Team Systems International LL v. AQuate Corporation
Filing
Opinion issued by court as to Appellant-Cross Appellee Team Systems International LLC. Decision: Affirmed. Opinion type: Non-Published. Opinion method: Per Curiam. The opinion is also available through the Court's Opinions page at this link http://www.ca11.uscourts.gov/opinions.
Case: 16-11476
Date Filed: 03/17/2017
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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
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No. 16-11476
Non-Argument Calendar
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D.C. Docket No. 5:13-cv-00427-CLS
TEAM SYSTEMS INTERNATIONAL LLC,
Plaintiff Counter Defendant Appellant Cross Appellee,
versus
AQUATE CORPORATION,
Defendant Counter Claimant Appellee Cross Appellant.
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Appeals from the United States District Court
for the Northern District of Alabama
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(March 17, 2017)
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Before MARTIN, JULIE CARNES, and ANDERSON, Circuit Judges.
PER CURIAM:
This appeal requires us to review certain aspects of the district court’s
damages award following a bench trial in Plaintiff’s breach-of-contract action.
After careful review, we conclude that the district court’s findings of fact and
conclusions of law respecting damages were thorough and well-reasoned, and we
AFFIRM each contested portion of the final order.
BACKGROUND 1
The underlying breach-of-contract action arose from a subcontract
agreement between plaintiff Team Systems International, LLC, and defendant
AQuate Corporation. The parties were successful bidders on a joint proposal to
provide security services onboard a maritime radar station under the supervision of
the Military Sealift Command, a division of the United States Navy. Under the
terms of the winning bid, Defendant would serve as the prime contractor on the
project and would assist Plaintiff in acquiring “Secret”-level facility security
clearance (“FCL”), which the Government required both parties to hold before
1
We derive the pertinent facts from the district court’s findings of fact following bench trial in
the proceeding below. None of these factual findings is challenged on appeal.
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undertaking the project. In turn, Plaintiff would supply the personnel needed to
perform security services under the prime contract. After winning the bid, the
parties entered into a subcontract agreement (the “Subcontract”) detailing this
division of responsibilities. The Subcontract obligated Defendant—as a matter of
contract as well as regulatory law—to sponsor Plaintiff in applying for the required
FCL, and to do so early enough to allow clearance to be granted before work under
the prime contract was to begin.
Defendant made a perfunctory effort to begin the FCL application on
Plaintiff’s behalf, but the parties’ relationship began to sour shortly after the
Subcontract was signed. A series of strategic errors and intentional
miscommunications by Defendant brought the FCL approval process to a halt until
just days before performance of the prime contract was intended to begin.
Defendant maintained that Plaintiff’s failure to obtain a FCL constituted a default
under the Subcontract and exercised its right to terminate the agreement. Plaintiff
responded by filing suit against Defendant in the Eastern District of Virginia,
alleging (among other things) that Defendant had breached the Subcontract by
actively preventing it from obtaining the required FCL and by improperly
terminating the Subcontract on that basis.
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In spite of Defendant’s efforts to stymie the approval process, the
Government finally granted Plaintiff both an interim FCL and a final FCL on the
day performance of the prime contract was scheduled to begin. Plaintiff received
notice of the interim FCL that same day; delivery of the final FCL arrived three
days later. No performance under the prime contract had begun at that point in
time. With this clearance in hand, Plaintiff was fully authorized to perform under
the Subcontract as the parties had originally planned. Nonetheless, Plaintiff did
not ask Defendant to reinstate it on the Subcontract—in fact, Plaintiff presented no
credible evidence at trial that it ever directly notified Defendant of the final FCL
after its delivery. 2 As the district court found, Defendant was not aware that the
final FCL had been granted until it was disclosed through discovery several
months later. Thus, instead of attempting to resurrect the Subcontract and resume
its work on the military contract once it received its final clearance, Plaintiff
focused its efforts on its lawsuit—which hinged on its contention that Defendant
had precluded it from obtaining clearance in time for it to perform.
