IPS Shared Technical Services, Inc. v. Overwatch Systems, Ltd

Filing 25

ORDER GRANTING 7 Motion for Summary Judgment; DENYING 8 Motion for Sanctions. Signed by Judge Sam Sparks. (dm)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

2115

'L

1

PM 2:2

IPS SHARED TECHNICAL SERVICES, INC.,
Plaintiff,
Case No. A-14-CA-1092-SS

-vs-

OVERWATCH SYSTEMS, LTD., and DOES
through 100, Inclusive,'
Defendants.

1

ORDER
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and

specifically Defendant Overwatch Systems, Ltd. 's Motion for Summary Judgment [#7], Plaintiff IPS
Shared Technical Services, Inc.'s Response [#17] thereto, Defendant's Reply [#19] thereto,

Defendant's Motion for Rule

11

Sanctions [#8], and Plaintiff's Response [#18] thereto. Having

reviewed the documents, the governing law, and the file as a whole, the Court now enters the

following opinion and orders.

Background
This is a breach-of-contract and quantum meruit action arising from a government sub-

subcontract agreement between Plaintiff IPS Shared Technical Services, Inc. (IPS) and Defendant
Overwatch Systems, Ltd. (Overwatch). The Boeing Company (Boeing), prime contractor for a

While "Does 1 through 100, Inclusive" are present in the case style as set forth in the plaintiff's complaint,
review of the body of the complaint reveals no allegations whatsoever are directed against any Doe defendants. See
generally Compl. [#1]. As "Does 1 through 100, Inclusive" do not appear on the civil cover sheet filled out by the
plaintiff at the inception of this suit, the Court suspects inclusion of the Doe defendants in the case style was accidental.
See Compl. [#1-1] (Civil Cover Sheet). As the plaintiff has made no allegations in support of any claim against any Doe
defendants, the Court hereby DISMISSES WITHOUT PREJUDICE all claims against Does 1 through 100, Inclusive,
to the extent asserted.

(0/

federal government military technology development program known as the United States Army

Future Combat System, subcontracted with Overwatch for the provision of software applications and
systems for the program. In July 2004, Overwatch, in turn, sub-subcontracted with IPS for the

development of meteorological and weather information services for the program. IPS alleges
Overwatch has refused to pay $860,226 owed under the terms of their sub-subcontract.

The sub-subcontract (the Contract) between Overwatch and IPS was structured as a "Cost
Plus Fee" agreement, a type of cost-reimbursement contract permitted by the Federal Acquisition

Regulations, the regulatory scheme governing government contracts.
1-A (Contract) at 102; 48 C.F.R.

§

See Mot.

Summ. J. [#7-1] Ex.

16.305.306. Under the Contract, IPS kept track of the costs it

incurred while performing services, and Overwatch periodically reimbursed IPS for its costs and paid
IPS an additional, negotiated fee. As required by the Federal Acquisition Regulations, the Contract

also includes a "Limitation of Cost" provision, which sets a limit on the amount of money payable
to IPS under the Contract. See Contract at 29,

§

H. 1 (specifying "the total sum presently available

for payment and allotted to this contract"); 48 C.F.R.

§

32.706-2.

Shortly after Overwatch and IPS executed the Contract, the Defense Contract Audit Agency

(DCAA) initiated an audit of the Contract to review the reasonableness of the costs IPS was billing
to Overwatch. IPS alleges that because DCAA audits can often take years to complete, Overwatch

and IPS agreed that any changes to the Contract costs identified by DCAA would be deemed

"retroactive for the entire contract." Compi. [#1] ¶ 14-15.
In response to a request by Overwatch, on December 2, 2009, the DCAA released Audit

Report No. 4281 2009A 17900001 (Report No. 4281), which specifically examined IPS 's invoiced

2

Pincites are to the page numbers generated by CM/ECF.

