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Scott D. Hess, ISB #2897 Alexandra S. Grande, ISB #9566 HOLLAND & HART LLP 800 W. Main Street Suite 1750 P.O. Box 2527 Boise, Idaho 83701-2527 Telephone: (208) 342-5000 Facsimile: (208) 343-8869
[email protected] [email protected] Attorneys for Plaintiff
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF IDAHO ADA COUNTY HIGHWAY DISTRICT,
Case No.
Plaintiff, COMPLAINT AND DEMAND FOR JURY TRIAL
vs. RHYTHM ENGINEERING, LLC, a Kansas limited liability company, Defendant.
COMES NOW Plaintiff, Ada County Highway District (hereinafter “ACHD”), by and through its attorneys of record Holland & Hart, LLP, and for its Complaint against Defendant Rhythm Engineering, LLC (hereinafter “Rhythm Engineering”), complains and alleges as follows:
PARTIES, JURISDICTION, VENUE AND NOTICE 1.
ACHD, is a body politic, duly and legally organized and created pursuant to and
by virtue of the laws of the State of Idaho and is, therefore a citizen of the State of Idaho.
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2.
The Defendant, Rhythm Engineering, upon information and belief, is a Kansas
limited liability company organized and operating under the laws of the State of Kansas and is, therefore, a citizen of the State of Kansas. 3.
The subject matter of this litigation is a contract that was entered into by and
between ACHD and Rhythm Engineering under the terms of which Rhythm Engineering was to provide materials and services, as more specifically described in the contract documentation, to ACHD in the City of Boise, County of Ada, State of Idaho. Therefore, personal jurisdiction over Rhythm Engineering exists since they did business in the State of Idaho and personally availed themselves of the privilege of conducting activities within the State of Idaho. 4.
This Court has subject matter jurisdiction since complete diversity exists between
the parties. 5.
Pursuant to the agreement of the parties venue for the litigation properly lies in
the United States District Court of Idaho. 6.
The amount in controversy exceeds $75,000.
FACTS RELEVANT TO ALL COUNTS 7.
On January 8, 2014 ACHD and Rhythm Engineering entered into the Adaptive
Signal Control Technology Purchase Agreement (“Purchase Agreement”) for the installation of an adaptive signal control technology (“ASCT”) system. 8.
The relevant terms of the Purchase Agreement included: (a)
Rhythm Engineering agreed to perform the work described in the Scope of Work (“SOW”), which is attached as Exhibit A to the Purchase Agreement. Purchase Agreement at Page 1, Section 1.1.
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(b)
Payments made by ACHD to Rhythm Engineering do not constitute acceptance of the work product. Purchase Agreement at Page 2, Section 3.5.
(c)
In the event that Rhythm Engineering fails to perform any material obligation under the Purchase Agreement, ACHD may terminate the Purchase Agreement by written notice of default that provides to Rhythm Engineering at least ten (10) days right to cure prior to final termination. Purchase Agreement at Page 4, Section 12.3.
(d)
Under the SOW, ACHD is responsible for conducting validation testing to confirm the ASCT performs “as described in the concept of operations [provided upon request], the system requirements matrix, and Rhythm Engineering’s Proposal.” As part of its testing, ACHD agreed to conduct Field Operational Testing (“FOT”). Purchase Agreement, SOW, Section C.6.
(e)
The FOT involves observation of the State Street and Chinden Boulevard corridors. Purchase Agreement, SOW, Section C.10.
(f)
The Purchase Agreement provides that if a “failure occurs, [Rhythm Engineering] is responsible for identifying the cause and informing ACHD of what corrections or adjustments are necessary to correct the problem. If a failure continues to persist after more than two (2) attempts to correct it, ACHD has the right to . . . terminate the contract with thirty (30) days’ notice.” Purchase Agreement, SOW, Section C.12.
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(g)
A failure is defined, in relevant part, as a failure to meet the following requirements:
9.
i.
“Intersections must automatically adjust cycle length/periods, splits and offsets based on changing traffic conditions;” and
ii.
“ASCT must provide overall reduction of delay on side streets.” Purchase Agreement, SOW, Section C.11.
