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Preferred Systems Solutions, Inc. v. Gp Consulting

September 14, 2012

PREFERRED SYSTEMS SOLUTIONS, INC.
v.
GP CONSULTING, LLC GP CONSULTING, LLC
v.
PREFERRED SYSTEMS SOLUTIONS, INC.



FROM THE CIRCUIT COURT OF FAIRFAX COUNTY R. Terrence Ney, Judge

The opinion of the court was delivered by: Justice Leroy F. Millette, Jr.

Present: All the Justices

OPINION BY JUSTICE LEROY F. MILLETTE, JR.

These companion appeals arise out of a dispute between a government contractor, Preferred Systems Solutions, Inc. (PSS), and one of its subcontractors, GP Consulting, LLC (GP). PSS sued GP following GP's termination of its contract with PSS and its commencement of a subsequent contract with Accenture, LLP, a PSS competitor. PSS alleged breach of contract, misappropriation of trade secrets, and tortious interference with contract, seeking injunctive as well as monetary relief. PSS was ultimately awarded $172,395.96 in compensatory damages based on the circuit court's finding that GP breached the non-compete clause in the parties' contract.

On appeal, GP challenges the circuit court's finding of liability on the breach of contract claim and the resulting award of damages, as well as the admissibility of portions of the testimony of PSS' corporate representative. PSS challenges the circuit court's refusal to grant injunctive relief, its failure to award damages on the tortious interference claim, and its dismissal of the trade secret claim. We affirm the judgment of the circuit court.

I. Background

PSS is an information technology contractor that was part of a team of contractors providing system solutions for the federal Defense Logistics Agency (DLA). The team of ten contractors, including Accenture, worked under a blanket purchase agreement, which did not in itself guarantee work or funds but rather set up a structure wherein DLA would issue task orders that contractors would complete and be paid in increments according to specific deliverables. In this structure, Accenture was the "team leader" and retained some degree of oversight but was also a competitor which itself produced deliverables.

The initial funding source for DLA's systems solutions project was called the Business Systems Modernization program (BSM). PSS subcontracted with GP, a consulting firm that provided the services of a programmer, Sreenath Gajulapalli, to assist in the systems solutions work that PSS was completing for DLA. The Subcontractor Agreement for Services, referred to as a "basic agreement," was to apply to all future work assignments between PSS and GP until the agreement was terminated. The agreement included a covenant not to compete, which stated:

During the term of this Agreement and for twelve (12) months thereafter, [GP] hereby covenants and agrees that they will not, either directly or indirectly:

(a) enter into a contract as a subcontractor with Accenture, LLP and or [sic] DLA to provide the same or similar support that PSS is providing to Accenture, LLP and/or DLA and in support of the DLA Business Systems Modernization (BSM) program.

(b) enter into an agreement with a competing business and provide the same or similar support that PSS is providing to Accenture, LLP and/or DLA and in support of the DLA Business Systems Modernization (BSM) program.

In 2007, the BSM program reached "operational capability" and support for the program transferred into "sustainment," meaning that the program was live and only required periodic maintenance. At this point, DLA's funding source to sustain BSM no longer arose out of the BSM program but rather out of its successor program, the Enterprise Business Systems program (EBS), a funding source that also included other initiatives not originally included in BSM.

On February 13, 2010, after giving the requisite two weeks' notice, GP terminated its subcontract with PSS. On February 16, GP began working for Accenture. At the time GP left PSS, it was supporting EBS; at Accenture, it continued to do the same work.

In May 2010, PSS filed a complaint against GP in the Circuit Court of Fairfax County, alleging breach of contract, tortious interference with contract, and misappropriation of trade secrets. PSS prayed for compensatory and punitive damages and an injunction requiring GP to cease employment with Accenture and refrain from using PSS' confidential information. The circuit court dismissed PSS' trade secret claim on GP's demurrer.

