Quintech Security Consultants Inc et al v. Intralot USA Inc

Filing 21

ORDER granting 7 Motion to Dismiss for Failure to State a Claim Signed by Honorable Patrick Michael Duffy on 10/27/2011.(prei, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
Quintech Security Consultants, Inc.,
and Tom Sawyer Productions, Inc.,
Plaintiffs,
v.
Intralot USA, Inc.,
Defendant.

)
)
)
)
)
)
)
)
)
)

Civil Action No.: 2:11-cv-01689-PMD

ORDER

This matter is before the Court upon Defendant’s, Intralot USA, Inc. (“Defendant” or
“Intralot”) motion to dismiss Plaintiffs’, Quintech Security Consultants, Inc. (“Quintech”) and
Tom Sawyer Productions, Inc., d/b/a Tom Sawyer Company (“TSC”) (collectively, “Plaintiffs”)
Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon
which relief can be granted. Having reviewed the motion and briefs submitted by the parties and
the relevant statutes and case law, the Court grants Defendant’s motion to dismiss.
BACKGROUND
In the Fall of 2007, Intralot, an international company that provides lottery and gaming
management services worldwide, sent a proposal to the South Carolina Education Lottery
Commission (“SCELC”). The proposal was sent in response to the SCELC’s Request For
Proposals (“RFP”). The SCELC also implemented a Minority Business Utilization Plan that was
designed to encourage offerors to engage in business ventures with small, minority-owned and
female-owned businesses. In its proposal, Intralot included Quintech, a minority-owned, small
business that provides security consulting and system implementation support, and TSC, a
minority-owned communications firm that provides an assortment of marketing and public
relations services.
1

After consideration, the SCELC accepted the proposal and awarded Defendant a Lottery
Management Services contract (“contract” or “Award”) worth an estimated $69.5 million. TSC
knew that it was listed in the proposal prior to Defendant submitting the proposal. Quintech was
unaware of its inclusion, finding out later from a third party. After receiving the Award,
Defendant chose not to utilize Plaintiffs’ services.
PROCEDURAL HISTORY
On March 18, 2011, Plaintiffs filed this action against Defendant in the Court of
Common Pleas for Berkeley County, South Carolina. The Complaint alleges six causes of action:
(1) Breach of Contract; (2) Breach of Contract Accompanied by a Fraudulent Act; (3) Breach of
the Implied Covenant of Good Faith and Fair Dealing; (4) Quantum Meruit/Unjust Enrichment;
(5) Promissory Estoppel; and (6) violation of the South Carolina Unfair Trade Practices Act
(“SCUTPA”), S.C. Code § 39-5-10 et seq. On July 13, 2011, Defendant filed a notice of
removal pursuant to diversity jurisdiction. On July 20, 2011, Defendant filed a motion to dismiss
and memorandum in support. Plaintiffs filed a response to Defendant’s motion on August 22,
2011, and on September 9, 2011, Defendant filed a reply.
STANDARD OF REVIEW
“A motion to dismiss under Rule 12(b) (6) for failure to state a claim upon which relief
can be granted is a challenge to the legal sufficiency of a complaint.” F.T.C. v. Innovative Mktg.,
Inc., 654 F. Supp. 2d 378, 384 (D. Md. 2009). The Supreme Court recently held that “[t]o
survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true,
to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949
(2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable

2

inference that the defendant is liable for the misconduct alleged.” Id. at 1940 (citing Twombly,
550 U.S. at 556). “Determining whether a complaint states a plausible claim for relief will . . .
be a context-specific task that requires the reviewing court to draw on its judicial experience and
common sense.” Id. at 1950; see also Harman v. Unisys Corp., No. 09-1298, 2009 WL 4506463,
at *2 (4th Cir. Dec. 4, 2009). The Court added that “the tenet that a court must accept as true all
of the allegations contained in the complaint is inapplicable to legal conclusions,” and that
“[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Iqbal, 129 S.Ct. at 1949. The Court further noted that “[w]hen there
are well-pleaded factual allegations, a court should assume their veracity and then determine
whether they plausibly give rise to an entitlement to relief.” Id. at 1950.
ANALYSIS
I.

