L-3 Communications Corporation et al v. Serco, Inc.
Filing
183
MEMORANDUM OPINION and Order. It is hereby ORDERED that Defendant Serco, Inc.'s 12(b)(1) Motion to Dismiss 34 is GRANTED, and this case is DISMISSED without PREJUDICE. Signed by District Judge Gerald Bruce Lee on 11/3/2015. (rban, )
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
L-3 COMMUNICATIONS CORPORATION,
et al,
Plaintiffs,
Case No. l:15-cv-00701-GBL-JFA
SERCO, INC.,
Defendant.
MEMORANDUM OPINION AND ORDER
This matter is before the Court on Defendant Serco, Inc. ("Serco" or "Defendant")'s
12(b)(1) Motion to Dismiss (Doc. 34). This is a contract dispute case where Plaintiffs L-3
Communications Corporation and L-3 Applied Technologies, Inc. have asserted claims against
Serco for common law and statutory conspiracy, aiding and abetting tortious interference,
negligent misrepresentation of a business relationship, violations of the Colorado Organized
Crime Control Act, breach of fiduciary duty, and violation of the Virginia Uniform Trade Secrets
Act.
There are two issues before the Court. The first issue is whether the Court has subject
matter jurisdiction over this action under Virginia law where the named Plaintiffs fail to provide
sufficient evidence of any right or business expectancy to the losses alleged. The second issue is
whether the Court has subject matter jurisdiction over this action under Virginia law where
Plaintiffs' declaratory judgment claims are not ripe for adjudication.
The Court grants Defendant's Motion to Dismiss under Rule 12(b)(1) of the Federal
Rules of Civil Procedure for two reasons. First, the Court finds that each entity has failed to
provide sufficient evidence of any right or business expectancy to the losses alleged because: (1)
any right or business expectancy necessarily arose from the Subcontract in dispute; (2) Plaintiffs
failed to sufficiently establish that they are parties to or assignees of the Subcontract; and (3)
Plaintiffs failed to establish the requisite elements of standing under Article III. Second, the
Court finds that Plaintiffs' declaratory judgment claims are not ripe for adjudication because
Plaintiffs' injuries alleged in Counts 80 and 81 of the Amended Complaint have not yet occurred.
Accordingly, the Court GRANTS Defendant's Motion (Doc. 34).
I. BACKGROUND
A. Basic Contractual Background
In April 2004, the United States Air Force Space Command ("USAFSC") awarded an
indefinite delivery, indefinite quantity ("IDIQ") contract to SI International, Inc. ("SI
International")1 (Doc. 63). Under the IDIQ contract, the USAFSC tasked SI International, as the
prime contractor, with managing the testing and upgrading of USAFSC sites around the world to
protect them from high-altitude electromagnetic pulse ("HEMP") events, among other tasks. Id.
Under the IDIQ, SI International awarded task orders for HEMP work to parties with which it
had subcontracted. Id. In December 2004, SI International and The Titan Corporation ("Titan")
entered into a subcontract ("Subcontract") whereby Titan, as the subcontractor to SI
International, would perform HEMP work under the IDIQ (Doc. 35). All subcontractor work
under the IDIQ contract flowed through the Subcontract. Id.
1Serco, Inc. is a New Jersey corporation and is headquartered at 1818 Library Street, Suite 1000
Reston, VA 20190 (Doc. 63). Plaintiffs allege that SI International is the predecessor to Serco,
Inc. (Doc. 114).
B. Assignment of the Subcontract2
In January 2002, Titan merged with Jaycor and remained The Titan Corporation (Doc. 35).
On June 2, 2005, Titan entered into a merger agreement with the L-3 Communications
Corporation's subsidiary Saturn VI Acquisition Corp., and Titan survived the merger as a
wholly-owned subsidiary of L-3 Communications Corporation. Id. On December 6, 2005, Titan
changed its name to L-3 Communications Titan Corporation. Id. On December 13, 2007, L-3
Communications Titan Corporation changed its name to L-3 Services, Inc.
Id. Through a
December 20, 2011 Contribution Agreement, L-3 Services, Inc. assigned all of its assets in its
Applied Technologies Division to the newly formed L-3 Applied Technologies, Inc. and L-3
Applied Technologies, Inc. became a subsidiary to L-3 Services, Inc. Id.
