ITility, LLC v. The Staffing Resource Group, Inc. et al
Filing
27
MEMORANDUM OPINION in re 17 MOTION to Dismiss Count Two, Court Four and Claim for Consequential and Punitive Damages in Plaintiff's Amended Complaint. Signed by District Judge T. S. Ellis, III on 11/13/2020. (jlan)
Case 1:20-cv-00477-TSE-MSN Document 27 Filed 11/13/20 Page 1 of 11 PageID# 258
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Alexandria Division
ITILITY, LLC,
Plaintiff,
v.
THE STAFFING RESOURCE GROUP, INC.,
and TRAVIS C. HIRE
Defendants.
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Civil Action No. 1:20-cv-477
MEMORANDUM OPINION
Plaintiff ITility LLC’s (“ITility”) has brought breach of contract and tort claims against
Defendants The Staffing Resource Group’s (“SRG”) and Travis Hire.1 At issue on SRG’s Rule
12(b)(6) partial Motion to Dismiss is:
(i) whether plaintiff’s fraud claim is barred by Virginia’s “Source of Duty” Rule,
(ii) whether plaintiff’s claim for tortious interference with a business expectancy is barred
by SRG’s participation in the business expectancy, and
(iii) whether the Teaming Agreement between the parties bars plaintiff’s claims for
consequential and punitive damages.
SRG’s partial Motion to Dismiss must be granted because:
(i) Virginia’s Source of Duty Rule bars plaintiff’s tort claims because those claims are
based on SRG’s performance of a contractual duty,
(ii) SRG was party to the business expectancy at issue and therefore cannot, as a matter of
Virginia law, be held liable for interfering with its own business expectancy, and
(iii) the Teaming Agreement explicitly bars recovery of consequential and punitive
damages.
1
Defendant Hire has been granted an extension of time to respond to the Amended Complaint until fourteen days after
the issuance of this decision. See ITility v. The Staffing Resource Group, Inc., No. 1:20-cv-477 (E.D. Va. Sept. 21,
2020) (Order).
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I.
The following factual allegations relevant to SRG’s Motion to Dismiss are derived from
plaintiffs’ Amended Complaint and provisions from the contract, which was attached to the
Amended Complaint as an exhibit.2
•
ITility is a service-disabled veteran-owned small business that provides United States
government clients with program management, systems engineering, enterprise services,
system testing services, education and training, and administrative support. Am. Compl. ¶
19.
•
SRG is a staffing and recruitment firm that provides specialized staffing solutions to its
clients and consultants. Id. at ¶ 21.
•
At all times relevant to this action, Travis Hire served as SRG’s Vice President of
Government Services. In this role, Hire managed SRG’s recruiting and staffing efforts in
the government contract field. Id. at ¶ 24.
•
On or about December 21, 2018, the United States Special Operations Command
(“SOCOM”) issued a solicitation (“Solicitation”) seeking a contractor to provide geospatial
engineering, modeling and simulation engineering, and IT engineering support services to
SOCOM. Id. at ¶ 25.
•
The Solicitation contemplated a firm, fixed-price task order with a base performance of
one year, with three one-year option periods. Id. at ¶ 26.
•
The Solicitation informed potential offerors that their proposals would be evaluated under
three factors, to be submitted in three volumes: technical, past performance, and price, with
the technical factor being the most important. Offerors were required to submit in their
respective technical volume the resumes of key personnel that they were proposing, as well
as signed letters of intent from each individual. Id. at ¶ 28.
•
ITility developed and submitted a competitive proposal in response to the Solicitation. As
part of the proposal, ITility and SRG entered into a Teaming Agreement on or about
January 29, 2019. In the Agreement, SRG agreed to provide recruiting services and to
submit resumes of potential candidates and certifications as required by the solicitation to
be included in the technical volume of ITility’s proposal. Id. at ¶¶ 2-3, 30, 33; Am. Compl.
2
Documents attached to a complaint are reviewable on a motion to dismiss so long as they are integral to the
complaint and authentic. See, e.g., Rockville Cars, LLC v. City of Rockville, 891 F.3d 141, 145 (4th Cir. 2018); see
also Braun v. Maynard, 652 F.3d 557, 559 (4th Cir. 2011) (explaining that generally courts “do not consider
materials other than the complaint and documents incorporated into it when evaluating that complaint under Rule
12(b)(6)”).
