United States District Court, E.D. Virginia, Alexandria Division
T.S. ELLIS, III, District Judge.
In this breach-of-contract action, Projects Management Company ("PMC") claims DynCorp International, LLC ("DynCorp") breached Subcontract Number 08-SC-LES-CIVPOL-PMC-002 ("Subcontract 002") by paying invoices for over 1.2 million dollars to a bank account in Lebanon not specifically authorized in Subcontract 002. DynCorp claims no breach occurred because payments were made to the Lebanon bank account in accordance with specific instructions issued by PMC's principal agents. As damages for the alleged breach of contract, PMC seeks the full amount of the payments made by DynCorp to the Lebanon account-more than 1.2 million dollars-notwithstanding that PMC hired subcontractors to do all the work under Subcontract 002 and certain of these subcontractors and certain PMC employees were paid from the Lebanon account.
Now that discovery has been completed, DynCorp Seeks summary judgment on various grounds, including that PMC's claim for the full amount of the payments does not take account of the governing law's requirement that costs avoided must be shown as an element of damages. PMC also filed a motion for partial summary judgment. These motions were fully briefed and argued, but a ruling on the motions was deferred pending disposition of an appeal in a closely related case. Following disposition of that appeal-which affirmed dismissal of the closely related case-the parties were directed to submit supplemental memoranda discussing the effect, if any, of that disposition on the instant case. Now, following additional oral argument and submission of supplemental briefing, the matter is ripe for decision. For the reasons that follow, PMC's claim for breach of Subcontract 002 fails because PMC relies on a measure of damages-the full amount of payments to the Lebanon account without accounting for avoided costs-that is contrary to governing law. Accordingly, DynCorp's motion for summary judgment must be granted, and PMC's motion for partial summary judgment must be denied.
PMC is a Kuwaiti limited liability corporation owned by certain members of the Al Muhanna family, who reside in Kuwait. In or about July 2008, PMC responded to a request for proposal issued by DynCorp, a limited liability corporation with its principal place of business in Virginia, for work to be done on the renovation of villas in Iraq for the Iraqi judiciary. PMC's response to the request for proposal identified two PMC executives as points of contact: Hussein Fawaz, PMC's Managing Director, and Greg Byers, PMC's Theater Program Manager. Fawaz executed the proposal on PMC's behalf. DynCorp accepted PMC's proposal, and on October 20, 2008, PMC and DynCorp executed Subcontract 002 for the renovation of villas in Iraq for the Iraq judiciary. Byers executed the subcontract on PMC's behalf, and was listed in Subcontract 002 as PMC's point of contact for DynCorp. It is undisputed that PMC itself did not perform any of the construction and renovation work associated with Subcontract 002; instead, PMC retained subcontractors to perform all the work.
Subcontract 002 provided with respect to payment that DynCorp would pay PMC's invoices by wire transfers made to PMC's bank account at the Kuwait Gulf Bank ("the Kuwait account"). These payment instructions were changed at the direction of Byers and Fawaz. On changed the payment instructions for Subcontract 002. The new payment instructions, as directed by Byers, stated that all payments on Subcontract 002 were to be made to a different account at the National Bank of Kuwait located in Beirut, Lebanon ("the Lebanon account"). Burton, by e-mail of the same date, asked Byers to bring the new banking instructions to Burton with the first invoice. On the same day, Byers complied with this request by delivering to Burton the first invoice under Subcontract 002 together with the new banking instructions designating the Lebanon account for payment of the invoice.
On December 29 and 30, 2008, Savita Aranha of DynCorp International Free Zone's ("DIFZ") accounts payable office in Dubai sent e-mails to DIFZ finance specialists Ana Dizon and Helen Mae Lagrimas, both of whom worked in DIFZ's finance office in Iraq. In these e-mails, Aranha noted that the banking instructions on the face of a PMC invoice did not match the banking instructions on file for PMC, which called for payment of invoices to be made to the Kuwait account. Aranha asked Dizon and Lagrimas to provide a letter from PMC confirming PMC's request to change banking details from the Kuwait account to the Lebanon account. Dizon and Lagrimas then sent emails to four PMC employees-Byers, Fawaz, and two PMC employees working in Iraq who ordinarily delivered PMC invoices to DIFZ's Iraq office- seeking written confirmation of the request to change the banking instructions for DynCorp's payment of invoices under Subcontract 002, Fawaz responded to Dizon by e-mail, attaching to the e-mail a letter by Fawaz to Lagrimas written on PMC letterhead providing for payment of invoices under Subcontract 002 to the Lebanon account in lieu of the Kuwait account. The letter stated, "Please find below our 2nd banking details for PMC that shall be used specifically for all Contracts [except for the O&M Contract]." Projects Management Co. v. DynCorp Int'l LLC , PMC's "Managing Director." As further confirmation of the new payment instructions, Byers, on December 30, 2008, sent Dizon an e-mail, with a copy to DynCorp's Burton, stating, "The Villas Progress Payments...we will want sent to the new Bank Details sent to you by [Fawaz]." Projects Management Co. v. DynCorp Int'l, LLC , Case No. 1:13-cv-331. Doc. 128, Ex. 15 (E.D. Va. Aug. 23, 2013). Byers signed the e-mail as PMC's "Theater Program Manager." DynCorp was never advised by Byers, Fawaz, or anyone else that the Lebanon account was in fact Fawaz's personal bank account.
