Sitco Enterprises, LLC v. Tervita Corporation et al

Filing 42

MEMORANDUM AND ORDER entered: The motions for summary judgment, (Docket Entries No. 31, 35), are granted in part and denied in part. The remaining issue about which there is a factual dispute is whether the minimum-billing requirement applied; summ ary judgment is denied as to that issue. Neither party moved for summary judgment on Tervita's counterclaims for fraud and fraudulent inducement; those claims also remain. The motion to strike the cross-motion for summary judgment, (Docket Entry No. 36), is denied as moot. A pretrial conference to address the remaining work is set for June 18, 2018, at 3:30 p.m. in Courtroom 11-D.(Signed by Chief Judge Lee H Rosenthal) Parties notified.(leddins, 4)

United States District Court
Southern District of Texas

ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
SITCO ENTERPRISES, LLC,
Plaintiff,
v.
TERVITA CORPORATION, et al.,
Defendants.

§
§
§
§
§
§
§
§
§

June 11, 2018
David J. Bradley, Clerk

CIVIL ACTION NO. H-17-685

MEMORANDUM AND ORDER
This contract-interpretation case arises from a rental contract for Sitco Enterprises, doing
business as Summit Work Apparel, to supply Tervita Corporation, formerly known as CCS
Midstream Services, with fire-resistant coveralls for oilfield-service workers. Sitco manufactures
flame-resistant work apparel for the oil and gas industry; Tervita offers environmental solutions to
companies in that industry. In April 2011, Summit and CCS entered into a three-year contract for
Summit to rent and maintain fire-resistant coverall garments for CCS. In a June 2012 addendum,
Summit and Tervita extended the contract and changed some terms. In February 2015, Republic
Services acquired the U.S. division of Tervita, and, according to Summit, ratified and became a
party to the contract. Tervita eventually needed fewer coveralls, which in turn affected Summit’s
margins. The contract expired in September 2015.
Summit sued Tervita, alleging that Tervita breached by not “tak[ing] minimum requirements
of uniforms, fail[ing] to pay for uniform builds, [and] fail[ing] to reimburse allowable expenses.”
(Docket Entry No. 28). Tervita counterclaimed for breach of contract, fraud, fraudulent inducement,
and sought an accounting. (Docket Entry No. 7).

The parties dispute the contract interpretation and Republic’s status as a party to the contract.
Tervita moved for summary judgment, Summit responded and cross-moved for summary judgment,
and Tervita replied. (Docket Entries No. 31, 35, 38). Based on the motion, response, reply, the
record, and the applicable law, the motions for summary judgment, (Docket Entries No. 31, 35), are
granted in part and denied in part. The remaining issue about which there is a factual dispute is
whether the minimum-billing requirement applied; summary judgment is denied as to that issue.
Neither party moved for summary judgment on Tervita’s counterclaims for fraud and fraudulent
inducement; those claims also remain. The motion to strike Summit’s cross-motion for summary
judgment, (Docket Entry No. 36), is denied as moot. A pretrial conference to address the remaining
work is set for June 18, 2018, at 3:30 p.m. in Courtroom 11-D.
The reasons for these rulings are explained below.
I.

Background
The April 2011 contract provided for a three-year rental term requiring CCS to order at least

200 garments for the first 50 weeks; 150 garments for weeks 51 through 75; and 100 garments for
the weeks after 76. The contract stated:
Minimum requirements: During the term of this agreement, CUSTOMER will
place Orders for the following minimum quantities of garments. (Based on
installation count of 200 wearers)
100% (200) employee count through week 50
75% (150) employee count weeks 51-75
50% (100) high employee count weeks 76+
The foregoing amounts are minimum guarantees and it is agreed that CUSTOMER’s
actual orders may exceed such amounts. In the event this Agreement is terminated
by either Party in accordance with the terms hereof, CUSTOMER shall have no
obligation or liability for any minimum quantity following the effective date of such
termination.

2

(Docket Entry No. 31, Ex. A § 9.2).
The contract continued:
Unless earlier terminated in accordance with the terms hereof, this Agreement will
continue in effect until March 31st 2014 (“Term”) and not be subject to tacit
renewal. However, if the parties agree to extend pricing and continue to transact
business beyond the term of this Agreement, the term will be extended on an interim
basis until the parties execute a new agreement, extend this Agreement by
amendment or continue transacting business.
(Id. § 4.1).
The contract also provided that Summit “will send weekly invoice[s] based upon initial
sizing employee count. Invoicing count will remain until notified by CUSTOMER of employee
reduction.” (Id. § 10.2).
In a June 2012 addendum, Tervita and Summit extended the contract term for a year and
changed the minimum-billing requirements:
Contract Term:

September 1st 2012 – September 1st 2015

Unrealized depreciation of Current Inventory:

Reduced from $500,000.00 to $350,00.00
Payment required to Summit no later than
August 31, 2012

Rental rate for all US Tervita Locations
Full Issue Employees (11 Sets):

$20.00

...
Loss/Replacement:

Tervita will be responsible for costs
associated with garments that have been lost
or damaged beyond normal wear and tear and
cannot be repaired.

