contract, the parties estimated that Vanguard's potential Texas tax
liability was $2,211,921, the amount specified in the contract. 25
This amount included three types of tax:
"Use Tax on Materials,"
"2.42 % Sales Tax on Services," and "Motor Vehicle Tax. "26
three categories of taxes fall
These
within the definition of Tax in
25Equipment Tax, Sales and Use Tax Liability Estimate, Exhibit
B to Trican MSJ, Docket Entry No. 27-7, p. 4.
26Id.
-11-
Section 1.6(0), and were potentially "owed to the State of Texas"
at the time of contracting.
"In interpreting the words and conduct of the parties to a
contract, a court seeks to put itself in the position they occupied
at
the
time
Contracts
§
the
contract was
202 cmt. b.
Restatement
made."
(1981).
(Second)
of
Thus, the court must "construe a
contract by determining how the 'reasonable person' would have used
and
understood
its
language,
considering
the
circumstances
surrounding the contract's negotiation and keeping in mind the
purposes intended to be accomplished by the parties when entering
into the contract." 7979 Airport Garage. L.L.C. v. Dollar Rent A
Car Systems.
Inc.,
245 S.W.3d 488,
500
(Tex. App.-Houston
[14th
Dist.] 2007, pet. denied).
In light of the circumstances and the purposes of the parties,
the
court
concludes
that
there
is
only
one
reasonable
interpretation of Section 1.4(j): it allows for a release of the
$2,211,921 held in escrow to cover potential tax liability only if
Vanguard obtains a Certificate of No Tax Due for all categories of
taxes that fall within Section 1.6(0) 's definition and that were
owed to the State of Texas at the time of contracting. 27
At the
time of contracting, Vanguard estimated that it owed use tax, sales
tax,
and
motor
$2,211,921.
vehicle
Those
tax
to
categories
the
fall
State
within
of
Texas
totaling
Section
1.6(0) 's
27Section 1.6 (0) expressly includes taxes that are "disputed."
-12-
definition.
Since entering into the Escrow Agreement, Vanguard has
not obtained Certificates of No Tax Due indicating that it "has no
further liability" with respect to all of those categories of tax.
Vanguard therefore has not satisfied the conditions precedent to
release of $2,211,921 under Section 1.4(j) .28
Vanguard argues that because the Comptroller will only issue
a Certificate of No Tax Due for taxes for which the company was
permitted, and Vanguard was not permitted for motor vehicle tax,
which accounts for over $2 million of the funds in escrow,
above reading of Section 1.4(j)
the
renders performance impossible.
"It is beyond dispute that the parties could not have intended a
resul t
that
therefore
an
was
obj ecti vely
"interpretation
impossible,"
of
Section
Vanguard argues,
1.4(j)
as
and
requiring
Vanguard to obtain Certificates of No Tax Due for any Texas taxes
other than those for which it had received permits from the State
of Texas is untenable. "29
The definition of "Tax" in Section 1.6(0)
28This reading is also consistent with the Texas Tax Code,
which requires "the successor to the seller or the seller's
assignee" to "withhold an amount of the purchase price sufficient
to pay the amount due [from the seller] until the seller provides
a receipt from the comptroller showing that the amount has been
paid or a certificate stating that no amount is due."
Tex. Tax
Code § 111.020.
"Laws which are in existence at the time of the
making of the contract enter into and become a part of such
contract as if expressly referred to or incorporated therein."
McCreary v. Bay Area Bank & Trust, 68 S.W.3d 727, 733 (Tex.
App.-Houston [14th Dist.] 2001, pet. dism'd).
29Vanguard MSJ, Docket Entry No. 29, p. 11
-13-
~28.
does not include this limitation, however, nor is it fairly derived
from the wording of Section 1.4(j) itself.
Vanguard
construing
[a
nevertheless
contract]
impossible. ,,,30
argues
in
See Wade Oil
a
&
that
manner
"the
Court
which
makes
must
\ avoid
performance
Gas, Inc. v. Telesis Operating Co.,
Inc., 417 S.W.3d 531, 538 (Tex. App.-El Paso 2013, no pet.)