2
At trial, Deborah Mott—Plaintiff’s CEO—testified that she informed Defendant of the final
FCL in a phone call immediately after it was delivered. Considering the timing and
circumstances of this testimony, the district court did “not find [the] testimony credible.”
Plaintiff does not challenge this finding.
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Approximately one month later, Plaintiff voluntarily dismissed its Virginia
suit and re-filed in the Northern District of Alabama. Plaintiff asserted the same
breach-of-contract claims and represented that the allegations in its complaint had
been verified by Deborah Mott, Plaintiff’s CEO. Importantly, the complaint stated
in unambiguous terms that Plaintiff had received an interim FCL—but it entirely
failed to mention that Plaintiff also received its final FCL shortly thereafter.
Elsewhere in the complaint, Plaintiff stated that Defendant “has actively prevented
[Plaintiff] from obtaining an FCL through unreasonable delay.” This statement—
while truthful at the time the Virginia suit was filed—was no longer correct when
Plaintiff initiated the Alabama suit. The same misleading representations pervaded
Plaintiff’s filings in support of its motion for a preliminary injunction. As the
district court summarized: “twenty-eight days after . . . [Plaintiff] had been issued
both an interim and a final FCL,” Plaintiff’s Alabama filings “repeatedly
represented to this court and opposing counsel that the company had not only
failed to receive a final FCL, but also that the [Government] indicated that it might
suspend a full investigation into [Plaintiff’s] suitability for a final FCL.”
(Emphases in original.) Neither representation was accurate.
Plaintiff did not correct these inaccuracies until sixteen months into the
Alabama proceeding, after the parties had progressed through a substantial portion
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of discovery. And Plaintiff did not outwardly acknowledge to the district court
that it had received a final FCL for another five months, when it made passing
reference to the FCL in a brief supporting a motion for summary judgment.
Following a bench trial, the district court found that Defendant breached the
Subcontract by failing to sponsor Plaintiff for a final FCL in a timely manner and
by terminating the Subcontract on those grounds. In accordance with this
assignment of liability, the district court granted Plaintiff expectation damages
equal to the revenue the Subcontract was intended to yield, less Plaintiff’s costs of
performance, for the initial year of the project.3 The baseline damages award
totaled $575,132.66.
However, after significant and thorough discussion, the district court
concluded that this baseline damages award should be “scaled to reflect
[Plaintiff’s] failure to mitigate” its damages under the Subcontract by promptly
disclosing its receipt of the final FCL. In its final analysis, the court determined
that Plaintiff was entitled to compensation only for the period from February 1,
2013 (the date on which performance was due to begin) to March 1, 2013 (the day
3
The duration of the prime contract was one year. The military did, in fact, renew the contract
for three additional years, but the district court did not include the renewal years in its baseline
damages calculation.
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on which Plaintiff filed its first set of misleading pleadings before the district
court). The court ultimately awarded Plaintiff $68,928.14 in damages,
representing the expected net value of the one-year Subcontract for the twenty-nine
days for which Plaintiff was entitled to recover.
On appeal, Plaintiff seeks review of the district court’s decision to limit
damages for Plaintiff’s failure to mitigate. Defendant cross-appeals, challenging
several aspects of the district court’s baseline damages calculation. Neither party
argues that the district court erred in finding Defendant liable on two of Plaintiff’s
three substantive claims; our review focuses solely on the court’s damages
analysis.
STANDARDS OF REVIEW
Damages calculations are factual determinations committed to the sound
discretion of the factfinder. See, e.g., Bravo v. United States, 532 F.3d 1154, 1170
(11th Cir. 2008) (Wilson, J., concurring in part and dissenting in part). Where, as
here, the district court has acted as factfinder, we review its award of damages and
any pertinent factual findings for clear error. Simmons v. Conger, 86 F.3d 1080,
1084 (11th Cir. 1996). See also Treibacher Industrie, A.G. v. Allegheny Techs.,
Inc., 464 F.3d 1235, 1237 (11th Cir. 2006) (noting that district court’s assessment
of mitigation of damages was factual question subject to clear-error review); Avco
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Fin. Servs., Inc. v. Ramsey, 631 So. 2d 940, 942 (Ala. 1994) (establishing that the
question whether a plaintiff has sufficiently mitigated damages is a question of
fact). In examining a court’s award of damages, we “afford considerable deference
to the district court.” Hiatt v. United States, 910 F.2d 737, 742 (11th Cir. 1990).