Weeks in service:
< 10

=

$125.00

11-50

=

$90.00
3

51-75

=

$70.00

76-104

=

$50.00

105

=

$0

Examples:

Employee (A) Terminates at week 105 and does not return garments to
Summit. No charge to Tervita
Employee (B) Damages Garments at week 105 and requires replacements.
At end of contract, week 156. Tervita is only responsible for buyout of
garment based on L&R Schedule of 51 Weeks: $70

Contract Min. Billing Requirements:

(Minimum Billing will not occur previous to 800
Wearers being installed)
Based on installation count of 800 wearers
100% (800) employee count through week 50
75% (600) employee count weeks 51-75
50% (400) employee count weeks 76+

(Docket Entry No. 31, Ex. B).
The June 2012 addendum did not alter the original termination section, which provided that
the seller or customer “may terminate this Agreement at any time during the Term by giving sixty
(60) days’ notice to the other party. Customer is responsible to pay for garments in and out of
service based upon the Exhibit B loss and replacement weeks in service.” (Id. Ex. A § 17.1).
In 2015, after acquiring Tervita, Republic asked Summit how much it would cost to
terminate before the end of the contract term. Summit provided an estimated buyout invoice,
totaling $1,256,304.26, including a $582,520 charge for “minimum billing” for 2012 to 2015. (Id.
Ex. D). Tervita alleges that, instead of paying this high buyout price, it would instead continue to
rent coveralls from Summit through the end of the contract term.
The contract ended on its own terms on September 1, 2015. The same day, Summit
requested payment of the buyout invoice, which, after several revisions, totaled $1,648,288.34,

4

including a $521,720 charge for “minimum billing” for 2012 to 2015. (Id. Ex. E). In November
2017, after this lawsuit was filed and Summit’s corporate representative was deposed, Summit sent
Tervita a revised buyout invoice, totaling $1,504,727.19, including a $389,100 charge for “minimum
billing” for 2012 to 2015 and a $751,910 charge for “Coverall TT1 (S-5X) USED.” (Id. Ex. F).
Unlike the two previous invoices, which both listed the charge for used coveralls as $329,000, the
November 2017 invoice listed that charge at $751,910 with an asterisk and note stating that “[t]his
number is subject to change pending review of the information provided by Republic Services on
11/29/2017.” (Id.).
Tervita refused to pay the invoice on the grounds that the contract was for garment rentals,
not garment purchases, and did not provide for a buy-back of the garments. Tervita also disputed
the charges for minimum billing on the ground that the condition precedent—the installation of 800
wearers—never occurred. Summit argues that both the original contract and the July 2012
addendum required Tervita to buy back in- and out-of-service garments when the contract
terminated, and that the minimum-billing charges were based on the installation count, which
amounted to more than 800 wearers, rather than the employee count.
II.

The Legal Standards
A.

Summary Judgment

“Summary judgment is required when ‘the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.’” Trent v. Wade,
776 F. 3d 3689, 376 (5th Cir. 2015) (quoting FED. R. CIV. P. 56(a)). “A genuine dispute of material
fact exists when the ‘evidence is such that a reasonable jury could return a verdict for the nonmoving
party.’” Nola Spice Designs, LLC v. Haydel Enters., Inc., 783 F.3d 527, 536 (5th Cir. 2015)

5

(quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986)). “The moving party ‘bears the initial
responsibility of informing the district court of the basis for its motion, and identifying those
portions of [the record] which it believes demonstrate the absence of a genuine issue of material
fact.’” Id. (quoting EEOC v. LHC Grp., Inc., 773 F.3d 688, 694 (5th Cir. 2014)); see also Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986).
If the burden of proof at trial lies with the nonmoving party, the movant may satisfy its initial
burden by showing an absence of evidence to support the nonmoving party’s case. Fret v. Melton
Truck Lines, Inc., 2017 U.S. App. LEXIS 16912, at *5–6 (5th Cir. Sept. 1, 2017) (quoting Lindsey
v. Sears Roebuck & Co., 16 F.3d 616, 618 (5th Cir. 1994)). While the party moving for summary
judgment must demonstrate the absence of a genuine issue of material fact, it does not need to negate
the elements of the nonmovant’s case. Coastal Agric. Supply, Inc. v. JP Morgan Chase Bank, N.A.,
759 F.3d 498, 505 (5th Cir. 2014) (citing Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th
Cir. 2005)). A fact is material if “its resolution could affect the outcome of the actions.” Aly v. City
of Lake Jackson, 605 F. App’x 260, 262 (5th Cir. 2015) (citing Burrell v. Dr. Pepper/Seven UP
Bottling Grp., Inc., 482 F.3d 408, 411 (5th Cir. 2007)). “If the moving party fails to meet [its] initial
burden, the motion [for summary judgment] must be denied, regardless of the nonmovant’s
response.” Pioneer Exploration, LLC v. Steadfast Ins. Co., 767 F.3d 503 (5th Cir. 2014).
“When the moving party has met its Rule 56(c) burden, the nonmoving party cannot survive
a summary judgment motion by resting on the mere allegations of its pleadings.” Bailey v. E. Baton
Rouge Parish Prison, 663 F. App’x 328, 331 (5th Cir. 2016) (quoting Duffie v. United States, 600
F.3d 362, 371 (5th Cir. 2010)). The nonmovant must identify specific evidence in the record and
articulate how that evidence supports that party’s claim. Willis v. Cleco Corp., 749 F.3d 314, 317

