Deffenbaugh Industries, Inc. v. Unified Government of Wyandotte County/Kansas City, Kansas
2:20-cv-02204
| D. Kan. | Dec 23, 2021Background
- Deffenbaugh (doing business later as Waste Management) contracted with the Unified Government (UG) to provide residential trash collection; the contract (2012) included Section 7.02(b): a $200 stipulated charge per residence for each 24‑hour period a missed collection complaint was not remedied.
- Beginning May 2019, UG began deducting large penalties from monthly invoices (May 2019–Feb 2020 total contested: ~$574,300); many deductions derived from 311 complaints, UG staff reports, and neighborhood‑wide assertions of missed routes.
- Deffenbaugh sent a February 21, 2020 notice of default and 30‑day termination; UG disputed sufficiency of the notice and refused to return withheld funds; Deffenbaugh declared termination March 27, 2020 and sued (declaratory judgment and breach); UG counterclaimed for damages and injunctive relief.
- Factual disputes include whether the parties agreed to make the UG’s 311 system the exclusive complaint channel, whether many penalties were based on resident complaints (vs. UG staff observations), and whether penalties allowed the 24‑hour cure period.
- On cross motions for summary judgment the court: (1) upheld enforceability of §7.02(b) (not an unenforceable penalty), (2) held Deffenbaugh’s termination notice inadequate (contract not validly terminated), (3) construed §7.02(b) to require an individual Customer complaint about a particular residence plus failure to cure within 24 hours before penalties may be assessed, and (4) granted Deffenbaugh summary judgment on certain UG damage claims (speculative historical penalties and monitoring/consultant costs).
Issues
| Issue | Deffenbaugh's Argument | UG's Argument | Held |
|---|---|---|---|
| Enforceability of §7.02(b) ($200 per residence per 24‑hrs) | Clause is an unenforceable penalty (label and disproportion to per‑pickup revenue). | Clause is a valid liquidated‑damages/stipulated‑damages provision tied to protecting public health; customary in industry. | §7.02(b) is enforceable as liquidated damages; not unconscionable; public‑interest and difficulty of measuring damages support validity. |
| Validity of Deffenbaugh's termination (Feb–Mar 2020) | Notice adequately identified UG defaults and 30‑day termination right; litigation substitutes for cure period. | Notice was conclusory, lacked particulars needed to enable cure; UG lacked meaningful opportunity to cure. | Termination notice was insufficient; Deffenbaugh did not validly terminate on March 22, 2020. |
| What may trigger §7.02(b) penalties | UG interpreted clause broadly (staff reports, neighborhood observations) — Deffenbaugh contends many assessments improper. | Penalties may be based on UG inspections/staff reports and neighborhood complaints; burden to investigate is on contractor. | Penalties available only when: (1) specific Customer (resident) complains about that residence's missed scheduled collection, and (2) contractor fails to remedy within 24 hours; penalties based solely on UG staff reports or neighborhood‑wide assumptions exceed §7.02(b). |
| UG counterclaim damages for earlier period & monitoring costs | UG seeks penalties for June 2018–Apr 2019 (by extrapolation) and recovery for staff/consultant time. | UG says prior poor performance justifies extrapolation; monitoring/consultant costs are recoverable. | Summary judgment for Deffenbaugh: speculative extrapolated penalties for Jan 2018–Apr 2019 are unsupported; UG may not recover monitoring/administrative/consultant costs duplicative of liquidated remedies. |
Key Cases Cited
- Carrothers Constr. v. City of South Hutchinson, 207 P.3d 231 (Kan. 2009) (courts look beyond contract labels to substance when distinguishing penalty vs. liquidated damages).
- Beck v. Megli, 114 P.2d 305 (Kan. 1941) (focus on nature of provision, not label, in penalty analysis).
- Priebe & Sons v. United States, 332 U.S. 407 (U.S. 1947) (liquidated damages clauses appropriate in government contracts where actual damages are uncertain).
- White Lakes Shopping Ctr. v. Jefferson Standard Life, 490 P.2d 609 (Kan. 1971) (contract language is evidence but not conclusive in liquidated damages analysis).
- Brooks v. City of Wichita, 114 F. 297 (8th Cir. 1902) (municipal contracts may fix stipulated damages where public interest losses are difficult to quantify).
- Zerr v. Tilton, 581 P.2d 364 (Kan. 1978) (importance of sanitary waste collection to public health).