The Purchase Agreement with Rhythm Engineering contained a two-year
warranty, which is set forth in Rhythm Engineer’s proposal that is attached as part of Exhibit A following the SOW (the “Proposal”). Rhythm Engineering agreed to provide a full refund if “after three months of adaptive operation” ACHD does “not feel our partnership is reducing travel times, emission and fuel consumption while improving safety” provided that: (a)
ACHD collects before and after data using the same collection method;
(b)
Rhythm Engineering is allowed to “fine tune” the system; and
(c)
ACHD provides a written list of concerns to Rhythm Engineering.
Purchase Agreement, Proposal, at Pages 41–42. 10.
ACHD satisfied each element, imposed upon ACHD, as a condition of asserting a
warranty claim. 11.
Between December 2014 and October 2015, ACHD and Rhythm Engineering
corresponded in writing and discussed in-person, problems with the ASCT system and Rhythm Engineering’s attempts to correct the problems. 12.
On December 23, 2014, ACHD emailed Rhythm Engineering regarding hundreds
of notifications it had received with the message “camera unresponsive” and suspended testing for the first time.
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13.
On March 3, 2015, ACHD notified Rhythm Engineering of detection issues
specifically related to the cameras going into fog mode, which caused the system to use historical data rather than then-current conditions, thus, impeding automatic adjustment based on changing traffic conditions.
ACHD suspended testing for the second time.
Rhythm Engineering
subsequently identified several potential fixes: (1) assess and redraw fog detection zones; (2) update software code; (3) modify camera placement; and (4) install sun shield on cameras. 14.
In a June 3, 2015 letter to Rhythm Engineering, ACHD described the fog mode
issues occurring at the Chinden Boulevard and Discovery Way intersection. 15.
In ACHD’s September 18, 2015 letter to Rhythm Engineering, ACHD told
Rhythm Engineering the software fix and the sun shields did not fix the problem. 16.
These attempted fixes to the failures did not correct the problem, and thus entitled
ACHD to terminate the Purchase Agreement under Section C.12 of the Purchase Agreement’s SOW. 17.
On October 19, 2015, ACHD asked Idaho Transportation Department (“ITD”) for
approval of its recommendation to terminate the Purchase Agreement. 18.
On November 5, 2015, ITD approved termination of the Purchase Agreement
through the 30-day notice of termination proposed by ACHD. 19.
On November 9, 2015, ACHD notified Rhythm Engineering of its rejection of the
ASCT system and termination of the Purchase Agreement (“Termination Notice”), noting: (a)
ACHD identified Section C.12 of the Purchase Agreement’s SOW as the basis for the termination. Termination Notice, at Page 1.
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(b)
ACHD asserted that the ASCT system failed the FOT three separate times by failing to automatically adjust based on the traffic conditions and reducing side street delays. Termination Notice, at Page 2.
(c)
ACHD cited the reservation of other legal remedies in Section 12.3 of Purchase Agreement and remedies available under the Idaho Uniform Commercial Code (“UCC”). Termination Notice, at Page 2–3.
(d)
ACHD demanded a full refund within 30 days of Rhythm Engineering’s receipt of the Termination Notice, citing its remedies under the Purchase Agreement, Idaho law, and the warranty set forth in the Proposal. Termination Notice, at Page 3.
(e)
ACHD stated that Rhythm Engineering must remove the ASCT system upon advance notice to ACHD. Termination Notice, at Page 3.
20.
On November 12, 2015, Rhythm Engineering responded to the Termination
Notice (“First Termination Response”) by making four arguments: (a)
ACHD does not have a right to terminate the Purchase Agreement under Section C.12 of the Purchase Agreement’s SOW. Termination Response, at Page 1. Rhythm Engineering further, incorrectly alleged that ACHD did not identify a failure until November 9, 2015. Termination Response, at Page 1–2.
(b)
ACHD’s rejection of the ASCT system was untimely under the Idaho UCC. Termination Response, at Page 2.
(c)
ACHD failed to comply with the conditions of the warranty. Termination Response, at Page 2.
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(d)
ACHD must return the equipment within 30 days for a refund under the warranty. Termination Response, at Page 3.
21.
On November 19, 2015, Rhythm Engineering sent a follow-up letter (“Second
Termination Response”) that asserted: (a)
ACHD made false statements about Rhythm Engineering and the ASCT system to the media.
(b)
ACHD has materially breached the Purchase Agreement by making it impossible to do further testing.
22.