At trial, PSS' sole witness was its senior vice president of corporate development, Michael Cuccia. GP presented testimony from a project manager at DLA, Patricia Whitington, and from GP's programmer, Gajulapalli. In a letter opinion, the circuit court held that GP "plainly breached" the subcontract "when it entered into a contract with Accenture for services in support of the DLA BSM program." The court awarded compensatory damages in the amount of $172,395.96. The court found, however, that PSS failed to prove its claim for tortious interference and rejected its request for injunctive relief.

Both parties now appeal to this Court.

II. GP's Appeal

A. Enforceability of the Non-compete Clause

GP assigns error to the circuit court's conclusion that the non-compete clause is enforceable, arguing that it impermissibly prohibits indirect competition and is overbroad. We review the enforceability of a covenant not to compete de novo. Home Paramount Pest Control Cos. v. Shaffer, 282 Va. 412, 415, 718 S.E.2d 762, 763 (2011); Omniplex World Servs. v. U.S. Investigations Servs., 270 Va. 246, 249, 618 S.E.2d 340, 342 (2005).

GP first contends that the non-compete clause is ambiguous and was broadly construed by the circuit court. This assignment of error thus requires a multi-tiered analysis. First, we must determine whether the non-compete clause is indeed ambiguous. Second, if so, we must determine the proper construction. Third, we must consider whether the appropriate construction renders the non-compete clause overbroad.

GP argues that the non-compete clause is ambiguous because it can be read two ways: either that the phrase "and in support of the DLA Business Systems Modernization (BSM) program" narrows the function to which the clause applies, or, in the alternative, that the same phrase is merely descriptive of the work PSS provided to Accenture or DLA but not proscribing GP's potential work. GP argues that the circuit court employed the latter interpretation and that such an interpretation renders the clause overbroad.

Whether the language of a contract is ambiguous is a question of law that we review de novo. Eure v. Norfolk Shipbuilding & Drydock Corp., 263 Va. 624, 631, 561 S.E.2d 663, 667 (2002). We have said that "[c]ontract language is ambiguous when 'it may be understood in more than one way or when it refers to two or more things at the same time.'" Id. at 632, 561 S.E.2d at 668 (quoting Granite State Ins. Co. v. Bottoms, 243 Va. 228, 234, 415 S.E.2d 131, 134 (1992)). Yet we have also explained:

Contracts are not rendered ambiguous merely because the parties or their attorneys disagree upon the meaning of the language employed to express the agreement. Even though an agreement may have been drawn unartfully, the court must construe the language as written if its parts can be read together without conflict.

Doswell Ltd. P'ship v. Virginia Elec. & Power Co., 251 Va. 215, 222-23, 468 S.E.2d 84, 88 (1996) (internal citation omitted). "Words that the parties used are normally given their usual, ordinary, and popular meaning." D.C. McClain, Inc. v. Arlington Cnty., 249 Va. 131, 135, 452 S.E.2d 659, 662 (1995). Additionally, "[n]o word or clause in the contract will be treated as meaningless if a reasonable meaning can be given to it, and there is a presumption that the parties have not used words needlessly." Id. at 135-36, 452 S.E.2d at 662.

With this guidance, we conclude that the non-compete clause at issue here is unambiguous. Although the language of the non-compete clause is not a model of artful construction, the ordinary meaning of the conjunctive "and" suggests an additional requirement rather than a descriptive phrase. Moreover, if the phrase in question was merely descriptive, it would have been needlessly redundant.

While we are not bound by the circuit court's interpretation of the contract, Eure, 263 Va. at 631, 561 S.E.2d at 667, we note that its letter opinion suggests that it also considered the non-compete clause to be unambiguous, stating that it was "very narrowly drawn" and "specific as to what type of work was to be prohibited." Furthermore, the high level of specificity of the circuit court's factual finding of the breach -- finding not merely that GP entered into a contract with Accenture for similar services but specifically services "in support of the DLA BSM program" -- suggests that the court likewise viewed this phrase as a functional element of the clause.