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Ex. A (“Teaming Agreement”).
•
The Teaming Agreement required SRG to “comply with all applicable federal, state or
local laws, regulations or ordinances in effect or hereafter adopted.” Am. Compl. ¶ 39;
Teaming Agreement § 5.6.
•
The Teaming Agreement further provided:
Should either Party violate any of the Laws then . . . the offending Party
shall indemnify the other Party for any penalty, loss or expenses incurred
by the other Party as a result of the offending Party’s breach of any of its
obligations under this Article.
Teaming Agreement § 5.6.
•
In or around January 2019, Travis Hire provided the names of several potential candidates
for consideration as part of ITility’s proposal, including Sean Hord and Zackary Shifflett.
Am. Compl. ¶ 44-45.
•
On or about February 2, 2019, ITility asked Hire to obtain Hord’s and Shifflett’s
permission to use their names and resumes in its proposal. ITility also requested that Hire
obtain a signed letter of intent from each candidate. Id. at ¶ 46.
•
Hire informed ITility that he had obtained Hord’s and Shifflett’s permission to be included
as candidates in the proposal and, on or about February 3, 2019, provided ITility with their
signed letters of intent. Id. at ¶ 47. Hire originally provided ITility with a letter of intent
from Hord bearing an electronic signature, which Hire said was because Hord “was not
near a printer.” Id. at ¶ 48. Upon further request, Hire provided a letter of intent for Hord
that Hire represented contained Hord’s handwritten signature. Id. at ¶¶ 48-49.
•
Contrary to what Hire represented to ITility, Hire had forged Hord’s and Shifflett’s
signatures and had not received their permission to be included in ITility’s proposal. Id. at
¶¶ 52-53.
•
Thereafter, ITility submitted its proposal to SOCOM, which included the resumes and
signed letters of intent of Hord and Shifflett that had been forged by Hire. Id. at ¶ 54.
•
On March 15, 2019, SOCOM selected ITility’s proposal for the prime contract award. Id.
at ¶ 55.
•
On March 29, 2019, ITility learned that Ironclad Technology Services, LLC, one of its
competitors in the bidding process, had filed a protest before the United States Court of
Federal Claims concerning the prime contract award. The bid protest alleged that ITility
did not have Hord’s permission to include him in its proposal. Id. at ¶¶ 56-57.
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•
In response to the bid protest, ITility asked SRG to provide documentation demonstrating
Hord’s willingness to be included in ITility’s proposal. Hire sent ITility an email string
that appeared to be an exchange between Hord and Hire. Hire was unable to provide the
original email file, claiming that the email had been deleted. After receiving this
representation from Hire, ITility contacted SRG’s Chief Operating Officer, who informed
ITility that SRG would promptly investigate the matter. Id. at ¶¶ 58-62.
•
On or about April 3, 2019, SRG’s Chief Operating Officer informed ITility that SRG’s
internal investigation had revealed that Hire had forged Hord’s signature on Hord’s letter
of intent and that Hire did not have Hord’s permission to include him in ITility’s proposal.
SRG immediately terminated Hire’s employment based on his forgery and
misrepresentation. Further investigation revealed that Hire had also forged Shifflett’s
signature and that Hire did not have Shifflett’s permission to be included in the proposal.
Id. at ¶¶ 63-66.
•
On or about April 17, 2019, SOCOM took corrective action in response to the bid protest
by vacating its award to ITility and cancelling the entire Solicitation. Id. at 68.
On April 24, 2020, Plaintiff ITility brought the instant action against Defendants SRG and
Hire, alleging breach of contract and actual fraud. Compl. Plaintiff filed an amended complaint on
July 27, 2020, alleging tortious interference with business expectancy (Count Four) in addition to
breach of contract (Count One) and actual fraud (Count Two). Am. Compl. Then, on August 17,
2020, SRG filed a Motion to Dismiss Count Two, Court Four, and Claims for Consequential and
Punitive Damages in Plaintiff’s Amended Complaint, leaving only a breach of contract claim
against SRG. Oral argument on SRG’s partial Motion to Dismiss was held telephonically on
September 16, 2020. As this matter has been fully briefed and argued, it is now ripe for disposition.