On December 4, 2015, ACHD sent a letter to Rhythm Engineering to ask for the
RMA number to return the hardware. ACHD also said it would handle the return in a different manner if instructed by Rhythm Engineering. 23.
On December 8, 2015 ACHD sent a follow-up letter to Rhythm Engineering to
ask for the RMA number and to advise Rhythm Engineering that ACHD would return the ASCT equipment. Rhythm Engineering responded on December 8, 2015 that ACHD should not return the equipment on the basis of Rhythm Engineering’s position that ACHD is not entitled to a refund under the warranty contained in the Proposal. 24.
On December 8, 2015, ACHD returned the hardware via federal express
overnight delivery to Rhythm Engineering. 25.
On December 11, 2015, ACHD was notified that Rhythm Engineering refused to
accept delivery of hardware.
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COUNT I BREACH OF CONTRACT
26.
Plaintiff realleges and incorporates by reference all of the other paragraphs of this
Complaint as if set forth in full herein. 27.
The Purchase Agreement together with the SOW was entered into by and between
ACHD and Rhythm Engineering on or about January 8, 2014. 28.
ACHD installed the Rhythm InSYNC ASCT system at 22 intersections and the
system became operational at those intersections on or about November 21, 2014. 29.
The SOW provides two separate categories of validation testing process, referred
to as “VAL-T”. 30.
Pursuant to the SOW, VAL-T and the testing contemplated must be completed
with successful results prior to final acceptance of the product and technology by ACHD. 31.
The VAL-T contemplates system communication testing and FOT.
32.
Rhythm Engineering’s ASCT system has failed the FOT validation testing on
three separate occasions. On each of these occasions, FOT validation failed on the following requirements of the FOT set forth in the SOW: (a)
Intersections must automatically adjust cycle length/periods, splits and offsets based on changing traffic conditions.
(b) 33.
ASCT must provide overall reduction of delay on side streets.
In addition to the noted and repeated failure of the FOT validation testing,
additional problems were encountered with regard to Rhythm Engineering’s ASCT system, summarized as follows: (a)
Repeated equipment failure.
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(b)
Failure to follow through by Rhythm Engineering.
(c)
Cameras shift and cause loss of queue counting accuracy.
(d)
Queue counting is unreliable.
(e)
Video detection is poor and different cameras were provided than were originally proposed.
(f)
The planned transitions were disruptive to side streets.
(g)
The period lengths rarely adjust.
(h)
Frequent erratic signal behavior.
(i)
“Locking down” the system to improve operation eliminates almost all benefit of an adaptive system.
34.
(j)
Poor communication by and from the Rhythm Engineering staff.
(k)
The system is inconsistent and unreliable.
(l)
System requires constant monitoring and adjustment by the ACHD staff.
In light of the continued failures encountered with regard to the ASCT system,
Rhythm Engineering breached the contract that it entered into with ACHD. 35.
ACHD has been damaged as a result of the breach of contract by Rhythm
Engineering in an amount to be established at the time of trial, however, such amount shall not be less than the sum of $539,791, which represents the amount paid by ACHD to Rhythm Engineering.
COUNT II BREACH OF EXPRESS WARRANTY
36.
Plaintiff realleges and incorporates by reference all of the other paragraphs of this
Complaint as if set forth in full herein.
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37.
As part of the contract documentation entered into by and between ACHD and
Rhythm Engineering, Rhythm Engineering issued to ACHD a “Warranty.” 38.
The Warranty issued by Rhythm Engineering provides, in relevant part: (a)
“InSYNC comes with a Warranty; but more importantly, it comes with a promise. The InSync promise is our guaranty that it will work, or you will get your money back.”
(b)
“We take this partnership and our commitment to positively affect your community very seriously. If after three months of adaptive operation you do not feel our partnership is not reducing travel times, emissions, and fuel consumption while improving safety, we will issue you a full refund.”
(c)
“After the three-month period, if you do not believe our partnership is having a positive impact on your traffic, simply obtain an RMA number and return the Rhythm Engineering hardware to us in working condition within thirty (30) days and we will issue to the public agency a refund for all the money paid for that equipment.”
39.
As set forth in detail in this Complaint, the hardware, software, and related
equipment provided by Rhythm Engineering to ACHD did not meet the requirements set forth in the contractual documents and did not reduce travel times, reduce congestion, nor improve safety. Rhythm Engineering thus breached the Warranty. 40.
