Sodexo Management, Inc. v. Detroit Public Schools

200 F. Supp. 3d 679, 2016 U.S. Dist. LEXIS 105257, 2016 WL 4205925
CourtDistrict Court, E.D. Michigan
DecidedAugust 10, 2016
DocketCivil Action No. 15-CV-10610
StatusPublished
Cited by3 cases

This text of 200 F. Supp. 3d 679 (Sodexo Management, Inc. v. Detroit Public Schools) is published on Counsel Stack Legal Research, covering District Court, E.D. Michigan primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Sodexo Management, Inc. v. Detroit Public Schools, 200 F. Supp. 3d 679, 2016 U.S. Dist. LEXIS 105257, 2016 WL 4205925 (E.D. Mich. 2016).

Opinion

OPINION AND ORDER CONFIRMING THE ARBITRATION AWARD AND DENYING DEFENDANTS’ MOTION TO VACATE (Dkt. 36)

MARK A. GOLDSMITH, UNITED STATES DISTRICT JUDGE

This matter is before the Court following arbitration of'a long-standing dispute between Plaintiff Sodexo Management, Inc. (“Sodexo”) and Defendants Detroit Public Schools, Detroit Public Schools Board of Education, and Jack Martin in his capacity as Emergency Manager for the School District of the City of Detroit (collectively, “DPS”),- regarding both- So-dexo and DPS’s performance under an operations management contract. The arbitration yielded an award- in excess of $24 million in favor of Sodexo. Sodexo-filed a petition to confirm the award (Dkt. 29); DPS filed a motion to vacate (Dkt. 36). For the reasons discussed below, the Court now confirms the arbitration award and denies DPS’s motion to vacate.

[682]*682I. BACKGROUND

In 2011, Sodexo and DPS entered into a contract under which Sodexo was to provide facilities management services to various schools in the DPS system. Pl. Br. in Supp. of Pet. at 5-6 (Dkt. 29-1); Defs. Br. in Supp. of Mot. at 2 (Dkt. 36). Under the contract, DPS was to pay Sodexo a set rate per square foot of property serviced. Pl. Br. in Supp. of Pet. at 6. Sodexo submitted two types of invoices to DPS: “Cycle” invoices, which “reflect the regular monthly payments DPS agreed to make in exchange for Sodexo’s facilities management services,” and “Community Use” invoices, which “concem[ed] extra-contractual events DPS requested Sodexo to service, such as for churches or civic organizations.” Id.

The cbntract contained a dispute resolution provision, which required the parties, if unable to resolve the dispute informally or through non-binding mediation, to submit the dispute to binding arbitration upon notice by one of the parties. See Contract, Ex. A-2 to Pet. to Confirm, at 15-16 (Dkt. 30-2).1 The contract also stated that it was to be governed by Michigan law. Id. at 18.

Sodexo and DPS’s relationship quickly became rocky. By late 2011, Sodexo alleges, DPS had already fallen behind on its contractual payments. Pl. Br. in Supp. of Pet. at 6. Conversely, DPS claims that Sodexo’s performance “was substandard from the outset” and failed to improve. Defs. Br. in Supp. of Mot. at 2-3.

A little over two years after the initial contract, on July 18, 2013, the parties entered into a Payment Agreement to address DPS’s outstanding balance to So-dexo. Pl. Br. in Supp. of Pet. at 6; see also Payment Agreement, Ex. B to Pet. to Confirm (Dkt. 34). That agreement required DPS to pay Sodexo certain outstanding and undisputed receivables, as set forth in an exhibit attached to and incorporated by the agreement; it also established a dispute period for any future invoices issued by Sodexo going forward. Pl. Br. in Supp. of Pet. at 6-7; Payment Agreement at 2 (cm/ecf page). For Cycle invoices, the parties agreed to a “payment dispute period of 45 days after invoice date,” during which “DPS can challenge the amounts set forth.” Payment Agreement at 2 (cm/ecf page). Joint resolution of any dispute was to be made within 30 days, and if no agreement was reached the dispute resolution provisions set forth in the original contract controlled. Id. DPS “relinquish[ed] disputing rights with respect to disputed invoice charges only after the 45 day period and agree[d] to pay the invoice in accordance with the terms of resolution.” Id. Regarding Community Use invoices, the parties agreed to a “payment dispute period of 60 days after invoice date,” during which DPS could challenge any such invoice. Id. Resolution of any dispute was to proceed in the same man[683]*683ner as Cycle invoices, and DPS relinquished its disputing rights to these invoices only after the 60-day period. Id.2

