Sugarman v. IRZ Consulting, LLC

• Court: United States Bankruptcy Court, E.D. California
• Decided: April 24, 2025
• Docket: 19-01033
• Status: Unknown

Opinion

1 UNITED STATES BANKRUPTCY COURT

2 EASTERN DISTRICT OF CALIFORNIA

3 FRESNO DIVISION

5 In re ) Case No. 18-11651-B-11 ) 6 GREGORY JOHN te VELDE, ) ) 7 Debtor. ) ) 8 ) RANDY SUGARMAN, CHAPTER 11 ) Adv. Proceeding No. 19-1033-B 9 TRUSTEE ) ) Docket Control No. DCT-2 10 Plaintiff, ) v. ) 11 IRZ CONSULTING, LLC, aka IRZ ) CONSTRUCTION DIVISION, LLC, ) 12 ) Defendant. ) 13 ) ) 14 AND RELATED THIRD-PARTY COMPLAINT ) AND CONSOLIDATED ACTIONS. ) 15 )

18 FINDINGS AND RECOMMENDATIONS FOR DE NOVO CONSIDERATION OF THE DISTRICT COURT 19 AS TO DARI-TECH, INC.’S SECOND MOTION FOR SUMMARY JUDGMENT

20 —————————————————————————————

21 Shanon J. Slack, SLACK LAW GROUP, APC, for Dari-Tech, Inc., Duncan Turner, BADGLEY MULLINS TURNER PLLC, for Dari-Tech, Inc., 22 Movant/Third Party Defendant.

23 Kyle D. Sciuchetti, MILLER NASH LLP, for IRZ Consulting, LLC and LINDSAY CORPORATION, Bernie Kornberg, MILLER NASH LLP, for IRZ 24 Consulting, LLC and LINDSAY CORPORATION and Hagop Bedoyan, McCORMICK, BARSTOW, et al., for IRZ Consulting, LLC and LINDSAY 25 CORPORATION, Defendants.

26 Randy Sugarman, Chapter 11 Trustee.

27 —————————————————————————————

28 RENÉ LASTRETO II, Bankruptcy Judge: 1 INTRODUCTION 2 Sometimes successive summary judgment motions are 3 successful; sometimes not. A third-party defendant in this 4 protracted construction dispute pursues a second summary judgment 5 motion before the District Court ruled on its’ objections to this 6 court’s Report and Recommendation that the first summary judgment 7 motion be denied. Though this motion contains certain additional 8 deposition testimony not presented previously; the third-party 9 defendant presented no compelling reason why that testimony was 10 unavailable for its first attempt. So, the court recommends 11 this motion be denied. 12 Independently, even considering the evidence, though 13 unnecessary, genuine issues of material fact remain. For that 14 reason, as well, the court recommends the second summary judgment 15 motion be denied. 16 17 BACKGROUND 18 This is another chapter in the saga of the ill-fated Lost 19 Valley Farm in Boardman, Oregon. Lost Valley was a dairy 20 construction project of Debtor Gregory John te Velde (“Debtor”). 21 Before beginning this project, Debtor owned and operated several 22 large dairies spanning thousands of acres of land across the 23 western United States. 24 In late 2015, Debtor hired Defendant IRZ Consulting, LLC 25 also known as IRZ Construction Division, LLC (“IRZ”) to manage 26 the construction of the dairy project. IRZ managed at least nine 27 “subcontractors” in the Lost Valley project. One of those 28 “subcontractors” is the Movant here, Dari-Tech. Most of the 1 “subcontractors” actually had direct contracts with the Debtor 2 according to some of the evidence. Dari-Tech also claims it had 3 a direct contract with the Debtor. 4 One of the features of the Lost Valley dairy project was a 5 closed loop waste flushing system. The idea is to limit the 6 dairy’s need for fresh water by using recycled water to flush 7 manure, organic compounds and other waste from the dairy. The 8 waste would go through a separation system and into a large tank 9 for further separation. The water would then exit the tank and 10 eventually finish its’ journey in dairy lagoons. The lagoon 11 water would be used in part to continue flushing waste from the 12 dairy and also irrigate crops, trees or other plants. 13 A component of the system was furnished by Dari-Tech. The 14 component was known as the “Biolynk tank” and accompanying 15 equipment. Those components included manure pumps, flush valves 16 and controls. Dari-Tech contracted with the Debtor to provide 17 and install these components. 18 Things did not work out as hoped. After dairy operations 19 began, the wastewater management system failed. Millions of 20 gallons of liquid and solid dairy waste backed up, over flowed, 21 and were released onto bare soil. The cause of the failure is 22 what this litigation is about. 23 That failure resulted in the state of Oregon terminating a 24 permit allowing the dairy to operate. This chapter 11 case soon 25 followed. A chapter 11 trustee was appointed shortly after. 26 Plaintiff, Randy Sugarman, (“Sugarman” or “Trustee”) filed 27 this adversary proceeding against IRZ alleging breach of contract 28 and negligence resulting in nearly in $19 million in construction 1 defect damages. The complaint also included an objection to the 2 allowance of IRZ’s proof of claim for unpaid management fees. 3 Trustee’s allegations are that IRZ allegedly failed to 4 competently perform management services for the planning, 5 engineering, and construction of the dairy waste collection, 6 treatment, conversion, and disposal system. The complaint 7 includes four claims for relief: objection to claim, breach of 8 contract, negligence, and fraudulent transfer. 9 IRZ then filed a third-party complaint alleging negligence, 10 indemnity, and contribution against nine third-party defendants 11 including Dari-Tech whose work on the project related to the 12 allegations in the complaint. 13 This saga has now spanned over six years, three presidential 14 administrations, and a pandemic. 15 This is the second summary judgment motion filed by Dari- 16 Tech.1 17 The first summary judgment motion was filed after written 18 discovery had been exchanged. The basic argument in the first 19 motion was that there was no evidence that Dari-Tech was engaged 20 in any of the activity or responsible for the components that 21 lead to the failure of the wastewater treatment system. The 22 court issued a report and recommendation that the District Court 23 deny the motion in June 2022.2 The court’s extensive report and 24 recommendation on the first motion outlined the material factual 25