6

(5th Cir. 2014). “This burden will not be satisfied by ‘some metaphysical doubt as to the material
facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence.”’
Jurach v. Safety Vision, LLC, 642 F. App’x 313, 317 (5th Cir. 2016) (quoting Boudreaux, 402 F.3d
536, 540 (5th Cir. 2005)). In deciding a summary judgment motion, the court draws all reasonable
inferences in the light most favorable to the nonmoving party. Darden v. City of Fort Worth, 866
F.3d 698, 702 (5th Cir. 2017).
B.

Contract Interpretation

In this diversity case, the court is “Erie bound to apply the underlying state law, that of the
State of Texas.” Wells v. Minn. Life Ins. Co., 885 F.3d 885, 889 (5th Cir. 2018) (citation omitted).
“Contract law is an area of state law.” Crisalli v. ARX Holding Corp., 177 F. App’x 417, 419 (5th
Cir. 2006). The parties do not dispute that Texas law governs this contract.
In interpreting a contract under Texas law, the court’s primary concern “is to ascertain the
true intentions of the parties as expressed in the instrument.” J.M. Davidson, Inc. v. Webster, 128
S.W.3d 223, 229 (Tex. 2003). To achieve this objective, the court considers the contract as a whole.
See id. (“[W]e must examine and consider the entire writing in an effort to harmonize and give effect
to all the provisions of the contract so that none will be rendered meaningless.”). When considered
as a whole, a contract is ambiguous only if it is “reasonably susceptible to more than one meaning.”
Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 861 (Tex. 2000). “Deciding whether a
contract is ambiguous is a question of law for the court.” J.M. Davidson, Inc., 128 S.W.3d at 229.
When deciding whether a contract is ambiguous, “objective manifestations of intent control,
not what one side or the other alleges they intended to say but did not.” URI, Inc. v. Kleberg Cty.,
543 S.W.3d 755, 763–64 (Tex. 2018) (citation and quotations omitted). The court presumes “parties

7

intend what the words of their contract say and interpret contract language according to its plain,
ordinary, and generally accepted meaning unless the instrument directs otherwise.” Id. at 764
(citation and quotations omitted).

“Even a single word can carry subtle—and

significant—differences in meaning when applied to different situations.” Id.
Courts can consider extrinsic evidence of the facts and circumstances surrounding a
contract’s making, but only if the surrounding facts and circumstances “provide context that
elucidates the meaning of the words employed, and nothing else.” Id. at 765. “Understanding the
context in which an agreement was made is essential in determining the parties’ intent as expressed
in the agreement, but it is the parties’ expressed intent that the court must determine.” Anglo–Dutch
Petrol. Int’l, Inc. v. Greenberg Peden, P.C., 352 S.W.3d 445, 451 (Tex. 2011).
Contract ambiguity may be patent or latent. URI, 543 S.W.3d at 765. Patent ambiguity
occurs when the contract is ambiguous on its face. Id. Latent ambiguity occurs when a contract is
clear on its face, but extrinsic evidence may lead a court to find a provision ambiguous. Id. To
explain this difference, the Texas Supreme Court has used the example of a contract that requires
a party to deliver goods “to the green house on Pecan Street.” Nat’l Union Fire Ins. of Pittsburgh
v. CBI Indus., Inc., 907 S.W.2d 517, 520 n.4 (Tex. 1995). On its face, this contract has no patent
ambiguity because the plain language is clear. But, if extrinsic evidence shows that there are two
green houses on Pecan Street, the court may find a latent ambiguity. Id. If extrinsic evidence shows
that the parties intended the goods be delivered to the blue house on Pecan Street, the court cannot
use the evidence of two green houses to determine that the contract is ambiguous. The evidence
creates rather than reveals ambiguity, and contradicts the parties’ plainly expressed intent. Id.
Because of this distinction, a court may decide that a contract has a latent ambiguity only if extrinsic

8

evidence “illuminates [the] contract language” but does not “add[] to, alter[], or contradict[] the
contract’s text.” URI, 543 S.W.3d at 767.
III.