Breach of Contract, Breach of Contract Accompanied by a Fraudulent Act, Breach
of the Implied Duty of Good Faith and Fair Dealing. 

Plaintiffs assert common law claims for breach of contract, breach of contract
accompanied by a fraudulent act, and breach of the implied duty of good faith and fair dealing.
All three claims arise out of the proposal submitted by Defendant, which Plaintiffs allege,
created a binding contract. Plaintiffs maintain that (1) Defendant breached the contract by
failing to utilize Plaintiffs’ services as outlined in the proposal; (2) Defendant acted fraudulently
by intentionally misrepresenting the volume and value of Plaintiffs’ work; and (3) Defendant
breached the implied covenant of good faith and fair dealing by failing to hire Plaintiffs causing
Plaintiffs to suffer harm. All three causes of action require the initial formation of a contract.1

1

“To recover in an action for breach of contract the plaintiff must, of course, prove the existence
of a contract, oral or written.” W.E. Gilbert & Assocs. v. South Carolina Nat’l Bank, 330 S.E.2d
307, 309 (S.C. Ct. App. 1985). “In order to have a claim for breach of contract accompanied by
a fraudulent act, the plaintiff must establish three elements: (1) a breach of contract; (2)
fraudulent intent relating to the breaching of the contract and not merely to its making; and (3) a
3

Under South Carolina law, “for a contract to arise there must be an agreement between
two or more parties. There must be an offer, there must be an acceptance, and there must be a
meeting of the minds of the parties involved.” Rushing v. McKinney, 633 S.E. 2d 917, 922 (S.C.
2006). Moreover, “in order for a contract to be valid and enforceable, the parties must have a
meeting of the minds as to all essential and material terms of the agreement.” Davis v.
Greenwood Sch. Dist. 50, 620 S.E. 2d 65, 67 (S.C. 2005).
Plaintiffs assert that the SCELC’s RFP clearly established that Defendant would be
bound by the terms of the proposal, if awarded the contract. Plaintiffs argue that the offer and
consideration lie in Plaintiffs inclusion in Defendant’s proposal, which included Plaintiffs’
capabilities and certifications and “indicated that TSC would perform work [comprising]
approximately $402,000.00” and “Quintech would perform work [comprising] approximately
$125,100.00.” Pl.s’ Opp’n Mem. at 2. Plaintiffs also claim that after Defendant won the Award,
it made subsequent inquiries as to Plaintiffs’ services, which Plaintiffs argue were actually offers
that were accepted as evidenced by work performed. According to Plaintiffs, TSC carried out a
small print job, and Quintech provided schematics, diagrams, an on-site review of a location with
Intralot representatives, including a “verbal scope of work” outline, and other consulting
services—all of which Defendant’s proposal represented Quintech would perform as a minority
partner.
The Court finds that even accepting all the facts as stated in the Complaint as true,
Plaintiffs have failed to state a breach of contract claim for which relief may be granted. While
Plaintiffs allege that the proposal named Plaintiffs as minority partners, the Complaint fails to

fraudulent act accompanying the breach.” Conner v. City of Forest Acres, 560 S.E.2d 606, 612
(S.C. 2002). And, in South Carolina, the implied covenant of good faith and fair dealing is not
an independent cause of action separate from the claim for breach of contract.” RoTec Servs.,
Inc. v. Encompass Servs., Inc., 597 S.E. 2d 881, 884 (S.C. 2004).
4

