United States District Court, C.D. California
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS (DOC. 11)
JOSEPHINE L. STATON, District Judge.
Before the Court is Defendant G4S Secure Solutions (USA) Inc.'s Motion to Dismiss. (Mot., Doc. 11.) Plaintiff Sentinel Offender Services, LLC, opposed, and Defendant replied. (Opp'n, Doc. 15; Reply, Doc. 16.) Having considered the parties' briefing, and having taken the matter under submission, the Court GRANTS IN PART and DENIES IN PART Defendant's Motion.
Sentinel provides privatized offender supervision services and probation services. (Compl. ¶ 7, Doc. 1, Ex. 1.) G4S offers "secure solutions and business processes." ( Id. ¶ 9.) In the fall of 2011, Sentinel became interested in acquiring G4S Justice Services LLC ("Justice"), which was owned by Defendant G4S, which in turn is owned by G4S plc ("G4S UK"). ( Id. )
A. Sentinel's Acquisition of Justice
On November 21, 2011, Sentinel entered into a written letter of intent with G4S UK, wherein Sentinel proposed to acquire Justice, as well as certain assets of a related company, subject to the completion of due diligence and a mutually agreed Purchase Agreement. ( Id. ¶ 10.)
Between November and December 2011, G4S, G4S UK and Justice uploaded certain documents to a "secure online data room" for Sentinel to review. ( Id. ¶ 11.) These documents included financial statements and highly redacted copies of Justice's contracts with the fifteen customers who purchased the most goods or services from Justice during 2011. ( Id. ) Both during and after Sentinel's review of these documents, Bob Contestabile, Hans Kintsch, and Mark Contestabile, among others at Sentinel, had numerous in person and telephonic meetings and conversations with representatives of G4S and Justice, including Susanne Jorgensen, Chief Financial Officer of G4S Americas, Ian Green, a Vice President at G4S, and Blake Beach, the CEO of Justice, regarding the possible acquisition Case 8:14-cv-00298-JLS-JPR Document 18 Filed 06/03/14 Page 3 of 16 Page ID #:543 of Justice. ( Id. ¶ 12.)
Based on information and documents provided to Sentinel, a purchase price of $13 million was negotiated. ( Id. ¶ 13.) On February 22, 2012, counsel for G4S, G4S UK, and Justice sent a draft purchase agreement to Sentinel, which was later revised at least fifteen times. ( Id. ¶¶ 14-15.) Among the revisions to the initial agreement was the addition of section 1.3, which allows for an adjustment of the purchase price in the event that certain specified contracts with customers of Justice, which were up for re-bid at the time of closing, did not result in the award of a new or extended contract. ( Id. ¶ 16.) On March 7, 2012, representatives of Sentinel expressed concern to representatives of G4S and Justice regarding Justice's contract with the North Carolina Department of Correction, Division of Community Corrections ("NCDOC"), which was up for rebidding, and suggested it be included in section 1.3 of the agreement. ( Id. ¶ 17.) In response, representatives of Justice, including CEO Blake Beach, assured Bob Contestabile, Hans Kintsch, and Mark Contestabile of Sentinel that the NCDOC contract "won't be a problem" and that "we've got that one." ( Id. ) As a result, the final version of the agreement did not include the NCDOC in section 1.3. ( Id. ¶ 18.)
On April 27, 2012, Sentinel's acquisition of Justice closed. ( Id. ¶ 20; Agreement, Compl. Ex. A.) Sentinel acquired Justice, as well as certain specified assets from a related entity, for a purchase price of $13 million, subject to the purchase price adjustments provided in section 1.3. (Compl. ¶ 21.) Article 4 of the agreement contained numerous representations and warranties, which are addressed in the discussion of Sentinel's claims below. Article 7 of the agreement provided that Sentinel may seek indemnification from G4S under certain circumstances and pursuant to certain procedures, which Sentinel alleges to have followed. ( Id. ¶¶ 46-48.)
B. Loss of the NCDOC Contract
On June 5, 2012, after the closing date of Sentinel's purchase of Justice, Sentinel discovered during a meeting with the North Carolina Department of Public Safety, Purchasing and Logistics ("NCDPS") that the NCDOC contract would not be renewed. ( Id. ¶ 35.) On June 6, 2012, Sentinel received a letter from NCDPS stating that the contract would not be renewed because the request for proposal previously submitted by Justice did not meet the following three requirements: (1) provision of offender monitoring PC software compatible with Internet Explorer version 7; (2) provision of GPS tracking software capable of supporting more than 1, 000 devices and establishing more than 100 exclusion zones; (3) provision of electronic monitoring equipment with a "minimum internal operating battery life of at least 48 hours with maximum recharge time of 4 hours per day." ( Id. ¶¶ 36, 37; Id. Ex. B.)
On June 8, 2012, the NCDOC formally awarded the contract to BI, Inc. ( Id. ¶ 39.)
C. Alleged Concealment of Facts
Following the June 6, 2012 letter and the June 8, 2012 bid award, Sentinel conducted an investigation of Justice's records and files, including emails and correspondence that it alleges had not been known or accessible to it prior to closing. ( Id. ¶ 40.) Based on Sentinel's investigation, it discovered the facts set forth below.
On August 5, 2011, the NCDOC notified Justice that its existing contract would expire on March 31, 2012, and that Justice would have to submit a new bid. ( Id. ¶ 42(a).) On August 16, 2011, the NCDOC issued a Request for Proposal, amended by an October 4, 2011 addendum, which included the three requirements identified above regarding (1) use of Internet Explorer version 7; (2) GPS tracking software capabilities; and (3) battery life and battery recharge time. ( See id. ¶¶ 37, 42(b), (c).) The October 4, 2011 addendum stated that "[a]ll proposals will be evaluated and classified as responsive or non-responsive. If non-responsive, [the] proposal will not be considered further. To be eligible, [the proposal] must meet the intent of all requirements... [A] serious deficiency in the response to any one factor may be grounds for rejection regardless of overall score." ( Id. ¶ 42(c) (emphasis in Complaint; third alteration in Complaint).
In the fall of 2011, prior to Justice's bid submission, Justice exchanged emails with its vendor, 3M Electronic Monitoring, regarding the NCDOC's bid requirements. ( Id. ¶ 42(d).) On September 12, 2011, Melissa O'Keefe, a Vice President at 3M, emailed Mike Dean and Leo Carson, both Vice Presidents at Justice, highlighting five functional areas where 3M's software and field monitoring equipment did not meet the requirements of the Request for Proposal. ( Id. ) On November 10, 2011, Justice submitted its NCDOC bid proposal, which included admissions that ...