Analysis
A.

Whether the Contract Requires a Buy-Back

Under the contract, Summit was to rent flame-resistant coveralls and bibs to Tervita for three
years. The parties disagree about whether Tervita was supposed to buy back the rented garments
when the contract term ended. Both parties argue that the contract is unambiguous. Tervita argues
that the contract contains no buy-back provision and was only a rental contract. Summit argues that
the contract contains a buy-back provision, making it a rental and purchase contract. Alternatively,
Summit argues that the contract is ambiguous, creating a fact issue for a jury.
The contract is titled “Supply Agreement Between Summit Work Apparel, a Division of
SITCO LLC And CCS Midstream Services LLC.” (Docket Entry No. 31, Ex. A at 1). The “scope
of work” included “[g]arments, [c]leaning [and] [r]ental [s]ervices.” (Id. at 9). The contract defines
goods as “garments, cleaning and rental services,” (Id. § 1.6), and specifies that it “does not
establish a quantity of [g]oods to be purchased by [Tervita].” (Id. § 1.12). In the pricing section,
Tervita “agrees to rent from [Summit].” (Id. § 5.1). In the delivery and performance section,
Summit “shall provide [Tervita] with garments and/or other rental items . . . freshly processed,
mended, and finished in accordance with generally accepted standards of the textile rental industry.
[Summit] will replace any Merchandise requiring replacement due to normal wear and tear at no
charge to [Tervita]. All property shall remain the property of [Summit].” (Id. § 6.2). The contract’s
“special terms” required Tervita to return garments to Summit when Tervita’s employee count
decreased and that “[a]ny garments not returned to [Summit] within 20 days [would] be billed loss

9

rate as defined by Loss and Replacement rates . . . .” (Id. § 10.2). These terms describe garment
rentals, not garment purchases.
The termination section gives either party the option to end the contract during the contract
term by giving 60 days written notice to the other party. That section specifies that Tervita “is
responsible to pay for garments in and out of service based upon the Exhibit B loss and replacement
weeks in service.” (Id. § 17.1). The section also describes three ways that Summit could breach.
Attached to each of those descriptions is, again, the phrase that Tervita “is responsible to pay for
garments in and out of service based upon the Exhibit B loss and replacement weeks in service.”
(Id. §§ 17.3, 17.4, 17.5). Exhibit B of the original contract listed the monthly rental price for each
garment set. (Id. at 10). In a separate section, it also listed a “purchase option” next to the full
coverall sales prices. (Id.). Exhibit B’s loss-and-replacement schedule provides:
[Tervita] will be responsible for costs associated with garments that have been lost
or damaged beyond normal wear and tear and cannot be repaired.
Replacement value below.
Weeks in Service.

<10 =
11-50 =
51-75 =
76-102 =
105+ =

$125.00
$90.00
$70.00
$50.00
$0

(Id. at 11).
The June 2012 addendum did not change the loss-and-replacement schedule. Instead, it
added two examples explaining that schedule:
Employee (A) Terminates at week 105 and does not return garments to Summit. No
charge to Tervita.

10

Employee (B) Damages Garments at week 105 and requires replacements. At end
of contract, week 156. Tervita is only responsible for buyout of garment based on
L&R Schedule of 51 Weeks: $70.
(Id. Ex. B at 1).
Interpreting the contract as a whole, giving meaning to all of the provisions, leads to the
conclusion that it does not include a buy-back requirement. Summit expressed its intent in the
scope-of-work section to provide “garments, cleaning, and rental services.” The contract language
repeatedly uses “rental” to describe the parties’ transaction. The pricing section describes Tervita’s
obligation to “rent” from Summit. The contract did not list additional obligations for Tervita to buy
back or purchase Summit’s garments at the end of the contract; contract obligations do not exist
unless they are plainly specified. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex.
1994) (an insurance policy stating that it was responsible for benefits under the policy “while
coverage was in force” did not create an obligation to provide for future expenses associated with
an accident that occurred during the policy).
Although the contract does list the full purchase price of Summit’s coveralls, this is listed
as a “purchase option,” giving Tervita a choice, but not an obligation, to buy Summit’s coveralls.
A buy-back provision would be inconsistent with the loss-and-replacement section, which applies
charges only for garments “that have been lost or damaged beyond normal wear and tear.” (Docket
Entry No. 31, Ex. B at 1).
The contract language undermines Summit’s argument that the termination provisions
created a buy-back obligation. Summit points to the sentence used in several of the termination
provisions that Tervita “is responsible to pay for garments in and out of service based upon the
Exhibit B loss and replacement weeks in service.” A plain reading of this sentence indicates that