allege facts establishing a binding agreement, specifically a “meeting of the minds” between the
parties. See  Davis, 620 S.E.2d at 67 (“[T]he parties must have a meeting of the minds as to all
essential and material terms of the agreement.”). For example, Plaintiffs acknowledge that cost,
an essential term, was not agreed upon as Defendant responded that the rates were too high.
Additionally, post-Award, Defendant requested even more information from Plaintiffs about its
services, which establishes that the parties had yet to come to an agreement regarding the scope
of work. The Court acknowledges that TSC performed one post-Award, agreed upon job, but
finds that because the proposal itself did not establish a binding contract, Defendant is not bound
to utilize TSC for all the services mentioned in the proposal. The Court also finds that those
actions which Quintech characterizes as acceptance by partial performance—providing
schematics, diagrams, an on-site review, and other consulting services—are better characterized
as preliminary actions undertaken by a business attempting to secure a future services contract.
See Abt Assocs., Inc. v. JHPIEGO Corp., 104 F. Supp. 2d 523, 533 (D.Md. 2000) (“The type of
contract initially contemplated by the parties in this case is one which parties would normally
reduce to a comprehensive writing before they would bind themselves legally.”).
Furthermore, although not identical, this case is very similar to Abt Assocs., Inc. v.
JHPIEGO Corp., 9 Fed. Appx. 172 (4th Cir. 2001). In that case, the United States Agency for
International Development (“USAID”) issued a formal request for applications to enter into a
long-term contract to provide certain services as outlined by the Agency. Id. at 174. The
defendant, JHPIEGO, met with the plaintiff, Abt, and discussed the preparations for the
application whereby the defendant would be the prime contractor and, according to a subsequent
exchange of letters, the plaintiff would be a “partner with JHPIEGO on the technical bid.” Id. at
175.

USAID ultimately entered into a contract with JHPIEGO, but after subsequent

5

unsuccessful negotiations regarding contract terms, JHPIEGO elected not to use Abt as a partner.
Id. at 175-76. The Fourth Circuit found that the application simply “illustrates how [the parties]
would develop and implement” the services requested, therefore, the application “by its terms,
does no more than demonstrate how [the parties] would approach the job if awarded the contract.
Id. at 177 (emphasis in original). Additionally, JHPIEGO’s communications outside of the
application, such as its letter offering a partnership to Abt and Abt’s acceptance of its role as
stipulated in the application, were not sufficient to establish an offer and acceptance necessary to
create a binding contract. Id. (emphasis added). The Fourth Circuit held that the inclusion as a
partner in an application for a government contract where “the extent of the services . . . would
not be known until after the Award was made” and the agreement stated “best efforts to
negotiate” a working relationship would be used, does not establish a binding, enforceable
contract. Abt Assocs., 9 Fed. Appx. at 175.
In this case, the Court finds that the proposal submitted by Defendant did not contain all
the essential terms of a binding contract because the scope and cost of the services were not
agreed upon at the time Defendant received the Award. See Abt Assocs., 9 Fed. Appx. at 177
(finding that since the “costs, expenses, and staffing needs . . . could not be determined until
after the Award . . . the application does not represent the parties’ binding agreement.”).
Significantly, Plaintiffs do not allege the existence of any post-Award, signed partnership
agreement or subcontract between the parties. See Abt Assocs., 104 F. Supp. 2d at 533 (citing
Teachers Ins. & Annuity Ass’n v. Tribune Co., 670 F. Supp. 491, 499 (S.D.N.Y. 1987) (“[T]here
is a strong presumption against finding a binding agreement when the parties expressly
contemplated the future preparation of and the execution of a formal contract document.”). The
Court finds that it is even more implausible for Quintech to claim breach of contract because a

6

party unknowingly named in an alleged contract clearly fails to satisfy the “meeting of the
minds” element. See Davis v. Greenwood Sch. Dist. 50, 620 S.E. 2d 65, 67 (S.C. 2005).
Finding that the proposal was not a binding contract, and that no subsequent binding
contracts existed, the Court dismisses Plaintiffs’ breach of contract claim, ergo the breach of
contract accompanied by a fraudulent act and breach of the implied duty of good faith and fair
dealing claims must fail also.
II.