(citing
Republic Nat. Bank of Dallas v. Nw. Nat. Bank of Fort Worth,
S.W.2d 109, 115 (Tex. 1978)
578
("If two constructions are possible, a
construction rendering the contract possible of performance will be
preferred
to
one
which
renders
its
performance
impossible
or
meaningless.")) .
Vanguard argues that obtaining Certificates
for
taxes
which it was not permitted would have been impossible.
for
Trican
counters that "[i]t is true that Certificates are issued only for
permitted taxes, but there is no reason to believe, however, that
Vanguard could not have applied for permits,
filed returns,
and
then requested a Certificate of No Tax Due with regard to sales,
use and motor vehicle taxes." 31
In response, vanguard points to
Section 1.3, which requires that it request the Certificates within
five business days of execution of the Escrow Agreement. 32
30rd.
Vanguard
~30.
31Trican Reply, Docket Entry No. 33, p. 5
~ 8.
32See Plaintiff Vanguard Stimulation Services, LLC's Reply in
Support of Cross-Motion for Summary Judgment ("Vanguard Reply"),
(continued ... )
-14-
argues
that
"[i]t
would
have
been
physically
impossible
to
accomplish all of those activities within the time period mandated
by the Escrow Agreement.
,,33
Therefore, Vanguard argues, the only
reasonable interpretation of Section 1.4(j)
is that "the parties
intended for Vanguard to obtain all Certificates of No Tax Due that
it could possibly obtain, based on the facts known to the parties
when the agreement was
signed,
while still
complying with the
strict time period (five Business Days) unambiguously imposed by
Section 1.3. ,,34
But this is not what Section 1.4(j) says.
Nor does the plain
text of the Escrow Agreement lend itself to this interpretation.
First, it strains common sense that Vanguard would be entitled to
a release of the full amount of tax liability upon proof that less
than the
full
amount has been resolved.
This
is particularly
evident in light of Section 1.4(1), which allows for release of
less than the full amount on an item-by-item basis should Vanguard
either pay
individual
amounts
of
taxes
or provide
"reasonably
satisfactory evidence" that such amounts have "been resolved and no
further liability exists."
Read in the context of the surrounding
provisions, the only reasonable interpretation of Section 1.4(j) is
cont inued)
Docket Entry No. 37, p. 7
32 ( • • •
~20.
33Id.
-15-
that it entitles Vanguard to a release of all of the funds set
aside for Texas tax liability upon proof that it has no further
liability with respect to all of its Texas taxes.
Second,
even if the court were to read Section 1.4 (j)
as
Vanguard suggests, compliance would still, arguably, be impossible.
Under
Vanguard's
interpretation,
Section
1.4(j)
allows
for
a
release if Vanguard obtains uall Certificates of No Tax Due that it
could possibly obtain" without applying for additional permits or
filing tax returns.
But if the parties estimated that Vanguard had
tax liability pertaining to taxes for which it was not permitted,
and those amounts were included in the total amount held in escrow,
how could obtaining certificates only for
uindicate[]
[Vanguard]
the
permitted taxes
has no further liability" with respect to
UTax owed to the State of Texas"?
To reach this result the court
would have to read UTax" to mean only those categories of tax for
which Vanguard was permitted.
The text of the Escrow Agreement
does not support such a reading.
A better application of the preference for possibility of
performance is to read Section 1.4(j) 's requirement of compliance
with Section 1.3 as being satisfied where, as here, Vanguard made
an
initial
application
within
five
business
days,
additional steps are required to obtain the Certificate.
even
if
The court
therefore concludes that (1) Vanguard satisfied the requirements of
-16-
1.3,35 and (2) under Section 1.4(j) Vanguard may still apply for a
permit,
file
a
tax
return,
or
take
whatever
other
steps
are
necessary to obtain a Certificate of No Tax Due with respect to its
In the meantime, however, Vanguard
other potential liabilities.
has
not
satisfied
Section
1.4 (j),
and
it
is
not
entitled
to
distribution of the $2,211,921 in escrow.