-2-

costs under the Contract from June 1, 2004, through January 2, 2009. Reply [#19-1] Ex. 1-A (Report

No. 4281) at 6. Report No. 4281 indicated that within those dates, IPS's total allowable, recorded
costs exceeded the costs IPS had invoiced to Overwatch by $860,226. Id. at 9. Report No. 4281
further indicated that its results were "qualified to the extent that questioned costs may result from

our audits of [IPS] 's incurred cost claims" and "from re-submission by [IPS] of its incurred cost
claims and the application of [IPS]'s corrected G&A rates to total costs." Id.
On April 7, 2010, apparently in response to communication with an IPS representative,

Steven Lee, a DCAA auditor, sent Don Clark, IP S's Director of Finance, the following email:
Hi Don,
I pulled up [Report No. 4281] and questioned costs through Invoice No. 2481 were

($860,226). Let me know if you have any other questions.
Steven Lee, Auditor
Mot. Summ. J. [#7-1] Ex. 1-B at 53. The following day, April 8,2010, IPS invoiced Overwatch for

$860,226, explaining in an email that the invoice "encompasse[d] the difference between all

recorded costs audited and accepted by the DCAA and amounts previously invoiced." Mot. Summ.
J. [#7-1] Ex. 1-C at 54. On April 9, 2010, Overwatch responded: "We cannot pay this invoice

because it exceeds the value and funding of the subcontract. We are willing to take another look at
the subcontract value and funding when [IPS] has final, audited rates and submits a close-out

proposal forthis subcontract." Id. Ex. 1-D. Two-and-a-half years later, on December 13, 2012, IPS
again requested payment; on January 3, 2013, Overwatch once again refused to pay, citing the April
9, 2010 email. See id. Exs. 1-F, 1-G.

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On January 3,2014, IPS filed suit against Overwatch in California state court, alleging breach

of contract and requesting $860,226 in damages.

See

id.

Ex. 1-H. In its complaint, IPS alleged

Overwatch breached the Contract on April 9,2010. Id. at 75. Overwatch subsequently removed the
case to federal court in the Northern District of California, which dismissed the suit without

prejudice for lack of personal jurisdiction on Overwatch's motion.

See

On December 10, 2014, IPS filed its complaint in this Court.

id.

See

Ex. 1-I at 88.

Compl. [#1] at 1. The

instant motions followed.

Analysis
I.

Legal Standard
Summary judgment shall be rendered when the pleadings, the discovery and disclosure

materials on file, and any affidavits show that there is no genuine dispute as to any material fact and
that the moving party is entitled to judgment as a matter of law.
v.

Catrett, 477 U.S. 317, 323-25 (1986); Washburn

v.

FED. R.

Civ. P. 56(a); Celotex Corp.

Harvey, 504 F.3d 505, 508 (5th Cir. 2007).

A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could

return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). When ruling on a motion for summary judgment, the court is required to view all inferences

drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec.
Indus. Co.

v.

Zenith Radio, 475 U.S. 574, 587 (1986); Washburn, 504 F.3d at 508. Further, a court

"may not make credibility determinations or weigh the evidence" in ruling on a motion for summary

judgment. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000); Anderson, 477
U.S. at 254-55.

Once the moving party has made an initial showing that there is no evidence to support the

nonmoving party's case, the party opposing the motion must come forward with competent summary

judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere
conclusory allegations are not competent summary judgment evidence, and thus are insufficient to

defeat a motion for summaryjudgment. Turner v. BaylorRichardson Med. Ctr., 476 F.3d 337, 343
(5th Cir. 2007). Unsubstantiated assertions, improbable inferences, and unsupported speculation are

not competent summary judgment evidence. Id. The party opposing summaryjudgment is required
to identif' specific evidence in the record and to articulate the precise manner in which that evidence

supports his claim. Adams

v.

Travelers Indem. Co. of Conn., 465 F.3d 156, 164 (5th Cir. 2006).

Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to
support the nonmovant's opposition to the motion for summary judgment. Id.

"Only disputes over facts that might affect the outcome of the suit under the governing laws
will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. Disputed fact
issues that are "irrelevant and unnecessary" will not be considered by a court in ruling on a summary

judgment motion. Id. If the nonmoving party fails to make a showing sufficient to establish the
existence of an element essential to its case and on which it will bear the burden of proof at trial,
summary judgment must be granted. Celotex, 477 U.S. at 322-23.