1 Doc. #143. 26 2 In ruling on IRZ’s motion to withdraw the reference (Doc. #162) in August 2019, the District Court denied the motion and ordered that pretrial matters 27 including non-dispositive motions be handled by the Bankruptcy Court. Dispositive motions, however, were to be the subject of a report and 28 1 disputes that remained. The District Court has not yet ruled on 2 any objections to the report and recommendation. 3 In this second motion, Dari-Tech argues essentially the same 4 contention. Dari-Tech does cite deposition testimony which was 5 largely absent in the first motion. Dari-Tech’s primary argument 6 is the Biolynk components were not the cause of the wastewater 7 system failure but rather other components, the design of other 8 portions of the dairy were faulty, or that the Dari-Tech Biolynk 9 system was not properly operated. 10 IRZ contends otherwise. IRZ maintains that there are 11 genuine issues of material fact including the role of Dari-Tech 12 in the design of the wastewater treatment system, whether the 13 Biolynk system for the Lost Valley Dairy was inadequate for the 14 type of waste going through the system, whether Dari-Tech 15 improperly trained the operators of the Biolynk tank and related 16 components, and that the failure of the Biolynk tank was a 17 contributing factor in the failure of the wastewater system.3 18 19 JURISDICTION 20 The District Court has jurisdiction of Trustee’s complaint 21 under 28 U.S.C. § 1334(b) because it is a civil proceeding 22 arising under Title 11 of the United States Code. This court has 23 jurisdiction by reference from the District Court under 28 U.S.C. 24 § 157(a). 25 This court has “related to” jurisdiction over IRZ’s third- 26 party complaint under 28 U.S.C. § 157(b)(3) because it is related

27 3 A more complete factual background is set forth in the court’s Findings and Recommendations concerning Dari-Tech’s first summary judgment motion. (Doc. 28 1 to Trustee’s complaint against IRZ. Trustee’s complaint is a 2 “core” proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (C), (H), 3 and (O). 4 Since this court’s jurisdiction is “related to” the 5 bankruptcy case, this court cannot render a final judgment in 6 this matter. The District Court has deferred from withdrawing 7 its reference under 28 U.S.C. § 157(c)(1) and this court is 8 directed to supervise discovery, rule on non-dispositive motions, 9 and issue findings and recommendations for de novo consideration 10 by the District Court as to dispositive motions.4 11 Additionally, the court may exercise supplemental 12 jurisdiction under 28 U.S.C. § 1367(a) because the third-party 13 claims relate to Dari-Tech’s work on the dairy which share a 14 common nucleus of operative facts with the allegations in 15 Trustee’s complaint. 16 17 DISCUSSION