(b)
Whether Trican waived strict compliance with Section
1.4(j) is a fact issue for trial.
Although Vanguard has not demonstrated that it satisfied the
conditions precedent to a distribution under Section 1.4(j), it has
presented evidence that Trican waived strict compliance with that
provision.
Vanguard has provided evidence that after it received
the Certificates for Franchise Taxes and Oil & Gas Well Servicing
Taxes,
its
controller,
Phil
Guertin,
prepared
a
supplemental
request specifically covering Motor Vehicle Tax and Sales & Use
Tax. 36
Guertin alleges that after he emailed the proposed request
to Trican's manager of taxation, Kelwin Lee, Guertin and Lee then
spoke by phone:
"Mr. Lee told me that Trican was concerned that if
35See Escrow Agreement, Exhibit B to Complaint, Docket Entry
No. 1-2, p. 1 (defining "Effective Date" as March 2, 2010); id. p.
2 § 1.3 (requiring Vanguard to apply for a Certificate within five
business days of the Effective Date); March 4, 2010 letter from
Phil Guertin to Texas Comptroller of Public Accounts, Exhibit 1-B
to Vanguard MSJ, Docket Entry No. 29-1, p. 35
(requesting
Certificate of No Tax Due) .
36See Supplemental Declaration of Phil Guertin, Exhibit 4 to
Vanguard Reply, Docket Entry No. 37-1, p. 2 ~5; April 6, 2010,
email from Phil Guertin to Kelwin Lee, Exhibit 4-C to Vanguard
Reply, Docket Entry No. 37-1, pp. 10-11.
-17-
Vanguard filed the request .
Texas Comptroller's office.
it might trigger an audit by the
Mr. Lee told me that Trican did not
want Vanguard to file the Supplemental Request, and I did not file
the request. ,,37
Vanguard's
While not
factual
framed as such,
allegations
as
a
the court construes
defense
of
waiver.
response, Lee concedes that Guertin "contacted [him]
In
regarding a
supplemental request" but otherwise denies the allegations: "I did
not tell Mr. Guertin that Trican was opposed to the filing of the
supplemental request [or] an audit of Vanguard's accounts and did
not discourage the filing of the supplemental request. ,,38
Making
all reasonable inferences in favor of the nonmovant, neither party
has
established
statements.
2.
that
Lee
did
or
did
not
make
the
alleged
This is a fact issue for trial.
Section 1.4(1) is ambiguous and leaves fact issues for
trial.
In relevant part, Section 1.4(1) states:
With respect to any item of Successor Liability Tax, an
amount of the Escrow Fund equal to any such item of
Successor Liability Tax (the "Release Amount") is to be
released to Seller upon Seller (i) paying such amount of
Successor Liability Tax itself or
(ii)
providing
reasonably satisfactory evidence to Purchaser that such
amount of Successor Liability Tax has been resolved and
no further liability exists,
whether due to the
expiration of the applicable statute of limitation or
37Supplemental Declaration of Phil Guertin,
Vanguard Reply, Docket Entry No. 37-1, p. 2 ~6.
Exhibit
4
to
38Declaration of Kelwin Lee, Exhibit A to Second Motion to
Strike, Docket Entry No. 38-1, p. 1 ~3.
-18-
otherwise (in the case of either (i) or (ii), a "Release
Event") .
Vanguard argues that a Release Event has occurred "because
Trican has been relieved of any liability for taxes for which a
certificate of No Tax Due was not issued.,,39
Section 111.020(a) of
the Texas Tax Code requires the purchaser of a business to withhold
from the purchase price an amount sufficient to cover the seller's
tax liability until
the
seller can prove payment or provide a
certificate stating that no amount is due.