For the reasons that follow, SRG’s partial Motion to Dismiss must be granted.
II.
In order to survive a Rule 12(b) 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, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
A claim is facially plausible “when the Plaintiff pleads factual content that allows the court to draw
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the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678 (quoting
Twombly, 550 U.S. at 570). For purposes of resolving the motion to dismiss, plaintiff’s wellpleaded allegations are assumed to be true and all facts are viewed in the light most favorable to
plaintiff. E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011).
SRG first contends that plaintiff’s actual fraud claim is barred by Virginia’s Source of Duty
Rule, the Rule formulated by the Supreme Court of Virginia for the purpose of demarcating the
civil liability boundary between tort and contract in order to counter the modern trend of lawyers
adding a tort claim to every breach of contract claim to enhance potential damages. See Tingler v.
Graystone Homes, Inc., 834 S.E.2d 244, 255-56 (Va. 2019). Although there is some confusion in
prior caselaw,3 the essence and core principle of the Source of Duty Rule may be stated as follows:
the sole and exclusive remedy for a claim based on the performance of a contractual duty is in
contract.
The Rule is well illustrated in the Supreme Court of Virginia’s decision in Richmond
Metropolitan Authority v. McDevitt Street Bovis, Inc., 507 S.E.2d 344 (Va. 1998). There, a
municipal corporation entered into a contract for the construction of a baseball stadium. During
construction of the stadium, the construction company failed to comply with specifications in the
contract and submitted applications for progress payments falsely stating that the company had
fully complied with the contract. Id. at 345. When the municipal corporation learned of these facts,
it sued the construction company for breach of contract as well as actual and constructive fraud.
Id. On these facts, the Supreme Court of Virginia, applying the Source of Duty Rule, concluded
that the actual and constructive fraud claims had to be dismissed. See id. at 347. Despite the fact
See Tingler, 834 S.E.2d at 261 (“[C]onsiderable confusion in prior caselaw makes it difficult to generalize on [the
Rule].”).
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that the builder “misrepresented its compliance with the design criteria,” the Supreme Court of
Virginia concluded that the claims for actual and constructive fraud were not actionable in tort
because they were “related to a duty or obligation that was specifically required by the [contract].”
Id.4
The Rule, applied to the fraud claim in plaintiff’s amended complaint, requires dismissal
of that claim because it is nothing more than a contract claim dressed up as a tort claim; it is a
fraud claim based on SRG’s performance of a contractual duty. Like the defendant in Dunn
Construction, SRG committed fraud in the performance of a contractual duty; here SRG provided
false and forged certifications required under the contract, while the defendant in Dunn
Construction provided false guarantees about construction and repairs required under the contract.
682 S.E.2d at 947. Just like in Dunn Construction, plaintiff’s fraud claim here is clearly part and
parcel of SRG’s performance of its contractual duty. Accordingly, just as the Supreme Court of
Virginia barred the fraud claim in Dunn Construction, the fraud claim must be barred in this case.
Seeking to avoid this outcome, the plaintiff alleges that SRG breached a common law duty
to be truthful and a statutory duty not to forge documents. Plaintiff argues that these duties are
separate from the contract. They clearly are not; SRG had a contractual obligation to provide
resumes and certifications as required by the solicitation, with the implicit requirement that they
be genuine, and SRG allegedly failed in this contractual duty by submitting false and forged
certifications and resumes. As was true in Dunn Construction and McDevitt, the alleged common
law and statutory duties breached in this case are “related to a duty that arose under the contract”
4
See also Dunn Construction Company v. Cloney, 682 S.E.2d 943 (Va. 2009) (holding that false representations
concerning the construction of a house were “related to a duty that arose under the contract” and therefore were not
actionable in tort); Tingler v. Graystone Homes, Inc., 824 S.E.2d 224 (Va. 2019) (holding that tort claims arising
from the performance of a home construction contract were barred by the Source of Duty Rule, but allowing tort
recovery for injuries arising outside the contract).
