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Technology and Supply Management, LLC v. Johnson Controls Building Automation Systems, LLC

United States District Court, E.D. Virginia, Alexandria Division

January 4, 2017

TECHNOLOGY AND SUPPLY MANAGEMENT, LLC, Plaintiff,
v.
JOHNSON CONTROLS BUILDING AUTOMATION SYSTEMS, LLC, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          Anthony J. Tranga United States District Judge.

         This government procurement, diversity case arises out of a subcontract between Plaintiff Technology and Supply Management, LLC ("TaSM") and Johnson Controls Building Automation Systems, LLC, ("JCBAS") to provide energy efficient relocatable shelters to the Army for use at Camp Buehring, Kuwait, all in connection with TaSM's prime contract with the Army (the "Subcontract"). TaSM terminated the Subcontract for default on December 3, 2014 and filed this action on March 18, 2016, seeking to recover damages for JCBAS' alleged breach of the Subcontract and related tortious conduct.[1]

         Pending before the Court is a Motion for Partial Summary Judgment [Doc. No. 97] filed by Defendants JCBAS, and its affiliates Johnson Controls Federal Systems, Inc. ("JCFS") and Johnson Controls, Inc.'s ("JO") (the "Motion"). Briefly summarized, defendants have moved for judgment as a matter of law on (1) TaSM's claim for "cover" damages, either for lack of standing or because TaSM was able to "cover" for an amount less than what it would have owed under the Subcontract for the remaining shelters and any other claimed damages are consequential damages that are waived under the Subcontract; (2) TaSM's claim for shipping and storage costs associated with rejected shelters on the grounds that such expenses are incidental damages that are waived under the Subcontract; (3) TaSM's fraud claim on the grounds that any alleged misrepresentations related to contract performance and therefore cannot constitute actionable conduct under a fraud theory; (4) TaSM's claim against JCFS and JCI for tortious interference with the Subcontract; and (5) TaSM's claim for tortious interference with business expectancy. For the reasons stated below, the Motion is GRANTED as to TaSM's claim for contractual damages for the shipping and storage costs of rejected shelter units and TaSM's tortious interference with contract claim (Count 4) and is otherwise DENIED.

         I. BACKGROUND

         Unless stated otherwise, the following facts are either undisputed or disputed facts viewed most favorably to TaSM:

         Defendant JCBAS is a Delaware limited liability company that provides building systems and automation and energy savings solutions. Its sole member is Defendant JCFS and both entities are wholly owned subsidiaries of Defendant JCI. Around October 12, 2012, the Army issued a Request for Proposals ("RFP") in which sought goods and services in support of the Army's Kuwait Energy Efficiency Project (the "KEEP Project"). The RFP solicited energy efficient relocatable shelters for Camp Buehring, Kuwait, which the Army issued as a small business set aside. Given the Army's decision to set aside the procurement for small business, JCBAS could not serve as the prime contractor. JCBAS thus approached TaSM, a small business, and proposed that TaSM serve as the prime contractor, and JCBAS as the subcontractor. TaSM agreed; and on November 26, 2012, TaSM submitted its proposal in response to the RFP. The Army awarded TaSM the KEEP contract on or around March 15, 2013. After several rounds of protests and a re-solicitation, the Army again selected TaSM's proposal and on September 27, 2013, awarded to TaSM Contract No. W15QKN-D-0113 (the "Prime Contract"). The Prime Contract was an "indefinite quantity, indefinite delivery" contract ("IQID") that had a guaranteed value of $10 million, with a total authorized "ceiling value" of $29, 429, 017. The Army issued Prime Contract Delivery Order 1 simultaneous with the Prime Contract award, which requisitioned 72 two-story shelter units for Camp Buehring at a total cost of $14, 880, 593.52. Overall, the Army has issued six fixed-price delivery orders to TaSM under the Prime Contract at a cost of $18, 404, 304.

         In February 2014, TaSM and JCBAS executed the Subcontract for JCBAS to perform certain work required by the Prime Contract. Under Section 10(c) of the Subcontract, the parties waived any right to recover either incidental or consequential damages. In March 2014, TaSM and JCBAS entered Subcontract Delivery Order 0001 for JCBAS to deliver 72 two-story shelter units at a price of $174, 000 each, for a total price of $12, 528, 000.

         Following execution of the Subcontract, a dispute arose regarding JCBAS' performance, including the type of expanded polystyrene ("EPS") insulating materials that would be used in the panels of the shelters-specifically the extent to which Neopor, a specific type of EPS manufactured by BASF, was required under the Prime Contract and Subcontract. Eventually, JCBAS used Neopor for all exterior walls but another type of EPS, Styropor, for all internal dividers. TaSM learned of the use of Styropor, instead of Neopor, for the interior dividers in July 2014.

         In September 2014, TaSM issued to JCBAS a "stop work order" based on TaSM's assessment of deficiencies in JCBAS' performance. That "stop work order" was eventually lifted in October 2014 following a series of communications between the parties. On October 20, 2014, TaSM directed JCBAS to package and prepare for shipment all of the remaining materials for the two-story shelter units remaining to be fabricated under Subcontract Delivery Order 0001, which included all the materials for 36 of the 72 two-story shelter units. Thereafter, JCBAS began preparing to deliver the remaining materials due under Delivery Order 0001 that had yet to be delivered. In November 2014, TaSM picked up the remaining materials from JCBAS and shipped the units to Kuwait. On December 3, 2014, while the JCBAS materials were in transit to Kuwait, TaSM terminated JCBAS for default under the Subcontract and also rejected the materials in transit. Throughout this period, defendants' employees repeatedly contacted the Army directly concerning TaSM's performance and conduct with respect to the KEEP Project, even though its own contractual relationships pertaining to the shelters were solely with the TaSM.

         Under the Subcontract, JCBAS had agreed to fabricate the rejected 36 two-story shelter units for approximately $6.6 million. After termination, TaSM contracted with Energy Efficient Building Systems, LLC ("EEBS") to provide the materials for those remaining 36 two-story shelter units at a cost of $5, 721, 581.02. EEBS is affiliated with TaSM and owned by TaSM principals. EEBS, in turn, subcontracted with Evia Operations S.a.R.L. ("Evia") to obtain the materials needed to fabricate the shelter units. Thereafter, Evia and its affiliate, IQ LLC, failed to perform under their contract with EEBS and were terminated. TaSM and/or EEBS then started a facility of their own in Virginia to produce the panels for the shelter units, which were eventually fabricated and delivered to the Army. TaSM has incurred over $10 million dollars in completing JCBAS' work under the Subcontract, either directly or through its affiliate EEBS. Despite the amount remaining under the authorized spending ceiling of the Prime Contact, the Army has not ordered any further shelter units.

         II. STANDARD OF REVIEW

         Under Federal Rule of Civil Procedure 56, summary judgment is appropriate only if the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Evans v. Techs. Apps. & Serv. Co., 80 F.3d 954, 958-59 (4th Cir. 1996).

         The party seeking summary judgment has the initial burden to show the absence of a material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. Once a motion for summary judgment is properly made and supported, the opposing party has the burden of showing that a genuine dispute exists. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). To defeat a properly supported motion for summary judgment, the non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 247-48 ("[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact."). Whether a fact is considered material is determined by the substantive law, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id. at 248. The facts shall be viewed, and all reasonable inferences drawn, in the light most favorable to the non-moving party. Id. at 255; see also Lettieri v. Equant Inc., 478 F.3d 640, 642 (4th Cir. 2007).

         III. ANALYSIS

         A. Contract Damages Based on TaSM's Cost to Cover ...


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