However,
§
111.020(d)
provides that the purchaser may request a Certificate of No Tax due
from the comptroller,
and if the Comptroller fails to mail the
Certificate within 90 days of receiving the request, "the purchaser
is released from the obligation to withhold the purchase price or
pay the amount due."
Because Vanguard and Trican requested a
Certificate from the Comptroller in March of 2010 and, to date, the
Comptroller has not provided Certificates for the non-permitted
taxes, Vanguard argues that this provision of the Tax Code "would
protect
Trican
against
liability
for
all
taxes
for
which
a
Certificate of No Tax Due was not issued.,,40
Trican counters that because there is no evidence that the
Comptroller knew of Vanguard's liability for non-permitted taxes,
39Vanguard MSJ, Docket Entry No. 29, p. 13
4°rd.
~35.
-19-
~33.
§
111.020 (d)
likely does not apply. 41
Even if it does,
Trican
argues that the Code only states that the purchaser is released
from the obligation to pay the amount due: "The Code says nothing
about whether the Successor Liability Tax is resolved or whether
any further liability exists. ,,42
(a)
Section 1.4(1) is ambiguous.
Read together with the definitions in Section 1.6(n), Section
1. 4 (l)
is ambiguous as to what Vanguard is required to prove.
Unlike Section 1.4(j), which refers to "Tax owed to the State of
Texas," Section 1.4(1) refers specifically to "Successor Liability
Tax," a defined term:
Taxes (a) for which the Purchase Parties have successor
liability in respect of the Taxes that were the
responsibility of the Seller Parties [] and (b) are agreed
to by Purchaser and Seller as the basis for Purchaser's
requirement that the Escrow Amount include $3,670,266 to
provide assurances to Purchaser that Seller would perform
its indemnification obligations with regard to TaxRelated Claims.
In light of this language, Section 1.4(1) 's requirement of evidence
that "[an] amount of Successor Liability Tax has been resolved and
no further
liability exists"
could refer to
(1)
evidence that
Vanguard has no further liability with respect to that tax or (2)
evidence that Trican has no successor liability with respect to
that tax,
regardless of Vanguard's continued liability.
4lSee Trican Response, Docket Entry No. 33, p 7
42Id.
-20-
~11
Having
& n.22.
considered
the
circumstances,
plain
and
the
text
of
the
purpose
of
contract,
the
the
agreement,
concludes that both interpretations are reasonable.
because
Section
1.4 (1)
is
ambiguous,
summary
surrounding
the
court
Therefore,
judgment
is
not
appropriate. 43
Furthermore,
fact issues remain for trial.
First,
neither
party has proven that Trican's dissatisfaction with Vanguard's
proffered evidence is reasonable or unreasonable as a matter of
law.
Second,
if
producing
reasonably
satisfactory
evidence
requires Vanguard to apply for permits, file taxes, or take other
related steps, Vanguard's performance may be excused if Trican has
prevented Vanguard from performing.
43Apparently urging the court to construe the Escrow Agreement
against the drafter, Vanguard states that Trican inserted Section
1.4 (1) into the document, and it points to a prior draft as
evidence.
See Vanguard Response, Docket Entry No. 29, p. 7 ~lli
Declaration of William Twomey, Exhibit 3 to Vanguard Response,
Docket Entry No. 29-3, p. 1 ~3i GWS Draft, Exhibit 3-A to Vanguard
Response, Docket Entry No. 29-3, pp. 7-28.
The draft, however,
shows only that Trican modified the section that would become
1.4(1), labeled Section 1.4(m) in the draft, and that it did so in
a way that neither introduced the ambiguity at issue here nor
altered the two fair readings to which the section is susceptible.
See id. at 10-11 ~(m). The court therefore declines to resolve the
ambiguity by construing Section 1.4(1) against Trican.
(The court
also notes that Vanguard counsel's declaration that Trican added
Section 1.4(1) to the draft is correct but misleading.
The
evidence indicates that Trican added a section labeled 1.4(1) in
the GWS Draft, but that is not the relevant provision in the final
agreement) .