18 This second summary judgment motion should be denied since there is no basis to bring a repetitive motion. 19 20 Dari-Tech brought this motion before the District Court has 21 ruled on the Report and Recommendation submitted by this court on 22 Dari-Tech’s first summary judgment motion. Dari-Tech has not met 23 the requirements in this circuit for bringing this second motion. 24 Nothing in Fed. R. Civ. Proc. 56 (Fed. R. Bankr. Proc. 7056) 25 precludes the filing of a second summary judgment motion. 26 Martinez v. High, 91 F.4th 1022, 1027 (9th Cir. 2024)(Second 27 summary judgment held appropriate because there was a change of

28 1 law on a central issue of qualified immunity). Whether a second 2 summary judgment motion should be permitted is discretionary with 3 the court. Hoffman v. Tonnemacher, 593 F.3d 908 (9th Cir. 4 2010)(Second summary judgment permitted after the first was 5 denied, additional discovery occurred, there was a partial grant 6 of summary judgment, a trial, a deadlocked jury, a mistrial, and 7 modification of a pretrial order). In this circuit, successive 8 summary judgment motions may be considered if there is an 9 intervening change in controlling law; the availability of new 10 evidence or an expanded factual record; and the need to correct a 11 clear error or prevent manifest injustice. Brazill v. California 12 North State College of Pharmacy, 2013 WL 4500667*1 (E.D. Cal. 13 August 22, 2013) citing Whitford v. Boglino, 63 F.3d 527, 530 14 (7th Cir. 1995). 15 IRZ argues in opposition to this motion that nothing new has 16 been presented in this summary judgment motion that was not 17 presented previously. Though additional evidence has been 18 offered by Dari-Tech, there is no showing that any of the 19 depositions offered were unavailable before. There has been no 20 trial testimony or other compelling basis for this court to 21 consider the second summary judgment motion which restates the 22 same arguments included in the first motion. Dari-Tech argues 23 that the depositions were unavailable because it was a 24 “scheduling nightmare” since depositions were delayed by the 25 needs of the Trustee and IRZ. Further, Dari-Tech argues that it 26 is in the “interests of justice” for this second motion to be 27 considered. None of these arguments are persuasive. 28 /// 1 No proof has been offered by Dari-Tech as to what a 2 “scheduling nightmare” means in this protracted case. There is 3 no record of this court intervening in the discovery disputes or 4 to facilitate scheduling of depositions. Dari-Tech may very well 5 have been frustrated in its attempts to schedule depositions in 6 this case but a logical inference based on this record is that 7 Dari-Tech acquiesced in the delayed scheduling of depositions. 8 Indeed, the parties have engaged in at least two mediation 9 sessions. 10 Dari-Tech’s contention that the “interests of justice” would 11 be served by this court considering the motion for summary 12 judgment is likewise unavailing. Dari-Tech does not develop this 13 argument or articulate how it has been treated unjustly in this 14 litigation. Dari-Tech’s view is they are blameless in the 15 catastrophic failure of the waste disposal system at Lost Valley 16 Dairy, but that does not equate to Dari-Tech suffering injustice. 17 The matter has not been tried. Dari-Tech has been an active 18 participant since the beginning of the case. Dari-Tech presents 19 no intervening change in controlling law, no clear error, and no 20 manifest injustice. The scenario here is nothing like the 21 situations where multiple summary judgments have been entertained 22 by other courts. 5 23 /// 24