11

Tervita must pay for garments as specified in Exhibit B, which is limited to garments “lost or
damaged beyond normal wear and tear and cannot be repaired.” (Id.). Summit’s proposed
interpretation would require Tervita to pay for all garments at the end of the contract, not just those
damaged beyond normal wear and tear. This interpretation would effectively write in an obligation
that is inconsistent with the contract language. See Universal Health Servs., Inc. v. Renaissance
Women’s Grp., P.A., 121 S.W.3d 742, 746–47 (Tex. 2003) (a lease contract for a hospital did not
require owners to operate the hospital during the entire term of the lease because this obligation was
not specified in the contract).
Even if the termination section imposed a buy-back obligation, that obligation would apply
only if the contract were terminated in one of the ways specified in section 17. The language that
“the Customer is responsible to pay for garments in and out of service” is listed only in sections
17.1, 17.3, 17.4, and 17.6, which set out the methods by which either party could terminate the
contract early, by providing 60 days written notice or by materially breaching. Summit argues that
this obligation applies to any termination of the contract, either early or based on the end of the
contract term. The contract language unambiguously contradicts that interpretation. The language
requiring Tervita to pay for in- and out-of-service garments is listed only in the sections setting out
the methods for ending the contract early. Summit relies on section 5.2, which provides that “[i] the
parties do not agree on pricing for the next Pricing Period, this Agreement will terminate at the end
of the then current Pricing Period.” (Docket Entry No. 31, Ex. A § 5.2). But unlike sections 17.1,
17.3, 17.4, and 17.6, section 5.2 does not contain the language that the customer must pay for in- and
out-of-service garments. That requirement is limited to the circumstances in the provisions set out
in section 17. The parties do not allege that a condition set out in section 17 occurred, and do not

12

dispute that the contract ended by its own terms in September 2015. To the extent the contract
contained a buy-back provision, that provision is limited to the early-termination provisions and
does not apply to the facts alleged here.
Summit also relies on the phrase “in and out of service garments.” According to Summit,
because out-of-service garments are either garments not yet placed in service by Summit, or
garments that have been returned by terminated Tervita workers, those garments cannot be lost or
destroyed. Because the in- and-out-of-service garments cannot be lost or destroyed, the loss-andreplacement schedule controls for the garments that needed to be bought back. But a terminated
worker returning a uniform may have damaged it. Additionally, the contract obligation for
terminated workers to return garments to Summit is inconsistent with Summit’s interpretation that
Tervita was eventually obligated to purchase, not just rent, all garments.
Summit also points to the examples in the loss-and-replacement section of the June 2012
addendum. In the first example, a Tervita employee is terminated after 105 weeks of work and does
not return his garments to Summit. Tervita is not required to pay anything. Read with the loss-andreplacement section, this would mean that because the garment was not “lost or damaged beyond
normal wear and tear,” but rather was kept by a terminated employee, Tervita did not need to pay
Summit. Under Summit’s interpretation, this would mean that because the employee had worked
for 105 weeks, Tervita would have essentially paid for the garment and owed no remaining money
for the full purchase price. This interpretation is not reasonable in light of section 6.2, which
requires that “[a]ll property shall remain the property of [Summit],” whether at week 10 in the
contract or at week 105. (Docket Entry No. 31, Ex. A § 6.2).

13

Summit also relies on the second example, the only place in the contract that uses the word
“buyout.” In that example, a Tervita employee damages his garments after wearing them for 105
weeks. Because the employee will need replacement garments to wear in the 51 weeks remaining
in the contract term, Tervita must pay Summit $70. Under Summit’s interpretation, Tervita would
pay a monthly rental cost for the replacement garment for the remaining 51 weeks and would owe
$70 as the buy-back price instead of the full $119 purchase price. Under Tervita’s interpretation,
the $70 is owed as a penalty that decreases based on how long the replacement garment was used
in service for the remainder of the contract. Tervita’s interpretation is the only reasonable one based
on the contract as a whole and the placement of the example within the loss-and-replacement
section.
Summit also argues that facts and circumstances present in the summer of 2012 affect the
contract interpretation. According to Summit, Tervita purchased CCS, the original contracting
party, and wanted to rent garments with different colors. Because of the large cost of switching
uniforms and the amount of inventory Summit had accumulated in the previous color, the parties
stated the following in the contract amendment:
Unrealized depreciation of Current Inventory:

Reduced from $500,000.00 to
$350,000.00. Payment
required to Summit no later
than August 31, 2012.