Plaintiffs allege that this Contribution Agreement transferred the Subcontract from L-3
Services, Inc. to L-3 Applied Technologies, Inc.
(Doc. 35).
Defendant argues that the
Subcontract, by its terms, is an asset that required Serco's express, written consent for L-3
Services, Inc. to assign it to L-3 Applied Technologies, Inc.4 (Doc. 123). Therefore, Defendant
argues this Contribution Agreement did not transfer the Subcontract to L-3 Applies
2See "L-3 Flow Chart" attached to this Memorandum Opinion and Order.
The Contribution Agreement provides: "Transferor [L-3 Services, Inc.] hereby contributes,
assigns, transfers, conveys to and vests in Transferee [L-3 Applied Technologies, Inc.], its
successors and assigns, all of Transferor's right, title and interest, legal and equitable, in and to
Assets [of L-3 Services Inc.'s Applied Technologies division], to have, hold and use forever"
(Doc. 35).
4The Subcontract provides: "Neither this Subcontract nor any right or duty under it, except the
right to receive payment, may be assigned by Subcontractor, without prior written consent of
Prime Contractor, which consent may be withheld in the sole discretion of Prime Contractor"
(Doc. 35).
Technologies, Inc. because the prime contractor (SI International) did not provide the specific
consent required in the language of the Subcontract.5 Id.
C. Plaintiffs' Conspiracy Allegations
Plaintiffs allege thatin or around June 2009, Defendant and Jaxon (a newly formed business)
entered in to a coordinated and fraudulent scheme (the "Jaxon-Serco Scheme") to rig the
subcontract bidding process in favor of Jaxon for HEMP-Testing related task orders (Doc. 63).
Plaintiffs contend that Defendant, in collusion with Jaxon, hired Plaintiffs' former engineers, and
technicians, in order to exploit proprietary and confidential information. Id.
In addition, Plaintiffs allege that Defendant knowingly used this tactic to exclude Plaintiffs
from receiving information about the task orders on time, making it practically impossible for
Plaintiffs to participate in the bidding process. Id. Specifically, Plaintiffs argue that their
business expectancy of receiving task orders was "based on its unique scientific excellence,
proprietary technical know-how, and recognized preeminence in the field of HEMP-testing and
maintenance" as well as their prior performance as a subcontractor (Doc. 114). Plaintiffs allege
that but-for Defendant's scheme of hiring Plaintiffs' former employees and rigging the bidding
process, the task orders would have been awarded to them. Id.
The Contribution Agreement provides: "Notwithstanding anything to the contrary in this
Agreement, this Agreement shall not constitute an assignment or transfer of any Asset or
interest therein [a "Delayed Asset"] as to which (i) an assignment or transfer thereofwithout a
consent of (or filing with) a third party or governmental authority (a "Required Consent")
would constitute a breach orviolation thereof orofapplicable law, orwould adversely affect the
rights or obligations thereunder to be assigned or transferred to Transferee, and (ii) all such
Required Consents shall not have been obtained with respect to such Asset or interest therein
prior to the date hereof." (Doc. 35).
D. Injuries for Which Plaintiffs Seek Relief in This Action
Plaintiffs' Amended Complaint sets forth 81 counts against Serco, including tortious
interference with nondisclosure agreements (Counts 1-5), tortious interference with business
expectancy (Counts 6-39), aiding and abetting tortious interference (Counts 40-74), conspiracy
(Counts 75-76), violations of the Colorado Organized Crime Control Act ("COCCA") (Counts
77-79), and declaratory judgment for breach of an alleged fiduciary duty to L-3 and
misappropriation of trade secrets under the Virginia Uniform Trade Secrets Act ("VUTSA")
(Counts 80-81) (Doc. 63).