25 5 Edwards Lifesciences Corp. v. Meril Lifesciences Pvt. Ltd., 2021 WL 4281336 (N.D. Cal. September 21, 2021)(denying leave to file a second summary judgment motion at close of discovery noting availability of additional discovery “has 26 little persuasive weight in this case”). CF, AAA Flag & Banner Mfg. Co. Inc. v. Flynn Signs and Graphics, Inc., 2010 WL 11463632 (C.D. Cal. March 15, 27 2010)(permitting second motion for summary judgment shortly after denial of the first motion because defendant’s motion potentially mitigated litigation 28 1 In short, this court is not persuaded that it should 2 exercise its discretion to consider successive summary judgment 3 motions by Dari-Tech since there has been no compelling showing. 4 This motion for summary judgment should be denied on this basis 5 alone. 6 Nevertheless, upon review of the evidence submitted by Dari- 7 Tech and IRZ, there are genuine issues of material fact that 8 warrant denial of the summary judgment motion even if it was 9 properly entertained. 10 11 Standards 12 Under Fed. R. Civ. Proc. 56(a) summary judgment should be 13 granted “if the movant shows that there is not genuine dispute as 14 to any material fact and the movant is entitled to judgment as a 15 matter of law.” To survive a summary judgment motion, the 16 opposing party need only present evidence from which a jury might 17 return a verdict in its favor. If so, there is a genuine issue 18 of fact that requires a trial. Anderson v. Liberty Lobby, Inc., 19 477 U.S. 242, 257 (1986). 20 When determining whether a genuine issue of material fact 21 exists, the court must draw all justifiable inferences in favor 22 of the non-moving party. Howard v. HMK Holdings, LLC, 988 F.3d 23 1185, 1189 (9th Cir. 2021). That includes questions of 24 credibility and of the weight to be accorded particular evidence 25 on summary judgment. Suzuki Motor Corp. v. Consumers Union of 26 U.S., Inc., 330 F.3d 1110, 1132 (9th Cir. 2003). Courts are not 27 to evaluate credibility or weigh conflicting evidence on a 28 /// 1 summary judgment motion. Anderson, 477 U.S. at 255. In short, 2 the evidence of non-movants is to be believed. Id. 3 An issue is “genuine” only if there is sufficient evidence 4 for a reasonable fact finder to find for the non-moving party. 5 Anderson, 477 U.S. at 248, 49. A fact is “material” if the fact 6 may affect the outcome of the case. Id. at 248; Far Out Prods., 7 Inc. v. Oskar, 247 F.3d 986, 992 (9th Cir. 2001). 8 Applying these standards to the evidence presented on this 9 second motion for summary judgment, establishes genuine issues of 10 material fact. 11 12 Some Genuine Issues of Material Fact

13 1. Identification of shortcomings of Dari-Tech in its involvement in the project. 14 15 Dari-Tech points to the deposition of Mr. Ziari of IRZ who 16 stated that he was not aware of anything that was wrong with any 17 part of the project based on comments from the Debtor.6 IRZ 18 points to testimony of construction manager Wayne Downey of IRZ 19 who discussed with Josh Obendorf that the operation of the manure 20 management system was woefully inadequate.7 Further, Debtor’s 21 farm manager, Travis Love, expressed concerns concerning manure 22 management and other aspects of the project.8 23 This conflicting testimony will need to be assessed by the 24 fact finder as to whether there were concerns expressed to IRZ 25 and Dari-Tech about the manure management system. The issue is 26 material since Dari-Tech contends it received no negative

27 6 Doc. #159 Ziari Deposition page 105. 7 Doc. #793 Downey Deposition Vol. 3 at page 313. 28 1 commentary when the dairy was operating. So, Dari-Tech argues 2 the waste system was working properly when it operated. That is 3 disputed. 4

5 2. Extent of Dari-Tech’s involvement in design of the manure management system. 6 7 Dari-Tech offers evidence from IRZ’s Wayne Downey that 8 “subcontractors were not involved in site design.”9 Further, Mr. 9 Dewaard who was at the time of construction the president of 10 Dari-Tech stated in a declaration that the Debtor rejected the 11 overall plan of Dari-Tech in favor of buying certain components 12 related to the Biolynk flushing system from other suppliers.10 13 IRZ counters that according to Mr. Downey’s deposition, 14 Dari-Tech and the Debtor were involved in discussions changing 15 portions of Dari-Tech’s design of certain components of the 16 manure management system.11 17 There is also conflicting testimony as to whether Dari-Tech 18 was involved in the design of the Biolynk flushing system and 19 reception pit sizes which may or may not have been rejected by 20 the Debtor.12 This conflicting testimony also presents the issue 21 that portions of Dari-Tech’s design of the waste system were 22 rejected by Debtor. Nevertheless, Dari-Tech continued with the 23 project using its’ other components even though critical parts of 24 its role in the system were supplied by parties other than Dari- 25