As such, this Court will not reverse an award “simply because it may conclude that
it would have computed damages differently.” Bunge Corp. v. Freeport Marine
Repair, Inc., 240 F.3d 919, 923 (11th Cir. 2001).
By contrast, we review the court’s legal conclusions de novo. Sea Byte, Inc.
v. Hudson Marine Mgmt. Svcs., Inc., 565 F.3d 1293, 1300 (11th Cir. 2009).
DISCUSSION
I.
Limitation of Damages for Failure to Mitigate
Plaintiff’s sole argument on appeal is that the district court erred in reducing
its award by finding that Plaintiff failed to mitigate its damages. We do not find
that the district court erred as a matter of law or in its factual determinations.
The Subcontract is governed by Alabama law. Alabama courts recognize
“the long-standing rule that the law imposes upon all parties who seek recompense
from another a duty to mitigate their losses or damages.” Avco, 631 So. 2d at 942.
Under this rule, “a plaintiff can recover only for that damage or loss that would
have been sustained if the plaintiff had exercised such care as a reasonably prudent
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person would have exercised under like circumstances to mitigate the damage or
loss.” Id. The reasonableness of the plaintiff’s efforts to mitigate damages is a
question of fact. Id.
Defendant in this case asserted as an affirmative defense that Plaintiff failed
to mitigate its damages by failing to notify Defendant of its final FCL and to
explore the possibility of resuming work under the Subcontract. Upon close
examination of the evidence presented at trial, the district court agreed. It found
that, if Plaintiff “had promptly disclosed that its final FCL had been awarded, this
long-running litigation might have been avoided, [the parties] could have restored
their contractual relationship with a minimum of loss, and both parties could have
avoided what now must amount to substantial litigation costs and attorneys’ fees.”
Moreover, “[d]isclosure of the award of [Plaintiff’s] final FCL would not have
forced [Plaintiff] to sacrifice any substantive right, or forego any advantageous
opportunity. To the contrary, [Plaintiff] would have regained the opportunity
profit from the contract it had negotiated.” Similarly, “[d]isclosing its final FCL
also would not have exposed [Plaintiff] to any undue risk or humiliation, or caused
it to incur undue expense”; in fact, timely disclosure might “have led to the
restoration of [Plaintiff’s] reputation in the contracting community, and expanded
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its ability to participate in lucrative government contracting opportunities in the
future.”
The court acknowledged that, even if news of the final FCL had been
disclosed, Defendant’s animus toward Plaintiff might still have led it to refuse a
request by Plaintiff to resume work on the project. But the possibility that such
disclosure might have been futile in restoring the parties’ relationship did not
release Plaintiff of its duty to make costless efforts toward that end. Ultimately,
the court concluded that Plaintiff’s persistent failure to notify the parties and the
court of the final FCL—its possession of which lay at the heart of its substantive
claims—was unreasonable under the circumstances. See Avco, 631 So. 2d at 942–
43 (describing reasonableness standard for analysis of failure to mitigate). We find
no error in the district court’s conclusion that Plaintiff failed to make reasonable
efforts mitigate damages, nor do we find error in its decision to limit damages
accordingly.