ACHD notified Rhythm Engineering of its decision to terminate the Purchase
Agreement and to return the ASCT equipment, and ACHD requested an RMA number from Rhythm Engineering. Rhythm Engineering did not provide ACHD with an RMA number and refused return of the ASCT equipment.
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41.
Rhythm Engineering breached the Warranty entered into by and between Rhythm
Engineering and ACHD and is obligated, pursuant to its express Warranty, to refund to ACHD all of the sums paid by ACHD in an amount to be established at trial, but which amount is not less than $539,791.
COUNT III BREACH OF IMPLIED WARRANTY OF MERCHANTABILITY
42.
Plaintiff realleges and incorporates by reference all of the other paragraphs of this
Complaint as if set forth in full herein. 43.
Implied into the contractual relationship between ACHD and Rhythm
Engineering is an implied warranty of merchantability obligating Rhythm Engineering as part of the sales transaction to provide to ACHD product and services that are merchantable in that they meet the detailed requirements set forth in the contractual documentation, including the SOW. 44.
Based upon the facts as set forth in this Complaint, Rhythm Engineering breached
the implied warranty of merchantability. 45.
The breach of implied warranty of merchantability has proximately caused
damage to ACHD in an amount to be established at trial, however, such amount will not be less than $539,791 representing the amount that ACHD has paid to Rhythm Engineering.
COUNT IV BREACH OF IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE
46.
Plaintiff realleges and incorporates by reference all of the other paragraphs of this
Complaint as if set forth in full herein. 47.
Implied into the contractual relationship between ACHD and Rhythm
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Engineering as part of the sales transaction to provide to ACHD product and services that meet and achieve the particular purposes of ACHD as set forth in the contractual documents, including the SOW. 48.
Based upon the facts as set forth in this Complaint, Rhythm Engineering breached
the implied warranty of fitness for a particular purpose. 49.
The breach of implied warranty of particular purpose has proximately caused
damage to ACHD in an amount to be established at trial, however, such amount will not be less than $539,791 representing the amount that ACHD has paid to Rhythm Engineering.
COUNT V UNJUST ENRICHMENT
50.
Plaintiff realleges and incorporates by reference all of the other paragraphs of this
Complaint as if set forth in full herein. 51.
ACHD has paid to Rhythm Engineering the sum of $539,791 pursuant to the
contract entered into by and between ACHD and Rhythm Engineering. 52.
In light of the failure of the equipment and related materials to perform as
required under the terms of the Purchase Agreement, it would be unjust for Rhythm Engineering to retain any benefit that it received as a result of entering into the contract with ACHD. 53.
ACHD is therefore entitled to recover from Rhythm Engineering such amount, to
be established at trial, that represents all sums by which Rhythm Engineering has been unduly and unjustly enriched.
COUNT VI ATTORNEYS FEES 54.
Plaintiff realleges and incorporates by reference all of the other paragraphs of this
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55.
The Plaintiff, has been required to retain counsel, Holland & Hart LLP to bring
this Complaint and Plaintiff is entitled to recover its costs and reasonable attorney’s fees incurred in bringing this suit pursuant to the provisions of Idaho Code § 12-120 and § 12-121 together with such additional rules and/or statutes as may be applicable to this matter.
REQUEST FOR JURY TRIAL 56.
Plaintiff realleges and incorporates by reference all of the other paragraphs of this
Complaint as if set forth in full herein. 57.
Plaintiff hereby demands a trial by jury as to all issues raised in this matter
properly so tried, pursuant to the provisions of Federal Rule of Civil Procedure 38 and will not stipulate to a jury of less than 12 jurors.
RELIEF REQUESTED WHEREFORE, ACHD prays for the following: A.
Award to Plaintiff its damages due to the conduct of the Defendant as set forth
herein in an amount to be established at the time of trial which amount exceeds the jurisdictional limits of this court; B.
To award to Plaintiff all of its costs and expenses incurred in connection with this
action, including its reasonable attorneys’ fees; and C.
To grant to Plaintiff such other and further relief as the Court deems to be just and
equitable in the premises. DATED this 16th day of December 2015. HOLLAND & HART LLP By /s/ Scott D. Hess Scott D. Hess, of the firm Attorneys for Plaintiff 8311959_2.doc
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