-21-
(b)
Trican's asserted dissatisfaction with Vanguard's
evidence creates a fact issue.
Where a contract contains a satisfaction clause and the person
to be satisfied is a party to the contract, the Texas Supreme Court
applies a reasonableness standard to that party's refusal to accept
the tendered performance.
See Black Lake Pipe Line Co. v. Union
Const. Co.,
88-89
538 S.W.2d 80,
(Tex. 1976), overruled on other
grounds by Sterner v. Marathon Oil Co., 767 S.W.2d 686 (Tex. 1989).
"The general rule in such cases is that the judgment of the party
regarding the adequacy of performance will be upheld if made in
good faith."
Id.
"This is an objective standard which does not
seek to find the mental state of satisfaction of that party, but
rather whether the performance would satisfy a reasonable person."
Cranetex, Inc. v. Precision Crane & Rigging of Houston, Inc., 760
S.W.2d 298, 302 (Tex. App.-Texarkana 1988, writ denied).
"Whether
a party acted in good faith and was honestly dissatisfied-that is,
was
objectively
reasonable-is
generally
a
question
of
fact."
Clover Staffing, LLC v. Johnson Controls World Services, Inc., 465
F.
SUpp.
2d 670,
684
(S.D.
Tex.
2006).
Drawing all reasonable
inferences in favor of the nonmovant, neither Vanguard nor Trican
has established
satisfactory."
that Vanguard's evidence is or is not "reasonably
This is a fact issue for trial. 44
44Under Texas law, satisfaction clauses are reviewed under two
different standards. Where the person to be satisfied is a party
to the contract, courts apply the objective reasonableness standard
(continued ... )
-22-
(c)
Vanguard's performance may be excused if
has prevented Vanguard from performing.
Vanguard alleges
that Trican is
in possession of
Trican
all
the
records necessary for Vanguard to resolve its tax liabilities. 45
Prevention
by
condition
precedent
performance.
one
party
of
another
generally
Dorsett
v.
App.-Houston [1st Dist.]
party's
excuses
Cross,
106
performance
the
S.W.3d
2003, pet. denied).
other
213,
217
Similarly,
of
a
party's
(Tex.
"[w]hen
the obligation of a party to a contract depends upon a certain
condition's being performed, and the fulfillment of the condition
is prevented by the
considered fulfilled."
act
Id.
of
the
other party,
the
condition is
Vanguard has provided evidence that it
requested the necessary documents from Trican during the pendency
of this litigation, but that Trican has not made them available. 46
44 ( ... continued)
outlined above.
However, " [w]here performance is subject to the
satisfaction of a third party, the decision of that party is final
and concl usi ve, in the absence of fraud, misconduct, or gross
mistake." 14 Tex. Jur. 3d Contracts § 308. Trican cites Tribble
& Stephens Co. v. RGM Constructors, L.P., 154 S.W.3d 639, 652-54
(Tex. App.-Houston [14th Dist.] 2004, pet. denied), in support of
its argument that the court must defer to Trican's judgment, see
Trican MSJ, Docket Entry No. 27, pp. 14-16. However, the contract
in Tribble required satisfaction of "a designated third party," in
that case, the architect. Because Trican is a party to the Escrow
Agreement, the objective reasonableness standard applies, and
Trican's statement of the law is inapt.
45See Supplemental Declaration of Phil Guertin, Exhibit 4 to
Vanguard Reply, Docket Entry No. 37-1, p. 2 ~7.
46See Declaration of Lawrence J. Hilton and Exhibi ts, Plaintiff
Vanguard Stimulation Services, LLC's Response to Trican Well
(cont inued ... )
-23-
Whether this excuses Vanguard I s performance of conditions precedent
to a release under Section 1.4(1)
3.
is a
fact
issue for trial. 47
A "Release Event" has occurred with
$24,647 of "Sales Tax on Services."
respect
to
the
As of March I, 2010, Vanguard estimated that it owed $24,647
for "2.42% Sales Tax on Services," and this amount was part of the
$2,211,921 held in escrow. 48
Vanguard argues that this amount was,
in fact, referable to the "Oil & Gas Well Servicing Tax" for which
it obtained a Certificate of No Tax Due in March of 2010.