(Id. Ex. B at 1).
Summit argues that this shows that Tervita agreed to buy back garments at the end of the
contract term because it did so after the garment color changed in an earlier contract. Although
extrinsic facts and circumstances can illuminate a contract’s meaning, extrinsic facts and
circumstances cannot create ambiguity. The prior contract language requiring Tervita to pay for the
14

garment color change cannot be used to create an unstated buy-back obligation in a the later,
different contract. The use of extrinsic evidence would improperly create ambiguity rather than
reveal it.
Finally, Summit points to section 3.1 in support of its interpretation that the contract included
a buy-back obligation. That section states:
There will be a one-time charge for name and/or company emblems when employees
are added to the program in garments requiring emblems. Emblem charges are
detailed on Exhibit B.
(Id. Ex. A § 3.1). This section specifies that Tervita had to pay for company emblems on garments.
No other provision requires Tervita to pay for bibs and coveralls that have no emblem added, or for
anything but the emblem charge. The emblem specifications and charges were also listed in a
separate section in the amended Exhibit B, not within the loss-and-replacement section.
Under Summit’s interpretation, a contract without an express buy-back provision would
require a buy-back obligation. Because there is no express buy-back provision, and the context does
not support a buy-back obligation, the contract unambiguous: there is no buy-back provision for
coveralls and bibs.
Tervita’s motion for summary judgment on this issue, (Docket Entry No. 31), is granted, and
Summit’s motion for summary judgment on this issue, (Docket Entry No. 35), is denied.
B.

Whether the Minimum-Billing Requirement Applies

The original contract had a minimum-billing requirement that applied based on an
installation count of 200 wearers:
Minimum requirements: During the term of this agreement, CUSTOMER will
place Orders for the following minimum quantities of garments. (Based on
installation count of 200 wearers)

15

100% (200) employee count through week 50
75% (150) employee count weeks 51-75
50% (100) high employee count weeks 76+
The foregoing amounts are minimum guarantees and it is agreed that CUSTOMER’s
actual orders may exceed such amounts. In the event this Agreement is terminated
by either Party in accordance with the terms hereof, CUSTOMER shall have no
obligation or liability for any minimum quantity following the effective date of such
termination.
(Docket Entry No. 31, Ex. A § 9.2). This meant that, for the first 50 weeks of the contract term,
Tervita was required to pay Summit $28.50 per employee, for 200 employees, totaling $5,700 per
week, even if Summit outfitted fewer than 200 employees with uniforms in a particular week.
During weeks 51 through 75, Tervita was required to pay Summit $28.50 per employee, for 150
employees, totaling $4,275 per week. During weeks 76 and beyond, Tervita was required to pay
Summit $28.50 per employee, for 100 employees, totaling $2,850. In any week in which Summit
outfitted more than 200, 150, or 100 employees, respectively, the minimum-billing requirement did
not apply. In those weeks, Tervita would instead pay Summit $28.50 per employee, times the
number of employees outfitted with uniforms.
The June 2012 addendum changed the terms by lowering the per-employee cost of uniforms
from $28.50 to $20.00, and by changing the minimum-billing requirement as follows:
Contract Min. Billing Requirements:

(Minimum Billing will not occur previous to
800 wearers being installed)
Based on installation count of 800 wearers.
100% (800) employee count through week 50
75% (600) employee count weeks 51-75
50% (400) high employee count weeks 76+

(Id. Ex. B). Under the addendum, the minimum-billing requirement applied only after Summit
outfitted 800 employees with uniforms. The parties agree that the addendum created a condition
precedent, “Minimum Billing will not occur previous to 800 Wearers being installed,” designed to
16

delay the implementation of the minimum-billing requirement. But the parties dispute the meaning
of the term, “previous to 800 Wearers being installed.”
Tervita argues that the condition precedent did not occur because Tervita did not have 800
active employees during the contract term. In support, Tervita cites a spreadsheet it sent to Summit
listing its active employees by location, showing a high of 700 employees, and a low of 143
employees. (Id. Ex. H). Tervita also cites the deposition testimony of Miriam Mondragon, a
Summit employee who sent bills to Tervita, as evidence that Summit did not bill Tervita for more
than 800 employees. (Id. Ex. K). Finally, Tervita cites the deposition testimony of Alan Habash,
Summit’s corporate representative, that “[o]n a weekly active employee invoice, we never sent a bill
for 800 active employees.” (Id. Ex. C). According to Tervita, these show that it did not have 800
employees any time between June 2012 and September 2015.
In response, Summit argues that the installation count, rather than the active-employee count,
surpassed 800 and entitles it to minimum-billing payments. Summit argues that employees were
“installed” in the program when “a wearer [was] initially placed in the system and issued his first
set of 11 garments from Summit.” (Docket Entry No. 35 at 16). Installation count referred to “the
number of employees who had been installed in the program at any time, whether they remained in
the program for the life of our contract or not.” (Id. Habash Declaration).
The installation count was necessarily higher than the active-employee count because Tervita
had high turnover rates at its five different sites. Tervita regularly sent Summit lists of employees
who had been hired, fired, re-hired, and re-fired, so that Summit could keep track of its uniform
inventory, reclaim uniforms from terminated employees, and outfit new employees with uniforms.
(Id. Exs. 3–7). If Tervita fired an employee, that employee would remain on the “installation count”