Quantum Meruit/Unjust Enrichment  

Plaintiffs assert a common law claim for quantum meruit/unjust enrichment. Plaintiffs
allege that Defendant was unjustly enriched by use in its proposal of Plaintiffs’ outstanding
reputations, brand values, and status as minority-owned and female-owned businesses. Quintech
alleges that it conferred a benefit on Defendant by providing services, such schematics,
diagrams, an on-site review, and recommendations as to how the work would be carried out, and
Defendant did not pay for them.
To prevail under a quantum meruit/unjust enrichment theory, a plaintiff must show: “(1)
a benefit conferred by the plaintiff upon the defendant; (2) realization of that benefit by the
defendant; and (3) retention of the benefit by the defendant under circumstances that make it
inequitable for him to retain it without paying its value.” Gignilliat v. Gignilliat, 684 S.E. 2d 756,
764 (S.C. 2009). The South Carolina Supreme Court defined benefits as “goods or services”: “It
is axiomatic that a claim for quantum meruit will not lie absent evidence of unjust enrichment
. . . . resulting from the wrongful retention of benefits (goods or services) by the defendant.” Id.
In Gignilliat, a plaintiff brought an unjust enrichment claim against a law firm for its
continued use of a founding partner’s name after his death. Id. at 763. The court held that the
allegation that the law firm “‘originated business’ by associating itself with the Gignilliat name is

7

too speculative” to form the basis for an unjust enrichment claim. Id. Here, Plaintiffs argue that
the Complaint alleges more facts than in Gignilliat, namely the existence of a contract.
However, the Court concluded above that no contract was formed between the parties.
Therefore, the Court finds that Plaintiffs’ allegation that Defendant obtained the Award by using
Plaintiffs’ names is too speculative to form the basis for an unjust enrichment claim.
The Court finds that Quintech’s claim also fails. Quintech argues that it is entitled to
compensation for its post-Award services and that retention by Defendant of such services
without payment is inequitable. However, it is undisputed that at the same time, Defendant also
requested and received cost estimates from Quintech about the potential work to be done. Thus,
Quintech had no expectation of compensation for these preparatory actions because the terms
were still open and being negotiated. Instead, the Court finds that Quintech’s actions were
nothing more than the cost of doing business in seeking the services contract. See e.g., Quandry
Solutions, Inc. v. Verifone, Inc. No. 07-097, 2009 WL 997041, at *18 (E.D. Pa. Apr. 13, 2009)
(“[P]arties to failed contract negotiations may not rely on unjust enrichment to recover
negotiation-related expenses. In such cases, each party seeks to advance its own interest in
obtaining a valuable contract and any benefit conferred on the other party is incidental to that
goal.”).
Additionally, the Court notes that for the first time in its memorandum in opposition,
Plaintiffs claim that a service was provided pre-Award when each company “submit[ed]
materials to the Defendant about the quality and variety of services [each] provides.” Pl.s’
Opp’n Mem. at 4. The Court disagrees and finds that providing flyers and brochures is not a
“service” as contemplated by the RFP. Instead, the materials were given to Defendant without
expectation of payment, to familiarize and aid the Defendant in determining whether Plaintiffs

8

were capable and appropriate to be listed in the proposal. See e.g., Abt Assocs., Inc. v. JHPIEGO
Corp., 104 F. Supp. 2d 523, 535 (D.Md. 2000) (as to a quantum meruit claim based upon
services provided prior to the defendant winning the contract, the court held that “[i]t is apparent
that plaintiff did not reasonably expect to be compensated for its pre-award services” because
“there was no guarantee that defendant would receive the Award”).
The Court finds that no “goods or services” were in fact provided by Plaintiffs, which
would

be

inequitable

for

Defendant

to

retain,

and

dismisses

Plaintiffs’

unjust

enrichment/quantum meruit claim.
III.