The
Texas Tax Code imposes a 2.42% tax "on each person who engages in
the business of providing any oil well service for another for
consideration."
Tex. Tax Code
§§
191.082, 191.083.
The court has
not identified any other 2.42% tax in the Code.
46 ( ... continued)
Service, L.P.'s Motion to Strike ("Response to Second Motion to
Strike"), Docket Entry No. 39, pp. 6-12; see also Trican's Second
Motion to Strike, Docket Entry No. 38, p. 6 n.7 ("Vanguard.
has now made a request for documentation in order to be able to
obtain permits, prepare and file tax returns, and respond to audits
by the Comptroller for the State of Texas.") .
47Vanguard has emphasized that it is not asserting an
impossibility defense. See Vanguard Response to Second Motion to
Strike, Docket Entry No. 39, p. 3.
Nevertheless, the court
construes Vanguard's latest factual allegations as a defense of
excuse: "Vanguard cannot now prepare any tax filings, and will
never be able to do so, unless and until Trican provides the
necessary documents, which Vanguard has repeatedly requested
without a response."
rd. at 4.
48The parties do not dispute this. See also Equipment Tax,
Sales and Use Tax Liability Estimate, attachment to March I, 2010,
email from Gerik Degner to Bill Twomey, Exhibit B to Trican MSJ,
Docket Entry No. 27-7, p. 4.
-24-
Vanguard has provided copies of a tax return and check payable
to the Comptroller for the 2.42% Oil & Gas Well Servicing tax for
the month of February 2010. 49
The amount paid was $31,645.61. 50
While this is not evidence that Vanguard paid the $24,647 due as of
March I, 2010, it confirms that Vanguard was paying a 2.42% tax on
services referred to as the "Oil & Gas Well Servicing Tax" within
weeks of closing.
Absent any evidence to the contrary, the only
reasonable inference is that the "2.42% Sales Tax on Services" is
the 2.42% "Oil
&
Gas Well Servicing" tax. 51
Vanguard obtained a Certificate of No Tax Due for the Oil &
Gas Well Servicing Tax in March of 2010 and provided it to Trican.52
Trican
offers
no
reason
why
this
would
not
be
"reasonably
satisfactory evidence" that the 2.42% Sales Tax on Services "has
been
resolved
and
no
further
liability
exists."
The
court
therefore concludes that a Release Event has occurred under Section
1.4(1) with respect to the $24,647 held in escrow for Sales Tax on
Services.
As contemplated by Section 3.5 of the Escrow Agreement,
49See Exhibit 4 -A to Vanguard Reply, Docket Entry No. 37-1, pp.
4-5.
50Id.
51Trican has not disputed this. It merely argues that Vanguard
is barred from asserting such a claim when it did not do so in its
original complaint.
See Trican's Second Motion to Strike, Docket
Entry No. 38.
52See Certificate of No Tax Due,
Docket Entry No. 27-9, p. 4.
-25-
Exhibit D to Trican MSJ,
the court will order the Escrow Agent to release the sum of $24,647
plus interest to Vanguard.
III. Motions to Strike
Trican has filed two motions to strike evidence submitted by
Vanguard. 53
A.
First Motion to Strike
In its First Motion to Strike, Trican objects to portions of
declarations
by Gerik Degner
and William Twomey on behalf
Vanguard, as well as exhibits thereto. 54
of
Trican's motion is moot
with respect to Degner's affidavit and exhibit, since the court has
not relied on that evidence.
With respect to Twomey's affidavit
and exhibit, Trican's motion will be granted.
Twomey's affidavit
indicates that Trican drafted Sections 1.3, 1.4(j) and 1.4(1) of
the Escrow Agreement. 55
The doctrine of construing a
contract
against the drafter applies only where the language at issue is
ambiguous.