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and therefore tort recovery is precluded by the Source of Duty Rule. Dunn Construction, 682
S.E.2d at 947; see also McDevitt, 507 S.E.2d at 347. In short, because the alleged breach is based
exclusively on defendant’s performance of a contractual duty or obligation, the plaintiff’s sole
remedy is contract.
Plaintiff also argues that the duties breached were outside the contract because the Teaming
Agreement “does not require SRG to represent and warrant the performance of any of its actions
under the Teaming Agreement.” Pl. Opp’n to Mot. to Dismiss, Aug. 31, 2020, at 11. The question
raised by a Source of Duty analysis is not whether the contract obligated the defendant to certify
its performance or not to commit fraud. Rather, the Source of Duty Rule asks whether the alleged
tort is based on the defendant’s performance of a contractual duty. Here, SRG had a contractual
duty to provide resumes and certifications, and failed in that duty. Therefore, plaintiff’s sole
remedy is contract.
III.
SRG next argues that the Amended Complaint fails to state a claim for tortious interference
with business expectancy because SRG was not a stranger to the business expectancy.
Under Virginia law, a prima facie case of tortious interference with a business expectancy
requires:
(1) the existence of a valid contractual relationship or business expectancy;
(2) knowledge of the relationship or expectancy on the part of the interferor;
(3) intentional interference inducing or causing a breach or termination of the
relationship or expectancy; and
(4) resultant damage to the party whose relationship or expectancy has been
disrupted.
Dunlap v. Cottman Transmission Sys., LLC, 754 S.E.2d 313, 318 (Va. 2014) (quoting Chaves v.
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Johnson, 335 S.E.2d 97, 102 (Va. 1985)). And where, as here, the plaintiff asserts the existence of
a business expectancy rather than a contract, the plaintiff is also required to show that the defendant
employed improper methods when engaging in the alleged intentional, interfering conduct. See
Dunlap, 754 S.E.2d at 318.
Important, and dispositive here, is the principle stated recently by the Supreme Court of
Virginia that “[a]n action for tortious interference with a contract or business expectancy . . . does
not lie against parties to the contract, but only lies against those outside the contractual relationship,
i.e., strangers to the contract or business expectancy.” Francis Hosp., Inc. v. Read Props., LLC,
820 S.E.2d 607, 610 (2018). In other words, only a party outside the business expectancy—a
stranger to the business expectancy—may be held liable for interference with a business
expectancy. Id; see also L-3 Commc’ns Corp. v. Serco, Inc., 926 F.3d 85, 91 (4th Cir. 2019), reh’g
denied (July 16, 2019).
This principle, applied here, requires dismissal of plaintiff’s claim for interference with
business expectancy because SRG was not a stranger to the business expectancy, but was a party
to it. Therefore, SRG cannot, as a matter of law, have interfered with that business expectancy.
Francis Hosp., Inc., 820 S.E.2d at 610.
Nor is there any doubt that SRG is not a stranger to the business expectancy. SRG had a
cognizable interest in the business expectancy with SOCOM through the solicitation proposal
prepared by plaintiff. In this regard, the Teaming Agreement outlines the benefits that SRG
expected if plaintiff secured the prime contract with SOCOM. Although SRG was not guaranteed
a subcontract, the Teaming Agreement requires the parties to “enter into negotiations, in good
faith, to reach agreement with respect to the terms and conditions of a subcontract.” Am. Compl.,
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Ex. A § 3.1.5 It is apparent from the record that the only way SRG could secure subcontracting
work was by having the plaintiff secure the prime contract award. SRG was not in a competitive
relationship with plaintiff, nor was SRG a disinterested third party to the expectancy.6 SRG
actively desired and worked toward the same outcome desired by plaintiff: having plaintiff secure
the prime contract award from SOCOM. Because SRG was a party to the business expectancy at
issue, SRG, as a matter of Virginia law, cannot be held liable for interfering with that expectancy.