17

but would be removed from the “employee count,” the count on which Summit charged Tervita for
uniform rentals and laundry services.
Summit argues that the parties agreed to tie the minimum-billing requirement to the
installation count rather than to the employee count because, when the addendum was signed in June
2012, the installation count was just above 700 and would continue to rise in a predictable way,
while also providing Tervita a few months of relief from that requirement. According to Summit,
the installation count reached 800 during the week of March 22, 2013. In support, Summit cites the
declaration of Alan Habash and a spreadsheet, which Summit alleges was created by Tervita, titled
“SIT01702_Tervita Active and Termed Employee Install List 2013” that lists all Tervita employees
who had been outfitted with uniforms and the dates they were outfitted with and wore those
uniforms. (Id. Ex. 9). Tervita does not dispute that it created and provided this list to Summit, or
that the installation count surpassed 800 during the week of March 22, 2013.
Summit points to the fact that the terms “800 Wearers being installed” and “Based on
installation count of 800 wearers,” appear on separate lines in the addendum, immediately before
the payment schedule based on “employee count.” According to Summit, this made sense because
the installation count was used to trigger liability for minimum billing, whereas the active-employee
count was used to describe the liability scope. Summit also argues that the earlier version of the
contract, which expressly used the term “installation count of 200 wearers,” shows the parties’ intent
to use the installation count for the minimum-billing requirement in the June 2012 addendum, which
states that the minimum-billing schedule is “[b]ased on installation count of 800 wearers.” Summit
argues that Tervita’s proposed interpretation conflates the two terms.

18

The contract does not indicate whether the condition precedent—that “Minimum Billing will
not occur previous to 800 Wearers being installed”—refers to the employee count or the installation
count.

Nor does the contract define “installed wearers.”

The parties argue conflicting

interpretations. Tervita argues that “800 Wearers being installed” means 800 active employees
wearing uniforms; Summit argues that “800 Wearers being installed” refers to the installation count.
The summary judgment record shows conflicting facts about when or whether the minimumbilling requirement was triggered. Summit cites Tervita-created spreadsheets setting out the
installation count, which reached 800 in March 22, 2013, (Docket Entry No. 35, Ex. 9), as well as
a spreadsheet setting out the active-employee count that includes a table with the minimum-billing
schedule listed as starting on March 22, 2013, (Docket Entry No. 31, Ex. H). On the other hand,
supporting Tervita’s interpretation, Tervita’s active-employee count never reached 800, (Docket
Entry No. 31, Ex. H), and the deposition testimony of Alan Habash shows that, even after the
minimum-billing requirement should have been triggered in March 2013, Summit’s monthly
invoices to Tervita did not include minimum-billing charges, (Id. Ex. C (“Q. From 2011 through
2014, are you aware of any monthly minimum billing invoice that was sent? A. I’m not aware of
any monthly minimum.”)). The meaning of the term “800 Wearers being installed” is ambiguous
because whether that term referred to the weekly count of employees wearing uniforms or to the
total installation count of employees Summit had outfitted with uniforms is “reasonably susceptible
to more than one meaning.” Lopez, 22 S.W.3d at 861. Because the minimum-billing provision is
ambiguous, “summary judgment is improper because the interpretation of the instrument becomes
a fact issue.” Holmes v. Newman, 2017 WL 2871786 (Tex. App.—Houston [1st Dist.] July 6, 2017)
(quoting Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983)).

19

On this issue, and on this record, the motions for summary judgment, (Docket Entries No. 31,
35), are denied.
C.

Whether Republic Ratified the Contract

In 2015, Republic purchased Tervita by a “Purchase and Sale Agreement by and among
Republic Services, Inc., as Buyer Parent Republic Services of Florida, Limited Partnership, as
Buyer, and Tervita (USA), Inc., as Seller.” (Docket Entry No. 31, Ex. J). In February 2015,
Republic sent Summit a letter stating:
As you may have heard, Republic Services, Inc. has entered into an agreement to
acquire the U.S. portion of Tervita, LLC. The parties contemplate that the
transaction will be closed prior to mid-February 2015. Since you may have
questions about the transition on your business relationship with Tervita, LLC, we
wanted to take this opportunity to advise you of the following, all to be effective
upon closing:
C

Since the transaction was structured as an equity purchase, Tervita, LLC is
still the contracting party under your agreement;

C

All terms and conditions contained in your agreement with Tervita, LLC
remain in full force and effect;

C

All existing purchase orders, including any terms and conditions contained
therein, will remain in full force and effect;

C

Any previously submitted invoices that have not been paid will be paid by
Tervita, LLC in accordance with the terms of its agreement with you;
...