According to Sodexo, DPS timely paid the majority of the balance owed under the Payment Agreement, but “quickly became delinquent once again,” and “has not made any substantial payments to Sodexo since October 2013, despite receiving the benefit of ... services through [ ] June 28, 2014.” PI. Br. in Supp. of Pet. at 7-8. DPS asserts that it “fell behind in and withheld monthly payments from Sodexo due both to So-dexo’s poor performance and DPS’ continuing financial difficulties.” Defs. Br. in Supp. of Mot. at 3.

In May 2014, Sodexo filed a demand for arbitration with' the American Arbitration Association (“AAA”), naming the instant Defendants as Respondents, bringing claims for: (i) account stated; (ii) breach of contract; (iii) anticipatory breach of contract and repudiation; (iv) breach of the implied covenant of good faith and fair dealing; (v) unjust enrichment; and (vi) declaratory judgment. See Arbitration Demand, Ex. 4 to Defs. Mot., at 10-13 (Dkt. 36-5).

DPS filed an answering statement, and claimed as an affirmative defense that, because Sodexo “failed to fulfill required conditions precedent to the filing of its Demand for Arbitration,” the AAA lacked jurisdiction. Answering Statement, Ex. 5 to Defs. Mot., at 12 (Dkt. 36-6). Approximately two months later, DPS filed an amended answering statement, adding as additional affirmative defenses: (i) statutory and/or common law immunity; (ii) failure to state a claim under Michigan law; (iii) lack of consideration; (iv) failure to comply with conditions precedent; (v) failure to mitigate damages; and (vi) unclean hands. Am. Answering Statement, Ex. 6 to Defs. Mot., at 13 (Dkt. 36-7). DPS also brought counterclaims of breach of contract and unjust enrichment. Id. at 23-25 of 26 (cm/ecf pages).

Following an unsuccessful mediation, DPS nominated former Genesee County Circuit Court Judge Valdemar Washington, who was subsequently appointed as arbitrator by the AAA, over the objections of Sodexo. PI. Br. in Supp. of Pet. at 8-9; Defs. Br. in Supp. of Mot. at 4.

Discovery commenced, and Sodexo filed a motion for partial summary disposition on January 7, 2015. PI. Br. in Supp. of Pet. at 9; Defs. Br. in Supp. of Mot. at 5. That motion was fully briefed, and, -on February 9, 2015, Judge Washington granted an interim award of $25,118,452.35 in favor of Sodexo. PI. Br. in Supp. of Pet. at 9; Defs. Br. in Supp. of Mot. at 6; .2/9/2015 Interim Award, Ex. E to Pet. to Confirm, at 14 (Dkt. 34-3). Judge Washington’s reasoning underlying the award was that DPS had failed to dispute and pay the invoices at issue within the allotted time period; therefore, DPS had waived its right to dispute those invoices, and payment was owed and past due.3 Relying on Michigan’s [684]*684account stated law and procedure under Michigan Compiled Laws § 600.2145, Judge Washington accepted the amount set forth in Sodexo’s affidavit as prima facie evidence of DPS’s indebtedness, because DPS had failed to submit an appropriate counter-affidavit disputing Sodexo’s claim to the amounts allegedly owed. 2/9/2015 Interim Award at 11-12, 14. The interim award was based only on Sodexo’s “separate and independent claims,” and Judge Washington denied Sodexo’s motion as to DPS’s counterclaim for breach of contract related to performance issues, id. at 6, 14-15; DPS was entitled to arbitrate those claims going forward, and any damages resulting therefrom would be offset against amounts owed under the invoices, id. at 6, 7-8,14-15.

On February 18, 2015, over a week after Judge Washington’s decision, DPS filed a formal objection to his continued participation in the matter with the AAA, claiming a conflict of interest triggered by a change in authority at DPS. Defs. Br.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Harris v. B&L Delivery LLC
E.D. Kentucky, 2023
Mote v. City of Chelsea
284 F. Supp. 3d 863 (E.D. Michigan, 2018)

Cite This Page — Counsel Stack

Bluebook (online)
200 F. Supp. 3d 679, 2016 U.S. Dist. LEXIS 105257, 2016 WL 4205925, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sodexo-management-inc-v-detroit-public-schools-mied-2016.