In their declaratory judgment claims (Counts 80 and 81), Plaintiffs seek declarations that
Defendant's use of L-3 proprietary information, acquired in Subcontract bids, which Jaxon uses
in any future competition, is a breach of Defendant's fiduciary duty to Plaintiffs and a violation
of the Virginia Uniform Trade Secrets Act (Doc. 63). Plaintiffs seek damages in excess of
$80,000,000.00, including lost profits, unjust enrichment, and disgorgements of unlawful profits
from the alleged Jaxon-Serco scheme (Doc. 35). Defendant argues that these declaratory claims
are not ripe for adjudication because they are based on injuries that might occur //Defendant
competes with Plaintiffs for future projects "currently being planned" by the USAFSC. Id.
III. STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(1) allows a defendant to move for dismissal when
the court lacks jurisdiction over the subject matter of the action. Fed. R. Civ. P. 12(b)(1). In
considering a 12(b)(1) motion to dismiss, the burden lies with the plaintiffto prove that federal
subject matter jurisdiction is proper. See United States v. Hays, 515 U.S. 737, 743 (1995)
(citing McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189(1936)); Adams v. Bain, 697
F.2d 1213, 1219 (4th Cir. 1982). There are two ways in which a defendant may present a
12(b)(1) motion. First, a defendant may attack the complaint on its face when the complaint
"fails to allege facts upon which subject matter jurisdiction may be based." Adams, 697 F.2d at
1219. In such a case, all facts as alleged by the plaintiff are assumed to be true. Id.
Alternatively, a 12(b)(1) motion to dismiss may attack the existence of subject matter
jurisdiction over the case apart from the pleadings. See Williams v. United States, 50 F.3d 299,
304 (4th Cir. 1995) (citing Mortensen v. First Fed Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d
Cir. 1977)); White v. CMA Constr. Co., 947 F. Supp. 231, 233 (E.D. Va. 1996). In such a case,
the court may consider evidence outside the pleadings and regard the pleadings as mere evidence
to determine the existence ofjurisdiction. Velasco v. Gov't ofIndonesia, 370 F.3d 392, 398 (4th
Cir. 2004). As a result, plaintiffs allegations find no presumption of truth, and a dispute of
material facts will not preclude the trial court from evaluating the merits of claims underlying
jurisdiction. U.S. ex. rel. Vuyyuru v. Jadhav, 555 F.3d 337, 347 (4th Cir. 2009).
IV. ANALYSIS
The Court GRANTS Defendant's 12(b)(1) Motion to Dismiss because (1) any right or
business expectancy necessarily arose from the Subcontract in dispute; (2) Plaintiffs failed to
sufficiently establish that each entity is a party to or assignees of the Subcontract; (3) Plaintiffs
failed to establish the requisite elements of standing under Article III; and (4) Plaintiffs' injuries
alleged in Counts 80 and 81 of the Amended Complaint are not ripe for adjudication because
they have not occurred.
A. Plaintiffs' Contractual Rights and/or Business Expectancy
1. Any Rights Or Business Expectancy Necessarily Arose From The Subcontract
The Court finds that each entity fails to provide sufficient evidence of any contractual
right or business expectancy to the losses alleged. Under Virginia law, in order to state a claim
for intentional interference with contractual rights or business expectancy a plaintiff must plead
facts showing: (1) the existence of a valid contractual relationship or business expectancy; (2) the
putative interferer's knowledge of the relationship or expectancy; (3) an intentional interference
inducing or causing a breach or termination of the relationship or expectancy; and (4) resulting
damage to the plaintiff. Priority Auto Grp., Inc. v. Ford Motor Co., 757 F.3d 137, 143 (4th Cir.
2014). In order to satisfy the first element, there must be allegations to establish a "probability"
of future economic benefit to a plaintiff. Commercial Bus. Sys. v. Halifax Corp., 253 Va. 292,
301 (Va. 1997). Allegations of a "possibility" that such benefit will accrue is insufficient. Id. In
certain contexts, including interference with prospective businesses and business expectancies, a
plaintiff must also allege as part of its prima facie case "that the defendant employed improper
methods." Lewis-Gale Med Ctr., LLC v. Alldredge, 282 Va. 141, 149 (Va. 2011).
Plaintiffs argue that the present suit is not based on exclusive reliance on the Subcontract,
but rather on Plaintiffs' business expectancy of receiving task orders (Doc. 114). Plaintiffs raise
three arguments in support of this theory. Id.