Thereafter, and for approximately twelve months, DynCorp made payments totaling approximately 1.2 million dollars to the Lebanon account for Subcontract 002 invoices that requested payment to that account. During this twelve month period, no one at PMC objected to DynCorp making payments to the Lebanon account, nor did anyone at PMC advise DynCorp that Fawaz or Byers lacked the necessary authority to direct changes in banking instructions or to modify the subcontract's provision regarding the payments.
The record reflects that in June 2009-in the midst of the twelve-month period during which DynCorp made payments to the Lebanon account-PMC learned that Fawaz had been making certain payments from the Lebanon account to subcontractors for work done on Subcontract 002. Specifically, PMC's Rule 30(b)(6) witness testified that these payments "related to the work which was being carried out by PMC in Iraq" for DynCorp, including payments to "some of the suppliers"and at least one payment to PMC's primary subcontractor, Cater Corp. Projects Management Co. v. DynCorp Int'l, LLC , Case No. 1:13-cv-331, Doc. 128, Ex. 21, p. 136 (E.D. Va. Aug. 23, 2013). Although bank statements from the Lebanon account reflect some payments made to subcontractors and employees pursuant to Subcontract 002, it is impossible to establish with complete certainty which subcontractors were paid pursuant to Subcontract 002 and how much these subcontractors were paid. This is so because payments from the Lebanon account were also made to subcontractors and to PMC employees pursuant to a second subcontract, as well as Subcontract 002.
In this case, PMC argues that the proper measure of damages is the full amount-over 1.2 million dollars-that DynCorp paid to the Lebanon account under Subcontract 002, and that PMC need not subtract from this amount the avoided costs, namely the sums paid to PMC's subcontractors from the Lebanon account. DynCorp argues that PMC's damage claim for the entire amount DynCorp paid to the Lebanon account without accounting for PMC's avoided costs is contrary to the governing law and thus that PMC's breach of contract claim fails, as damages are an essential element of the breach of contract claim.
In the course of discovery, DynCorp understandably sought to determine whether avoided costs existed and, if so, the magnitude of these costs. PMC resisted this effort and refused to provide this information. When PMC's Rule 30(b)(6) witness on this issue was asked whether payments to subcontractors under Subcontract 002 had been made from the Lebanon account and, if so, the identity of subcontractors and the amount of such payments, the 30(b)(6) witness testified that PMC was "not in a position to do any further work in terms of identifying the [subcontractors] and what monies were owed to them, what has been paid, not paid; and this is something which was a conscious decision taken in consultation with our counsel." Projects Management Co. v. DynCorp Int'l, LLC , Case No. 1:13-cv-331. Doc. 128, Ex. 21, p. 214 (E.D. Va. Aug. 23, 2013). In other words, PMC made clear its decision to assert a damage claim for the full amount DynCorp paid to the Lebanon account without accounting for avoided costs, and it refused to provide full discovery on avoided costs. Significantly, PMC's Rule 30(b)(6) witness also testified that he was unaware of any subcontractors on Subcontract 002 that have sued PMC for failure to pay for work the subcontractors performed under Subcontract 002.
This is not the first time that DynCorp and PMC have disputed whether PMC's proof of damages must account for avoided costs. In 2011, PMC sued DynCorp for breach of Subcontract 08-SC-LES-CIVPOL-PMC-001 ("Subcontract 001"),  a subcontract essentially similar to Subcontract 002. Pursuant to Subcontract 001, PMC was obligated to provide support for DynCorp's prime contract with the United States Department of State to assist with the development of an Iraqi civilian police force. As was true with Subcontract 002, all the work done under Subcontract 001 was performed by subcontractors hired by PMC. Also, like Subcontract 002, Subcontract 001 instructed DynCorp to pay PMC invoices by wire transfer to the Kuwait account. Further, as occurred here with respect to Subcontract 002, Fawaz and Byers, during the term of Subcontract 001, instructed DynCorp to pay the invoices under Subcontract 001 into the same Lebanon account at issue here in lieu of the Kuwait account designated in both subcontracts. And as occurred in this case, the new payment instructions were formally affirmed by Byers in writing. As a result, during the remaining period of Subcontract 001 DynCorp paid PMC's invoices by wiring the money to the Lebanon account. In this case, as in PMC I, PMC consistently claimed that the proper measure of PMC's damages for the breach of Subcontract 001 was the total amount of money DynCorp paid into the Lebanon account without accounting for avoided costs. And in this case, as in PMC I, PMC has declined to provide a full accounting of these avoided costs,  contending instead that the proper measure of damages is the full amount DynCorp paid to the Lebanon account.
In PMC I, PMC's case was dismissed on the ground that PMC's proffered measure damages was impermissible under governing law because it did not account for avoided costs, and alternatively, dismissal was also ordered as a sanction for PMC's discovery defalcations. Projects Management Co. v. DynCorp Int'l, LLC , Case No. 1:11-cv-1345 (E.D. Va. Aug. 12, 2012) (Order). PMC timely appealed the dismissal, and on November 5, 2013, the Fourth Circuit affirmed the dismissal on the ground that PMC's discovery defalcations warranted the dismissal sanction. The Fourth Circuit did not reach or decide the damages dispute. Projects Management Co. v. DynCorp Int'l, LLC , 734 F.3d at 377.
Although DynCorp has moved for summary judgment on four grounds,  it is necessary to reach and decide only whether PMC's breach of contract claim must be dismissed on the ground that its claim for damages-an essential element of ...