Plaintiff’s arguments to the contrary are deeply flawed. Plaintiff first asserts
that, although the district court “cloaked its damages reduction in terms of
‘mitigation[,]’ . . . the language and rationale of its judgment make clear” that the
court was, in actuality, exercising “its inherent power to sanction [Plaintiff] for
perceived misconduct in failing to formally correct” the misleading statements in
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its pleadings. It is true that the district court justified its reduction of damages, in
part, by observing that Plaintiff violated its duty of candor to the court when it
repeatedly misled the court into believing it did not possess a final FCL. This apt
observation in no way undercuts the court’s standalone conclusion that Plaintiff’s
non-disclosure amounted to a failure to mitigate its damages in a reasonable
manner. The court’s damages reduction reflected this latter conclusion and was
not, as Plaintiff urges, an improper sanction concealed by the language of
mitigation.
Plaintiff further asks us to find that the court’s application of the mitigation
doctrine was erroneous as a matter of law because—on Plaintiff’s reading of the
final judgment—the court found that Defendant “failed to meet its evidentiary
burden of proof on causation under a mitigation affirmative defense.” The district
court did not so find. In fact, the district court rejected Plaintiff’s argument to this
effect and found that “the record is replete with [ ] proof of [Plaintiff’s] failure to
mitigate.” 4 This conclusion was not clearly erroneous, nor did the court err as a
matter of law in applying the mitigation doctrine to the facts of this case.
4
Plaintiff argued before the district court that Defendant failed to satisfy its burden of proving
that Plaintiff failed to mitigate “because it did not offer any testimony that, if [Defendant] had
received notice of [Plaintiff’s] final FCL at an earlier date, it definitely would have reinstated
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For these reasons, we AFFIRM the district court’s reduction of Plaintiff’s
award in light of its finding that Plaintiff failed to mitigate its damages—a finding
which was amply supported by the factual record.
II.
Calculation of Expectancy Damages
In its cross-appeal, Defendant asks us to reject several aspects of the district
court’s damages calculation. We find no merit to Defendant’s arguments.
A.
Cost of DBA Insurance
Defendant argued before the district court that Plaintiff was obligated under
the Subcontract to provide insurance coverage under the Defense Base Act
(“DBA”) and that the cost of this insurance should be deducted from Plaintiff’s
expected revenues. The district court agreed but was unable to calculate the
deduction because Defendant “failed to introduce any evidence of the cost of such
premiums.” Defendant argues that this finding improperly shifted the burden of
proving Plaintiff’s expected profits to Defendant, because Alabama law assigns
that burden to the party seeking relief.
[Plaintiff] to the Subcontract.” The court was “not persuaded,” as the argument “confuses
[Defendant’s] duty to prove mitigation with [Plaintiff’s] duty to mitigate.”
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This argument is misguided. In concluding that Plaintiff was entitled to
expectancy damages, the district court implicitly found that Plaintiff produced
sufficient evidence to meet its burden of proving the revenue and costs associated
with performance, based on Plaintiff’s own interpretation of the Subcontract’s
terms. See Intergraph Corp. v. Bentley Sys. Inc., 58 So. 3d 63, 78 (Ala. 2010)
(“[I]n a lost-profits action the plaintiff has the burden of alleging and proving not
only (a) what he would have received from the performance so prevented, but also
(b) what such performance would have cost him.”) (citing Ex parte Woodward
Constr. & Design, Inc., 627 So. 2d 393, 394 (Ala. 1993)) (internal quotation marks
omitted). In defense, Defendant proffered an alternative interpretation of the
Subcontract’s terms, alleging that Plaintiff’s expected costs would have been
higher than Plaintiff claimed. To succeed in this argument, Defendant bore the
burden of supporting its contrary view of Plaintiff’s contractual costs with enough
evidence to enable the court to quantify them. The district court did not err in
finding that, although Defendant’s argument as to Plaintiff’s cost structure under
the Subcontract was valid as a matter of law, Defendant did not produce sufficient
facts to support it. We AFFIRM the district court’s exclusion of those costs from
the baseline damages calculation.
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B.
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Other Insurance Costs
Defendant also argued before the district court that, under its interpretation
of the Subcontract, Plaintiff would have been obligated to carry workers’
compensation, general commercial liability, and automobile insurance. The
district court reviewed the relevant portions of the Subcontract and prime contract
and concluded that, as a matter of law, neither agreement assigned responsibility
for these insurance coverages to the subcontractor. Defendant asks us to find on de
novo review that the district court misinterpreted the relevant contract provisions
and that Plaintiff would have been obligated to incur the costs of additional
insurance had it performed under the Subcontract.