Lewis
v.
Foxworth,
App.-Dallas 2005, no pet.).
170
S.W.3d
900,
903
(Tex.
Because Sections 1.3 and 1.4(j) are
not ambiguous, evidence of who drafted them is properly excluded.
53See First Motion to Strike, Docket Entry No.
Motion to Strike, Docket Entry No. 38.
34 i
Second
54See First Motion to Strike, Docket Entry No. 34, pp.
1-3 (objecting to Declaration of William Twomey, Docket Entry No.
29-2, pp. 1-2 ~4 and Exhibit 2-B, and Declaration of William
Twomey, Docket Entry 29-3, p. 1 ~3 and Exhibit 3-A)
55See Affidavit of William Twomey, Exhibit 3 to Vanguard MSJ,
Docket Entry No. 29-3, p. 1 ~3.
-26-
While
Section
1.4 (1)
is
ambiguous,
the
evidence
proffered
by
Vanguard does not support the assertion that Trican drafted that
section, see footnote 43 above, and is therefore irrelevant.
B.
Second Motion to Strike
In
its
Second
Motion
to
Strike,
filed
in
response
to
Vanguard's Reply in Support of its Motion for Summary Judgment,
Trican objects to Vanguard's "new claim, never plead or asserted in
discovery or otherwise" that it is entitled to release of $24,647
held in escrow, as well as Vanguard's evidence in support thereof. 56
Trican cites Cutrera v. Bd. of Supervisors of La. State Univ., 429
F.3d 108,
113
(5th Cir.
2005),
and argues that this claim "is
improperly raised at this time and should be stricken."
The Fifth
Circuit in Cutrera held that "[a] claim which is not raised in the
complaint but, rather, is raised only in response to a motion for
summary judgment
Vanguard
is not properly before the
correctly
points
out,
however,
the
court."
liberal
Id.
As
pleading
standards of Rule 8 merely require a short and plain statement that
gives
the defendant
fair notice of what
grounds upon which it rests.
the
claim is and the
"Trican was well aware of the nature
of the dispute," and "the only reason Vanguard did not plead the
[$24,647]
claim with more specificity [until its reply brief]
is
because the information was in the possession of Trican, and was
not produced to Vanguard until after the Summary Judgment Motion
56See Second Motion to Strike, Docket Entry No. 38, p. 2
-27-
~2.
was filed."57
Trican's objection to this claim and the evidence in
support of it will be denied.
Trican also objects to the declaration of Lawrence Hilton and
exhibi t
thereto. 58
Because
the
court
has
not
relied
on
this
evidence, Trican's objection is moot.
Trican raises two additional objections.
In its Reply in
Support of its Motion for Summary Judgment, Vanguard made two new
allegations:
(1 )
"Trican
instructed
Vanguard
not
to
request
specific Certificates of No Tax Due for motor vehicle taxes and
sales taxes,"
and
(2)
"Vanguard could not
(and cannot)
prepare
returns or submit to an audit because Trican has all the records of
the
business. "59
Vanguard
supports
these
allegations
"supplemental" declaration from Phil Guertin,
controller, and exhibits thereto. 6o
with
a
Vanguard's former
Trican correctly objects that
57Furthermore, even if this did constitute a "new claim,"
"[u]nder [Fifth Circuit] precedent, when a claim is raised for the
first time in response to a summary judgment motion, the district
court should construe that claim as a motion to amend the complaint
under Federal Rule of Civil Procedure 15(a)." Riley v. School Bd.
Union Parish, 379 Fed. Appx. 335, 341 (5th Cir. 2010) (citing
cases) i see also Debowale v. U.S. Inc., 62 F.3d 395 (5th Cir. 1995)
("The district court should have construed Debowale's Bivens claim,
raised for the first time in his response to the summary judgment
motion, as a motion to amend the complaint under Fed. R. Civ. P.
15(a) and granted it.").