C

New purchase orders will continue to be issued by the same individuals who
issued them previously; however, the PO numbering sequence will be
different;

C

Following closing, any questions regarding purchase orders should be
directed to the local Republic Energy Services, formerly known as Tervita,
LLC site where the PO initiated . . . . We look forward to your continued
relationship with Tervita, LLC.

20

(Docket Entry No. 35, Ex. 16).
In June 2015, Republic sent a follow-up letter stating:
This is a follow-up to the communication published in February regarding the
acquisition of the U.S. Portion of Tervita, L.L.C. by Republic Services. Suppliers
must adhere to all Republic Services Procurement policies. Failure to follow
Procurement policies will result in non-payment of orders and will jeopardize your
future business with Republic Services.
Republic Services Procurement Policy requires the following.
1. Suppliers are not to deliver goods or services unless authorized to do so pursuant
to the terms of a valid purchase order, unless payment is authorized using an
approved Republic Services Purchasing Card and associated terms and conditions.
Failure to obtain a valid purchase order number before goods are shipped or services
performed will result in non-payment from Republic Services.
2. Each acquired Tervita site will have a designated PO assigner. Only the
designated PO assigner can place a valid purchase order with a supplier.
3. To receive payment of your invoices, supplier invoices must include and
reference the applicable purchase order number. . . .
(Id. Ex. 17).
Tervita moved for summary judgment that Republic is not a party to the contract because
Tervita never assigned the contract to Republic. According to Tervita, “Republic merely owns the
stock of Tervita,” is not an alter ego of Tervita, and did not explicitly or implicitly ratify the contract
between Summit and Tervita. (Docket Entry No. 31 at 19). Summit responds that Republic became
a party to the contract by ratifying and performing it. Summit points to evidence showing that
Republic was aware of the contract when it acquired Tervita and that Republic managed interactions
with, negotiated purchase orders, and wrote checks to Summit for its services. (Docket Entry No.
35 at 20–22).

21

Tervita’s argument that Republic is not liable based on its status as the parent of Tervita is
unpersuasive. Although “subsidiaries are distinct from parent companies because parent companies
are simply shareholders that do not own an interest in the business of the companies in which they
hold stock,” Cadena Comm. USA Corp. v. Tex. Alcoholic Beverage Comm’n, 518 S.W.3d 318, 332
(Tex. 2017), Republic performed the contract obligations and accepted the benefits. It issued
purchase orders to Summit, paid Summit’s invoices for the contract services, and attempted to
negotiate a buy-out and the early termination of the contract. (Docket Entry No. 35, Ex. 3)
(testimony that Republic, before acquiring Tervita, obtained and reviewed a preliminary copy of the
addendum); (Exs. 4, 5) (invoice for early termination of the contract and correspondence between
Republic and its counsel about the contract); (Ex. 6) (an email chain between a Republic employee
and Summit’s Vice President of Sales and Marketing discussing the buyout invoice); (Ex. 7) (a letter
from Republic to Summit disputing charges and seeking to settle the dispute); (Ex. 9) (an email
stating that “Loren Franklin [Republic’s sourcing manager] with corporate is coordinating the
ending of the contract. We cannot do anything locally as it may interfere with the settlement that
is in the works.”); (Ex. 18) (checks from Republic Services International to Summit International
for purchase orders and services under the contract). By performing the contract obligations,
Republic ratified the contract and may be held liable under it. See Stable Energy v. Newberry, 999
S.W.2d 538, 548 (Tex. App.—Austin 1999) (“Ratification of a contract occurs when a party
recognizes the validity of the contract by acting under the contract, performing under the contract,
or affirmatively acknowledging the contract.” (collecting authority)); see also Chopra & Assocs.,
PA v. U.S. Imaging, Inc., 2014 WL 7204868, at *3 (Tex. App.—Houston [14th Dist.] Dec. 18, 2014)
(“A party cannot avoid an agreement by claiming there was no intent to ratify after that party has
accepted the benefits of the agreement.”).
22

On this issue, Summit’s motion for summary judgment, (Docket Entry No. 35), is granted
and Tervita’s motion for summary judgment, (Docket Entry No. 31), is denied.
IV.

Conclusion
The motions for summary judgment, (Docket Entries No. 31, 35), are granted in part and

denied in part. The remaining issue about which there is a factual dispute is whether the minimumbilling requirement applied; summary judgment is denied as to that issue. Neither party moved for
summary judgment on Tervita’s counterclaims for fraud and fraudulent inducement; those claims
also remain. The motion to strike the cross-motion for summary judgment, (Docket Entry No. 36),
is denied as moot. A pretrial conference to address the remaining work is set for June 18, 2018, at
3:30 p.m. in Courtroom 11-D.
SIGNED on June 11, 2018, at Houston, Texas.

______________________________________
Lee H. Rosenthal
Chief United States District Judge

23