First, Plaintiffs contend that their business
expectancy was "based on its unique scientific excellence, proprietary technical know-how, and
recognized preeminence in the field of HEMP-Testing and maintenance" as well as their prior
performance as a subcontractor. Id. In support of this argument, Plaintiffs cite Buffalo Wings
Factory, Inc. v. Mohd, 622 F. Supp. 2d 325 (E.D. Va. 2007), an opinion deciding a Rule 12(b)(6)
motion to dismiss, for the proposition that "tortious interference includes 'interference with a
continuing business or other customary relationship not amounting to a formal contract'" (Doc.
114). Defendant argues that Mohd is distinguishable from the present matter because the
defendant's central argument was that the plaintiff failed to allege that a contract or expectancy
existed at all. See Mohd, 622 F. Supp. 2d 325 (E.D. Va. 2007); Doc. 123. Here, the Subcontract
is the center of the dispute. Defendant argues that the Subcontract is the only source from which
any rights or business expectancy might arise. Id. Being a party to or an assignee of the
Subcontract creates an expectation of receiving future task orders. Id. Defendant argues that
since neither named Plaintiff is a party to nor an assignee of the Subcontract, it follows that
neither named party can have any rights or business expectancy outside of the Subcontract. Id.
Second, Plaintiffs argue that its "group of scientists and engineers, and their specialized
technology and intellectual property, operating out of Colorado Springs, Colorado," and not any
corporate entity, held the business expectancy (Doc. 114).
Defendant argues that these
employees were not capable, in and of themselves, of losing any task orders, and that Plaintiffs
cannot assert the rights of the employees in this claim (Doc. 123). As a threshold matter, the
named Plaintiffs necessarily bear the burden of establishing standing. See S. Walk at Broadlands
Homeowner's Ass% Inc. v. OpenBand at Broadlands, LLC, 713 F.3d 175, 181 (4th Cir. 2013).
Defendant contends that none of the members of this group have a personal expectancy for the
alleged lost work under the task orders (Doc. 123). Likewise, none of the members of this group
were or could ever be personally awarded task orders for HEMP work. Id. As such, only the
proper L-3 corporate entity (which is not named in this suit) can assert these claims. Id.
Defendant argues that Plaintiffs may not assert the rights of their employees as a means to
establish the elements of business expectancyoutside of the Subcontract. Id.
Third, Plaintiffs argue that its business expectancy emanates from its incumbency as to
previous task orders that Defendant awarded to Plaintiffs (Doc. 114). Specifically, Plaintiffs
argue that they had a right (and that Defendant had an obligation to permit Plaintiffs) to priority
access to the HEMP field by virtue of their other corporate entities' presence and past success in
the industry. Id. Defendant argues that Plaintiffs' incumbency argument fails because these
tasks arose from performing task orders issued under the Subcontract. Id. Therefore, the
business expectancy for the same work to be performed in the future is also based on the
Subcontract. Id.
Here, The Court finds that Plaintiffs cannot assert that their rights or business expectancy
arose outside of the Subcontract. Since neither named Plaintiff is a party to nor an assignee of
the Subcontract, it follows that neither named party can have any rights or business expectancy
outside ofthe Subcontract. See Halifax Corp., 253 Va. 292 (Va. 1997).
2. Assignment of the Subcontract
The Court finds that the named Plaintiffs failed to provide sufficient evidence that the
Subcontract, governed by Virginia law, was assigned to them.
Virginia law and not federal
common law governs the assignability of the Subcontract. See Christian v. Bullock, 215 Va. 98,
205 S.E.2d 635, 638 (Va. 1974) (stating that Virginia law governs contracts made in Virginia
unless a valid contractual provision dictates a different choice of law). See also Artistic Stone
Crofters, Inc. v. Safeco Ins. Co. ofAm., 726 F. Supp. 2d 595, 600 (E.D. Va. 2010) (stating that if
the action has been transferred to a federal court located in Virginia pursuant to a forum selection
clause in the Subcontract, the Court looks to Virginia's choice-of law rules) (emphasis added).
Here, Plaintiffs argue that federal common law governs the assignment of the Subcontract,
specifically the Anti-Assignment clause (which if applied, would require express consent from
the prime contractor before an assignment of the Subcontract to another entity) (Doc. 114).