Upon our independent review of the contractual language, we find no error
of law in the district court’s conclusions. Section H-5 of the prime contract details
the obligations of the prime contractor to carry liability and workers’
compensation; it neither states nor implies that the subcontractor is obligated to
carry such insurance or reimburse the prime contractor for it. This section is not
incorporated by reference into or otherwise modified by the Subcontract.5 And as
5
Defendant asks us to find that the Subcontract incorporated § H-5 of the prime contract by
reference and modified its definition of the word “contractor” to place the obligation to carry
insurance on Plaintiff rather than Defendant. It is true that, under the Subcontract, “the word
‘contractor’” in any clauses of the prime contract that are incorporated into the Subcontract by
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the district court found, no section of the Subcontract requires the subcontractor to
carry any liability beyond the DBA insurance discussed in the prior section.
Defendants’ arguments to the contrary are not supported by the plain and
unambiguous language of the contracts. We AFFIRM the district court’s decision
to exclude these alleged insurances costs from the baseline damages calculation.
C.
Additional Alleged Expenses
Defendant further urges us to reconsider the district court’s determinations
regarding three additional elements of Plaintiff’s expectancy: (1) Plaintiff’s
general and administrative expenses (“G&A”) relating to the project; (2) a share of
profits Plaintiff promised to pay a senior manager for his involvement in the
project; and (3) a payment Defendant allegedly paid to Plaintiff under the
Subcontract before it was terminated.
First, Defendant argued before the district court that Plaintiff’s G&A was a
cost of performance and should be deducted from anticipated revenues to fully
reference “shall mean ‘Subcontractor.’” But none of the Subcontract’s language suggests that
§ H-5 of the prime contract was incorporated into the Subcontract. Thus, Defendant’s argument
that we should read the prime contract and Subcontract as shifting the liability for insurance
coverage from Defendant, as prime contractor, to Plaintiff, as subcontractor, finds no support in
the contracts’ language.
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reflect Plaintiff’s expectancy. Without discussion, the district court declined to
factor G&A into the baseline damages calculation. Defendant asserts that this
omission was an error of law. It is not clear why the district court declined to
address G&A in its final judgment, but its determination not to factor these
expenses into its expectancy calculation reflected a finding of fact—not a
conclusion of law, as Defendant suggests.
Second, Defendant asked the district court to deduct 17.7% of profits from
the project—an amount that Deborah Mott, Plaintiff’s CEO, promised to pay one
of her senior managers as compensation for his role in the project. Upon review of
the facts, the court concluded that this promise was not a cost of performance but
rather a means of compensation and should not be included in the damages
calculation.
Third, Defendant urged that it had made the first installment payment to
Plaintiff under the Subcontract prior to its termination, and argued that expected
revenues from the Subcontract should be reduced accordingly. In its role as
factfinder, the district court concluded that Defendant “failed to prove at trial, or at
any other time, that it made this payment.” As a result, the court declined to
reduce the damages award by the alleged payment amount.
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To reiterate, the district court’s determinations as to each of these cost
categories were factual findings. Such findings are reserved to the sound judgment
of the factfinder. See Hiatt, 910 F.2d at 742. We reverse them only “if, after
viewing all the evidence, we are left with the definite and firm conviction that a
mistake has been committed.” Travelers Prop. Cas. Co. of Am. v. Moore, 763 F.3d
1265, 1268 (11th Cir. 2014) (internal quotation marks omitted). We have no such
conviction here. As such, we AFFIRM the district court’s decisions not to include
Plaintiff’s prospective G&A, Plaintiff’s employee profit-sharing commitment, or
Defendant’s alleged contractual payment in its damages calculation.
CONCLUSION
For the foregoing reasons, we AFFIRM each challenged portion of the
district court’s damages award.
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