II.

Application
Overwatch argues it is entitled to summary judgment because IP S's claims are time-barred.

The Court agrees. Under Texas law, claims for breach of contract and quantum meruit are subject
to a four-year statute of limitations. Stine
v.

v.

Stewart, 80 S.W.3d 586, 592 (Tex. 2002); Pepi Corp.

Gallford, 254 S.W.3d 457, 461 (Tex. App.Houston [lstDist.] 2007, pet. struck). Thus, aparty
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asserting either type of claim must sue no later than four years after the day the claim accrues. TEx.
Civ. PRAC.

& REM. CODE § 16.051. A claim for breach of contract accrues when the contract is

breached, Stine, 80 S.W.3d at 592, and a claim for quantum meruit accrues when the services in
question are performed, Thomason v. Freberg, 588 S.W.2d 821, 827 (Tex.

App.Corpus Christi

1979, no writ).

Here, as IPS represented in California state court and to a federal district court in the

Northern District of California, Overwatch' s alleged breach of contract occurred on April 9, 2010,
the date Overwatch informed IPS it would not pay the $860,226 invoice because that amount

exceeded the value and funding of the Contract. Now resisting this conclusion, IPS characterizes
its previous representation as an "estimated date of accrual" and argues that because Overwatch did

not receive a final copy of the DCAA audit until June 29, 2012, IPS 's breach of contract claim could
not have accrued until that date.
The Court disagrees. IPS's $860,226 invoice was based upon its request to the DCAA for

information regarding the audit results. The DCAA provided that information to IPS after reviewing

Report No. 4281, which it issued on December 2, 2009. See Report No. 4281 at 6. Although Report
No. 4281 did state its findings were qualified because the audits of IPS's incurred cost claims had
yet to be completed, see id. at 8, IPS was not required to know the precise amount of the damages
it allegedly suffered for limitations to begin to run. See S.

V. v.

R. V., 933 S.W.2d 1, 4 (Tex. 1996)

("As a rule, we have held that a cause of action accrues when a wrongful act causes some legal

injury,.

. .

even if all resulting damages have not yet occurred."). Overwatch refused to pay the

$860,226 IPS contends it is owed on April 9, 2010; whether that dollar figure would later change

based upon additional information obtained during the course of the audit is immaterial.

As IPS's claim for breach of contract accrued on April 9, 2010, and its quantum meruit claim

accrued no later than that date, given that the work involved was invoiced from June 1, 2004,
through January 2, 2009, the Court concludes IPS's suit is time-barred. Overwatch is entitled to

judgment.

III.

Overwatch's Motion for Rule

11

Sanctions

Finally, Overwatch has moved for sanctions under Federal Rule of Civil Procedure 11,

arguing IPS should be required to pay Overwatch's reasonable attorney's fees as sanctions for filing
its time-barred claims.

See

Mot. Sanctions [#8]. The Court declines to exercise its discretion to

order sanctions in this case. While IP S's theory of limitations may have been poorly conceived, it
was at least tenuously grounded in fact, as Report No. 4281 did qualify its findings, and counsel for
IPS has submitted an affidavit swearing this action was brought in good faith. See Resp. Mot.

Sanctions [#18-1] (Kelley Dccl.).

Conclusion
Accordingly:
IT IS ORDERED that Defendant Overwatch Systems, Ltd.'s Motion for Summary

Judgment [#7] is GRANTED;
IT IS FURTHER ORDERED that Defendant Overwatch Systems, Ltd.'s Motion for

Rule

11

Sanctions [#8] is DENIED; and

IT IS FiNALLY ORDERED that all Plaintiff IPS Shared Technical Services, Inc.'s

claims against Defendants Does

1

through 100, thclusive, to the extent any claims were

asserted, are DISMISSED WITHOUT PREJUDICE.

SIGNED this the

j-

-

day of July 2015.

SAMr

UINITED STATES DISTRICT JUDGE

1092

rnsj rule 11

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