Promissory Estoppel  

The fifth cause of action asserts a common law claim for promissory estoppel based on
the allegation that Defendant made a promise to both Plaintiffs within the proposal—by naming
them as minority partners, by listing each company’s services, and by listing the value of those
services. Additionally, Quintech alleges that a promise was made when Defendant established a
verbal scope of work, accepted performance in furtherance of that promise, and did not deny the
existence of the promise.
Under South Carolina, promissory estoppel requires a plaintiff prove: (1) the presence of
an unambiguous promise; (2) reliance; (3) the reliance was expected and foreseeable; and (4) the
promisee was injured as a result of reliance. Davis v. Greenwood Sch. Dist. 50, 620 S.E. 2d 65,
67-68 (S.C. 2005). Defendant argues that on its face the proposal merely stated an intention to
contract with Plaintiffs, not an unequivocal promise to hire and compensate.
The Court finds that the Complaint fails to state a plausible claim for relief based upon
promissory estoppel for the same reasons set forth in the preceding sections. Again, the Court
finds that by naming Plaintiffs in the proposal, Defendant merely stated an intention, not a

9

promise, to contract with Plaintiffs, and as to Quintech’s claim, the Court finds only evidence of
two parties negotiating a potential services contract. Rather than repeating its analysis, the Court
dismisses Plaintiffs’ promissory estoppel claim.
IV.

SCUTPA 

Finally, Plaintiffs allege that Defendant violated the South Carolina Unfair Trade
Practices Act (“SCUTPA”) by acting deceptively and in bad faith in not using or intending to use
Plaintiffs’ services after including Plaintiffs in the proposal, and by “purposefully underutilizing
their services, purloining work product, and otherwise unjustifiably severing opportunities for
continued performance as contemplated by the lottery management contract.” Compl. ¶ 108.
Plaintiffs argue it is certainly plausible that Defendant’s conduct constitutes deceptive business
acts that have the potential for repetition and have caused the Plaintiffs’ damages. Defendant
maintains that S.C. Code § 39-5-40(a) exempts transactions permitted and administered by
regulatory bodies of the State and that the response submitted to the RFP issued by the SCELC is
such a transaction and therefore is exempt.
To successfully bring an action under the SCUTPA, a plaintiff must demonstrate that (1)
the defendant engaged in an unlawful trade practice; (2) the plaintiff suffered actual,
ascertainable damages as a result; and (3) the unlawful trade practice engaged in by the
defendant had an adverse impact on the public interest. Havird Oil Co. v. Marathon Oil Co., 149
F.3d 283, 291 (S.C. 1998) (See S.C. Code Ann. § 39-5-140). To have an impact on public
interest the acts or practices must have the potential for repetition and not affect only the parties
to a trade or commercial transaction. See Omni Outdoor Adver., Inc. v. Columbia Outdoor
Adver., Inc., 974 F.2d 502, 507 (4th Cir. 1992). The exemption under § 39-5-40(a) protects
businesses from suit under the SCUTPA when its actions are allowed under other statutes or

10

regulations, so as to avoid conflict between laws. See Ward v. Dick Dyer & Assocs., Inc., 403
S.E.2d 310, 312 (S.C. 1991).
Defendant argues that Plaintiffs’ claim arises out of an alleged contract, which itself
arises out of a proposal that is regulated and governed under the Procurement Code. Notably,
Plaintiffs’ memorandum in opposition does not address the applicability of the exemption. The
Court finds that the Procurement Code regulates the transaction and holds that the Procurement
Code is the exclusive means of resolving the dispute at hand. See, e.g., Unisys Corp. v. South
Carolina Budget & Control Bd. Div. of Gen. Servs. Info. Tech. Mgmt. Office, 551 S.E.2d 263,
273 (S.C. 2001) (“[W]e hold transactions under the Procurement Code are exempt from
SCUTPA and the State’s SCUTPA cause of action is not a viable claim.”). Therefore, the Court
dismisses Plaintiffs’ SCUTPA claim.

CONCLUSION
For the foregoing reasons, it is hereby ORDERED that Defendant’s motion to dismiss
Plaintiffs’ Complaint is GRANTED.
AND IT IS SO ORDERED.

October 27, 2011
Charleston, SC

11