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Day & Zimmermann International, Inc. v. Eastman Chemical Co.

United States District Court, E.D. Tennessee, Greeneville

December 13, 2019

DAY & ZIMMERMANN INTERNATIONAL, INC., Plaintiff,
v.
EASTMAN CHEMICAL COMPANY, Defendant.

          WYRICK MAGISTRATE JUDGE

          ORDER

          HARRY S. MATTICE, JR. UNITED STATES DISTRICT JUDGE

         Before the Court is Defendant[1] Eastman Chemical Company's (“Defendant” or “Eastman”) Motion for Summary Judgment. [Doc. 36]. Eastman contends that the undisputed record shows that Plaintiff Day & Zimmermann International, Inc. (“Plaintiff” or “D&Z”) cannot prevail on any of its claims. D&Z argues that disputes of fact preclude summary judgment and that trial is necessary. For the reasons set forth herein, Eastman's Motion, [Doc. 36], will be GRANTED.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         In 2002, Eastman and D&Z entered a Master Services Agreement (“2002 Agreement”) under which D&Z would provide engineering, procurement, construction, and maintenance services. [See generally Doc. 37-2]. Eastman compensated D&Z for different kinds of costs by way of four different mechanisms: (1) direct reimbursement, (2) a multiplier system, (3) an hourly adder, and (4) a contractually-determined profit. [Doc. 37, at 2]. The only method at issue here is the multiplier system.

         The multiplier system compensated D&Z for indirect labor costs and indirect costs by setting fixed multiplication rates that applied to D&Z's total engineering and procurement direct labor cost or other figures subject to compensation by direct reimbursement. [See Doc. 37-2, at 41-42, 72]. Section II.1.B.2 of the 2002 Agreement defined indirect costs and reads in full:

INDIRECT COST is defined as the cost of employee benefits, paid time off, corporate office allocations, relocation expenses, drug tests, background checks (if required), building rental, building maintenance, utilities, property tax, business tax, CONTRACTOR's[2]license fees, and engineering license fees.
The costs for CONTRACTOR and agency personnel in the ENGINEERING AND PROCUREMENT DIRECT LABOR COST category who are located on an EASTMAN site will be reimbursed according to the terms in Appendix A of the CONTRACT as “Personnel on an EASTMAN Site.” The multiplier will be applied to the straight time salaries or wages paid to these employees.
The costs for CONTRACTOR and agency personnel in the ENGINEERING AND PROCUREMENT DIRECT LABOR COST category who are located in CONTRACTOR's off-site office will be reimbursed according to the terms in Appendix A of the CONTRACT as “Personnel Not on an EASTMAN Site.” The multiplier will be applied to the straight time salaries or wages paid to these employees.
The costs for off-shore employees who are employees of the CONTRACTOR and/or subsidiary or partner and will be reimbursed by a multiplier as specified in Appendix A of the CONTRACT, which will be applied to the wages actually paid to such employees.
These multipliers shall not apply to the premium portion of any overtime salaries or wages.
EASTMAN shall reimburse Social Security, State Unemployment Insurance, Federal Unemployment Insurance and other payroll based charges required by law. These costs will be included in the Engineering/Procurement (EP) multipliers as estimates; EASTMAN and CONTRACTOR will reconcile the actual costs to the billed amount annually. This reconciliation is to occur before the end of the first quarter of the year following the year being reconciled.

[Doc. 37-2, at 41-42].

         Eastman and D&Z operated under the 2002 Agreement for about a decade, although they amended it nearly two-dozen times before entering a new Master Services Agreement in 2013 (“2013 Agreement”). Relevant here, Amendment 9 in May 2006 changed the last paragraph of the indirect costs provision (changes underlined for clarity):

Eastman shall reimburse Social Security, State Unemployment Insurance, Federal Unemployment Insurance and other payroll based charges required by law. Actual Indirect costs shall be tracked historically by the Contractor. These indirect costs will be included in the Engineering/Procurement (EP) multipliers as estimates based on historical data and manpower and workload projections for the balance of the current year; Eastman and Contractor will reconcile the actual indirect costs to the billed amount annually. This reconciliation is to occur before the end of the first quarter of the year following the year being reconciled, and shall be applied to the project work assigned to Contractor during the calendar year following the year being reconciled.

[Doc. 37-10, at 1-2]. Eastman concedes that the Parties redefined indirect costs and provided for full reconciliation-that is, actual costs for these categories were calculated and compared retrospectively to the multipliers, after which multipliers in the following year were adjusted up or down to reflect actual over- or under-billing-of those costs under Amendment 9. [Doc. 37, at 4 (“Amendment 9 changed the language of the reconciliation provision to provide for the reconciliation of all ‘Indirect Costs' as that term had been defined.” (emphasis original))].

         In November 2012, the Parties effectively reversed Amendment 9 by reverting to the 2002 reconciliation language under Amendment 20:

EASTMAN shall reimburse Social Security, State Unemployment Insurance, Federal Unemployment Insurance and other payroll based charges required by law. These costs will be included in the Engineering/Procurement (EP) multipliers as estimates. EASTMAN and CONTRACTOR will reconcile the actual costs to the billed amount annually. This reconciliation is to occur before the end of the first quarter of the year following the year being reconciled.

[Doc. 37-13, at 2-3]. Further, Amendment 20 stripped out the term “INDIRECT COST” and its definition, adopting a different approach to Section II.1.B that ultimately became the 2013 Agreement excerpt below.

         In May 2013, Eastman and D&Z executed a new agreement to replace the 2002 Agreement. The 2013 Agreement followed the Parties' prior practice insofar as it used multipliers for various expenditures incurred by D&Z but, unlike the 2002 Agreement (before Amendment 20), Section II.1.B.2 did not explicitly define “indirect costs”:

Costs Reimbursed by Multipliers

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