58Second Motion to Strike, Docket Entry No. 38, pp. 5-6
~6.
59Vanguard Reply, Docket Entry No. 37, pp. 4-5.
6°Supplemental Declaration of Phil Guertin,
Vanguard Reply, Docket Entry No. 37-1, p. 2 ~~5-7.
-28-
Exhibit
4
to
evidence of the parties'
conduct after entering into the Escrow
The court
Agreement is irrelevant to construing that agreement.
has not relied on Vanguard's evidence for that purpose, so Trican's
objection is moot.
Trican also objects that Guertin's declaration
is untimely, as he could have provided this information earlier,
and that Vanguard is barred from asserting the affirmative defense
of impossibility because it did not do so in its first responsive
pleading.
"Generally,
under
Rule
8 (c)
affirmative
raised in the first responsive pleading."
F.3d 572,
577
(5th Cir.
2009).
defenses
must
be
Pasco v. Knoblauch, 566
"However,
where the matter is
raised in the trial court in a manner that does not result
in
unfair surprise technical failure to comply precisely with Rule
8(c)
is not fatal."
rd.
and citation omitted) .
(internal quotation marks, alterations,
"An affirmative defense is not waived if
the defendant raised the issue at a pragmatically sufficient time,
and the plaintiff was not prejudiced in its ability to respond."
rd.
(same).
The
Fifth
Circuit
"does
not
take
a
formalistic
approach to determine whether an affirmative defense was waived.
Rather,
[has]
[it] look[s] at the overall context of the litigation and
found no waiver where no evidence of prejudice exists and
sufficient time to respond to the defense remains before trial."
rd.
-29-
Vanguard states that it is not arguing impossibility as an
affirmative
respect.
defense, 61
so
Trican's
objection
is
moot
in
that
Nevertheless, the court construes Vanguard's allegations
as defenses of waiver and excuse.
The court sees no prejudice to
Trican in allowing these defenses as they do not alter the outcome
of either party's motion for summary judgment-Section 1.4(1)
is
ambiguous whether or not Vanguard asserts defenses-and Trican has
time to prepare its arguments for trial.
Trican's objections to
Guertin's Supplemental Declaration and exhibits in support will
therefore be denied.
IV.
For
the
reasons
Conclusions and Order
stated
in
Section
II
above,
Trican Well
Service, L.P.'s Motion for Summary Judgment (Docket Entry No. 27)
is DENIED, and Plaintiff Vanguard Services, LLC's Cross-Motion for
Summary Judgment
(Docket Entry No.
29)
is GRANTED IN PART and
DENIED IN PART.
For the reasons stated in Section II.B.3 above,
the court
DECLARES that a "Release Event" has occurred within the meaning of
Section 1.4(1) of the Escrow Agreement with respect to the $24,647
held in escrow for "Sales Tax on Services," and Defendant Wells
61Vanguard Response to Second Motion to Strike, Docket Entry
No. 39, p. 3.
-30-
Fargo Bank, N.A., is ORDERED to release this amount plus interest
to Plaintiff Vanguard Stimulation Services, LLC.
For the
Service,
reasons
L.P.'s
stated in Section III
Objections
and
Motion
above,
to
Trican Well
Strike
Vanguard
Stimulation Services, LLC's Evidence (Docket Entry No. 34) is MOOT
IN PART and GRANTED IN PART,
L.P.'s
Objections
and
and Defendant Trican Well Service,
Motion
to
Strike
Vanguard
Stimulation
Services, LLC's Reply in Support of its Cross-Motion for Summary
Judgment and Evidence in Support of Same (Docket Entry No. 38) is
DENIED IN PART and MOOT IN PART.
The parties will
file
an Amended Joint
Pretrial Order by
February 6, 2015, and Docket Call will be held on February 13, 2015
at 3:00 PM.
SIGNED at Houston, Texas, on this 15th day
cember, 2014.
SIM LAKE
UNITED STATES DISTRICT JUDGE
-31-
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