Plaintiffs have not submitted any evidence that the prime contractor (SI International) consented
to the assignment of the Subcontract. Plaintiffs argue that the federal Anti-Assignment Act,
coupled with judicial opinions create a mandatory exception to the prohibition against
assignment of federal prime contracts. Id. Plaintiffs also argue that Defendant, through their
conduct, i.e., Defendant's continued communication with Plaintiff and awarding of task orders to
Plaintiffs, effectively waived the protection of the Anti-Assignment clause. Id. The language of
the Anti-Assignment clause in the Subcontract states:
[T]his Subcontract shall be construed and interpreted according to the federal
common law of government contracts as enunciated and applied by federal
judicial bodies, boards of contract appeals, and quasi-judicial agencies of the
federal government and as set forth in the applicable provisions of federal law and
regulation. To the extent that federal government contract law does not resolve a
particularissue, the laws of the Commonwealth of Virginia shall apply [.]
(Doc. 35).
Defendant argues that this exception is not applicable (Doc. 123).
As such,
Defendant's conduct in maintaining a professional relationship with Plaintiffs is irrelevant. Id.
As a threshold matter, the Anti Assignment Act does not apply to the assignability of the
Subcontract because the Anti Assignment Act is a federal statute. See 31 U.S.C.A. ยง 203.
Notably, the two cases Plaintiffs cite to support its argument that the transaction between L-3
Services and L-3 ATI effected an assignment by operation of law trace back to a non-binding
opinion by the Government Accountability Office ("GAO") (Doc. 114). This Court is not bound
by GAO's determination, particularly because the GAO opinion creating this exception is not
rooted in any statutory or case law exception but rather previous opinions issued by GAO. See,
generally, Global Computer Enters., Inc. 88 Fed. CI. at 412.
Alternatively, Plaintiffs argue that this exception applies because the Subcontract was
assigned to them in the reorganization of their business (Doc. 114). Plaintiffs concede that there
has been no "sale of an entire business" by referring to the relationship between L-3 Services and
L-3 ATI as a "reorganization." Id. Defendant argues Plaintiffs have not and cannot show that
there has been a "sale of an entire business" that would result in an "assignment by operation of
law" (Doc. 123). Instead, Plaintiffs stated that "in 2011, L-3 decided to spin-off most of L-3
Services as an independent, publicly traded corporation..., but decided to retain the Applied
10
Technologies Division and all of its assets" (Doc. 114). Defendant argues that this is not
sufficient to satisfy the claimed exception to the general prohibition against assignment of prime
contracts (Doc. 123). In sum, neither the Anti-Assignment Act nor an exception to the AntiAssignment Act compels the assignment of the Subcontract from L-3 Services to L-3 ATI
without the consent of the prime contractor. Here, The Court holds that neither named Plaintiff
was properly assigned the Subcontract under Virginia law.
3.
Standing
The Court holds that Plaintiffs fail to establish the requite elements of standing under
Article III. To establish standing to sue under Article III, a plaintiff must prove three elements:
First, the plaintiff must have suffered an "injury in fact" - an invasion of a legally protected
interest which is (a) concrete and particularized, and (b) "actual or imminent, not 'conjectural' or
'hypothetical[.]'" Second, there must be a causal connection between the injury and the conduct
complained of - the injury has to be "fairly . . . trace[able] to the challenged action of the
defendant, and not. . . the result [of] the independent action of some third party not before the
court." Third, it must be "likely," as opposed to merely "speculative," that the injury will be
"redressed by a favorable decision." See Lujan v. Defenders of Wildlife, 504 U.S. 555,112 S.Ct.
2130 (1992). The Supreme Court has "consistently stressed" that a plaintiff "must establish that
he has a 'personal stake' in the alleged dispute, and that the alleged injury suffered is
particularized as to him." See Raines v. Byrd, 521 U.S. 811,819 (1997).
Plaintiffs argue that they are the correct parties in this matter because the Subcontract was
assigned to them (Doc. 114). Defendant argues that there is no material dispute that the injury
sought to be remedied are lost revenues under task orders issued pursuant to the Subcontract
11
(Doc. 123). Here, neither named Plaintiff is a party to, nor the assignee of, the Subcontract. Id.