9 Doc. #759. 26 10 Id. 11 Doc. #793 Downey Deposition 106:11-18. 27 12 See Declaration of John O’Donnell Doc #794; contradictory testimony from Mr. Downey. (Doc. #759; Doc. #789 Deposition of Downey 104:1-22; 106:11-18; 108:4- 28 1 Tech or otherwise modified by Debtor. This presents a material 2 issue of Dari-Tech’s knowledge that the Debtor was intending to 3 use components that Dari-Tech did not design or supply. This 4 suggests Dari-Tech was in a position to “work around” these 5 components that integrated with the Biolynk system. 6

7 3. Dari-Tech’s knowledge of use of sand as a base for cow barns and the sand as a component of the effluent running through 8 the waste system. 9 Dari-Tech contends that Mr. Love, Debtor’s farm manger, knew 10 that the Biolynk tank which was part of the flushing system was 11 not a sand separator.13 Dari-Tech also contends that the amount 12 of sand that was flushed through the system without separation 13 before the effluent went into the Biolynk tank was operator 14 error.14 Mr. Love, however, testified that the Biolynk tank was 15 to evacuate solids including sand. He also testified that he 16 discussed with Dari-Tech at length about feeding water from the 17 lagoons without passing that water through a separator.15 This 18 conflicting testimony will need to be resolved by the trier of 19 fact since it involves questions of credibility and weight of the 20 evidence. Both Dari-Tech and IRZ have their own interpretations 21 of this testimony. What the trier of fact will need to decide 22 based on this testimony and other evidence is what portion of the 23 failure at Lost Valley Dairy, if any, was attributable to Dari- 24 Tech’s components in the system. 25 /// 26

13 Doc. #759 Love Deposition 17-118. 27 14 Doc. #759 Dari-Tech Deposition 84-85. 15 Doc. #793 Love Deposition Exhibit I 110:12-111:9; 114:5-116:20; 116:2- 28 1 CONCLUSION 2 Dari-Tech has not presented a compelling case for this court 3 to even consider a second summary judgment motion based on 4 essentially the same theories and facts as the first motion. For 5 that reason, the court recommends the District Court deny the 6 || motion. 7 Independently, and by no means limiting what may be both 8 material and disputed issues of fact, this court recommends the 9 District Court deny the motion for summary judgment on the 10 | merits. The court’s rulings on IR4%Z’s evidentiary objections are 11 filed contemporaneously with this report. 12 Objections to the above Report and Recommendation, responses 13 thereto and other requirements shall be as required by Fed. R. 14 Bankr. Proc. 9033. 15 16 Dated: Apr 24, 2025 By the Court 17 a“ ené Lastreto II, Judge —_ 19 United States Bankruptcy Court 20 21 22 23 24 25 26 27 28

1 Instructions to Clerk of Court Service List - Not Part of Order/Judgment 2

3 The Clerk of Court is instructed to send the Order/Judgment or other court generated document transmitted herewith to the 4 parties below. The Clerk of Court will send the Order via the BNC or, if checked , via the U.S. mail. 5

6 Randy Sugarman 583 1st St W 7 Sonoma, CA 95476

8 Aaron Moore 1600 West St. 9 Redding, CA 96001

10 Ben Patrick 275 Battery Street, Ste, 2000 11 San Francisco CA 94111

12 Carl S. Kravitz 2100 L Street, NW, Ste. 400 13 Washington DC 20037

14 Duncan C. Turner 19910 50th Avenue W., Ste. 103 15 Lynnwood, WA 98036

16 Hagop T. Bedoyan 7647 N. Fresno Street 17 Fresno, CA 93720

18 Jean Barnier 645 First St., West, Suite D 19 Sonoma, CA 95476

20 Kurt F. Vote 265 E. River Park Circle, Suite 310 21 Fresno, CA 93720

22 Kyle D. Sciuchetti 500 Broadway St., Ste. 400 23 Vancouver WA 98660

24 Bernie Kornberg 340 Golden Shore, Ste. 450 25 Long Beach, CA 90802

26 Lindy H. Scoffield 3043 Gold Canal Dr #100 27 P. O. Box 269127 Sacramento CA ,95826-9127 28 1 Michael Brown 1809 West Main St., Ste. H 2 Visalia, CA 93291

3 Riley C. Walter 265 E. River Park Circle Suite 310 4 Fresno, CA 93720

5 Shanon J Slack 2030 Main Street, Ste. 1300 6 Irvine, CA 92614

7 Tracy A. Agrall 246 W. Shaw 8 Fresno, CA 93704

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28