Having determined the unambiguous meaning of the non-compete clause, we now turn to the question of whether it is overbroad.

Restraints on trade are not favored in Virginia; hence, contracts in restraint of trade are enforceable only if "narrowly drawn to protect the employer's legitimate business interest, . . . not unduly burdensome on the employee's ability to earn a living, and . . . not against public policy." Omniplex, 270 Va. at 249, 618 S.E.2d at 342. The employer bears the burden of proving these factors. Modern Env'ts, Inc. v. Stinnett, 263 Va. 491, 493, 561 S.E.2d 694, 695 (2002). In evaluating these factors, we consider the function, geographic scope, and duration of the restriction. Home Paramount, 282

Va. at 415, 718 S.E.2d at 764 (citing Simmons v. Miller, 261 Va. 561, 581, 544 S.E.2d 666, 678 (2001)). We assess these elements together rather than as distinct inquiries. Id. at 415-16, 718 S.E.2d at 764.

Here, the duration element is narrowly drawn to a period of only twelve months. We have also established that the function element is narrowly drawn to work in support of a particular program run under the auspices of a particular government agency, limited to the same or similar type of information technology support offered by PSS on the BSM program.

The circuit court found that the non-compete clause proscribed work for only two specific companies -- Accenture and DLA. That finding, however, ignores part (b), which speaks generally to a "competing business." As the work done for this "competing business" is likewise restricted to work on the BSM program, this restriction is thus limited to only companies who have successfully bid with DLA to work on the BSM project. The blanket purchase agreement indicates that this group consisted of eight companies in addition to PSS and Accenture. For context, the circuit court made note of the testimony of PSS' corporate representative that there were 400-500 other programming jobs supporting the exact same software system in the Washington, D.C., area alone that were not proscribed by this agreement.

GP additionally alleges that the language of the contract fails to limit its scope to direct competitors. This Court has held restrictive covenants unenforceable when the alleged form of competition was too indirect and tenuous. See, e.g., Home Paramount, 282 Va. at 418, 718 S.E.2d at 765 (holding a restrictive covenant overbroad -- and hence unenforceable - because it prohibited any involvement, even as a passive investor, in the pest control business). This line of precedent does not, however, stand for the proposition that the word "indirect" acts as a per se bar to enforcement. The word "indirectly" in the clause at issue here is an adverb modifying the verb phrase "enter into [a contract]." This wording merely bars the circumvention of the otherwise valid restrictive covenant by engaging in a series of subcontracts so as not to directly enter into a contract with the proscribed competitors.

In other words, GP cannot do indirectly what it is directly prohibited from doing. The clause, in sum, does not prohibit indirect competition but rather prohibits GP from entering into a contract as a subcontractor or sub-subcontractor with Accenture, DLA, or any other competing business to provide the same or similar support that PSS is providing in support of the BSM program.

The lack of a specific geographic limitation is not fatal to the covenant because the non-compete clause is so narrowly drawn to this particular project and the handful of companies in direct competition with PSS. We accordingly conclude that the non-compete clause is not overbroad and is thus enforceable.

B. Factual Finding of Breach

GP also assigns error to the circuit court's finding that it breached the non-compete clause, arguing that there was no evidence presented that GP's work at Accenture was on the BSM program. We find evidence sufficient to support the judgment.

Following a bench trial, a finding of fact by the trial court will not be disturbed unless it is "plainly wrong or without evidence to support it." Cardinal Dev. Co. v. Stanley Const. Co., 255 Va. 300, 302, 497 S.E.2d 847, 849 (1998) (citations omitted). PSS' corporate representative did provide testimony that BSM was "the same as" EBS. Even the DLA project manager, testifying on behalf of GP, indicated that the software put in place during the original phase of BSM required ongoing support or sustainment that was at least a part of EBS. The circuit court made an explicit factual finding ...


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