Accordingly, neither Plaintiff has any "personal stake" in this litigation.
Thus, the Court holds that (1) any right or business expectancy necessarily arose from the
Subcontract in dispute; (2) Plaintiffs failed to sufficiently establish that they are party to or
assignees of the Subcontract; and (3) Plaintiffs failed to establish the requisite elements of
standing under Article III.
B. Plaintiffs' Declaratory Judgment Claims
The Court holds Plaintiffs' declaratory judgment claims alleged in Counts 80 and 81 of the
Amended Complaint are not ripe for adjudication. "The doctrine of ripeness prevents judicial
consideration of issues until a controversy is presented in 'clean-cut and concrete form.'" Miller
v. Brown, 462 F.3d 312, 318-19 (4th Cir. 2006) (quotingRescue Army v. Mun. Court ofL.A., 331
U.S. 549, 584, 67 S.Ct. 1409 (1947)). The burden of proving ripeness falls on the party bringing
suit. See Renne v. Geary, 501 U.S. 312, 316 (1991). To determine whetherthe case is ripe, the
court must "balance 'the fitness of the issues for judicial decisionwith the hardshipto the parties
of withholding courtconsideration.'" Franks v. Ross, 313 F.3d 184,194 (4th Cir. 2002) (quoting
Ohio Forestry Ass'n v. Sierra Club, 523 U.S. 726, 733, 118 S. Ct. 1665, 140 L. Ed. 2d 921
(1998)). A case is fit for judicial decision when the issues are purely legal and when the action
in controversy is final and not dependent on future uncertainties. Charter Fed. Sav. Bank v.
Office ofThrift Supervision, 976 F.2d 203,208 (4th Cir. 1992).
Plaintiffs contend Defendant knowingly excluded Plaintiffs from the receiving information
about the task orders on time, making it practically impossible for Plaintiffs to participate in the
bidding process (Doc. 114). Plaintiffs argue that this behavior shows sufficient immediacy and
reality to warrant issuance of declaratory judgment. Id. Defendant argues that these declaratory
12
claims are not ripe for adjudication because they are based on injuries that might occur if
Defendant competes with Plaintiffs for future projects "currently beingplanned" by the USAFSC
(Doc. 123). Plaintiffs do not allege evidence that Defendant's actions have excluded them from
any USAFSC task orders. Accordingly, the Court finds Plaintiffs' injuries alleged in Counts 80
and 81 of the Amended Complaint are not ripe for adjudication because they have not occurred.
VIII. CONCLUSION
The Court GRANTS Defendant's Motion to Dismiss (Doc. 34) in its entirety for four
reasons. First, any rights or business expectancy of receiving task order necessarily arose from
the Subcontract. Second, the Subcontract, governed by Virginia law, was never assigned to
either named Plaintiff. Third, because the Subcontract was never assigned to either named party,
Plaintiffs cannot to establish the requisite elements of standing under Article III.
Fourth,
Plaintiffs' declaratory judgments claims are not ripe for adjudication.
IT IS HEREBY ORDERED that Defendant Serco, Inc.'s 12(b)(1) Motion to Dismiss
(Doc. 34) is GRANTED, and this case is DISMISSED without PREJUDICE.
IT IS SO ORDERED.
ENTERED this 3rd day ofNovember, 2015.
Alexandria, Virginia
11/3/2015
1*1
Gerald Bruce Lee
United States District Judge
13
Force Space
United States Air
Command
6/2/05
2004
TT
SI International, Inc
(Prime Contractor)
contracts with Titan
The Titan Corporation
merges with Saturn VI
Acquisition Corp (a
subsidiary of L-3
Communications Corp
L-3 FLOW CHART
12/2004
12/20/11
The Titan
Corporation (Sub
Contractor)
L-3 assigns all assets in the
applied technologies division
(including the subcontract)
to L-3 Applied Technologies
1/31/02
Titan and Jaycor
merge to form The
Titan Corporation
L-3 Communications Titan
\/
Services, Inc.
Corp changes its name to L-3
12/20/11
L-3 Services. Inc forms L-3
Applied Technologies, a
subsidiary of L-3 Services.
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