Nor is plaintiff’s tortious interference claim rescued by plaintiff’s heavy reliance on CGI
Federal Inc. v. FCi Federal, Inc., 814 S.E.2d 183 (Va. 2018). That decision did not involve a claim
for tortious interference. In CGI Federal, the Supreme Court of Virginia found only that a teaming
agreement between the parties was not a valid contract because it was merely an agreement to
negotiate in the future. Id. at 188-89. Significantly, the Supreme Court of Virginia did not consider
whether there existed a business expectancy or whether either party had a valid business
expectancy in that case. Accordingly, CGI Federal therefore fails to support plaintiff’s contention
that SRG is not a party to the business expectancy in this case.
Accordingly, Count Four of plaintiff’s Amended Complaint must be dismissed.
IV.
Finally, SRG moves to dismiss plaintiff’s claims for consequential and punitive damages
as barred by the Teaming Agreement. As a preliminary matter, punitive damages generally are not
5
Under Virginia law, contractual provisions that set out agreements to negotiate in the future are unenforceable as
vague and indefinite. See Navar, Inc. v. Fed. Bus. Council, 784 S.E.2d 296, 300 (2016). However, agreements to
negotiate can serve as evidence to support the finding of a valid business expectancy.
See 17th St. Assocs., LLP v. Markel Int’l Ins. Co., 373 F. Supp. 2d 584, 600 (E.D. Va. 2005) (finding a “fifth,
unstated element” to a prima facie case of tortious interference in business expectancy to be “a competitive
relationship between the party interfered with and the interferor”); see also Oceguera v. Alutiiq Sec. & Tech., LLC,
2010 WL 3894606, at *4 (S.D. Fla. Oct. 1, 2010) (applying Florida law to find in a tortious interference with a
business relationship case that the defendants “were not ‘disinterested third part[ies]’ to the relationship, and, as a
matter of law, could not have interfered with it”).
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allowed for breach of contract claims under Virginia law. See Kamlar Corp. v. Haley, 299 S.E.2d
514, 517 (1983). Therefore, as the plaintiff has conceded, the dismissal of plaintiff’s tort claims
requires the dismissal of plaintiff’s claims for punitive damages. See Pl. Br. in Opp’n, at 20 n. 2.
In regard to consequential damages, the Teaming Agreement clearly and conclusively bars
recovery of consequential damages.7 Three sections of the Teaming Agreement categorically bar
claims for consequential damages in actions arising under the agreement. First, in Section 1.4, the
Teaming Agreement in capital letters provides that:
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO
THE OTHER PARTY FOR LOST OR ANTICIPATED PROFITS,
CONSEQUENTIAL, INCIDENTAL, SPECIAL, PUNITIVE, OR ANY OTHER
TYPE OF INDIRECT DAMAGES ARISING UNDER OR RELATING TO THIS
AGREEMENT.
Complaint, Ex. A (“Teaming Agreement”) § 1.4.
Second, Section 5.9 of the Teaming Agreement provides that:
In any action . . . brought . . . pursuant to an alleged breach of the Agreement . . .
each of the parties agrees that no claim shall be made, nor liability found, for any
special, consequential, or punitive damages.
Teaming Agreement § 5.9.8
Finally, Section 5.13 of the Teaming Agreement states that “[n]either party shall be liable
7
The Supreme Court of Virginia has recently used two definitions of consequential damages. In the 2016 case of
William H. Gordon Assocs., Inc. v. Heritage Fellowship, United Church of Christ, the Court described consequential
damages as “those which arise from the intervention of ‘special circumstances’ not ordinarily predictable.” 784 S.E.2d
265, 279 (2016) (quoting Roanoke Hospital Ass’n v. Doyle & Russell, Inc., 214 S.E.2d 155, 160 (1975)). Earlier, in
2003, the Supreme Court of Virginia relied on the definition in Black’s Law Dictionary, describing consequential
damages as “[s]uch damage, loss, or injury as does not flow directly and immediately from the act of the party, but
only from some of the consequences or results of such act.” Pulte Home Corp. v. Parex, Inc., 579 S.E.2d 188, 193
(2003) (citations omitted).
Section 5.9 goes on to state that the “Prime [Contractor]”—the plaintiff in this case—is entitled to “an award of
reasonable attorneys’ fees and costs” if the plaintiff is the “substantially prevailing party in any Action.” Teaming
Agreement, at § 5.9.
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