United States District Court, E.D. Virginia, Alexandria Division
O'Grady United States District Judge
matter comes before the Court on a Partial Motion for Summary
Judgment filed by Defendant Federal Home Loan Mortgage
Corporation d/b/a Freddie Mac ("Freddie Mac"). Dkt.
No. 167. The Second Amended Complaint in this matter alleges
that Freddie Mac breached and wrongfully terminated a
contract it had with Plaintiff Computer Sciences Corporation
("CSC"). The Complaint sets forth two causes of
action: Count A, Breach of Contract; and Count B, Breach of
Duty of Good Faith and Fair Dealing (under New York law).
Freddie Mac has counterclaimed alleging three causes of
action: Count I, Breach of Contract; Count II, Fraudulent
Inducement; Count III, Recission and Restitution. By the
present Motion, Freddie Mac seeks judgment in its favor with
respect to certain of CSC s claimed damages on the breach of
contract claim and judgment in its favor on CSC's claim
for breach of the implied covenant of good faith and fair
dealing. Freddie Mac also seeks judgment on its counterclaim
for breach of contract to the extent necessary to compel CSC
to transfer certain equipment to Freddie Mac at terms set
forth in the Contract. CSC contends that because Freddie Mac
cannot satisfy its burden to show the absence of a genuine
dispute as to any material fact, the Partial Motion for
Summary Judgment should be denied in full.
reasons outlined below, the Court GRANTS IN PART and DENIES
IN PART the Motion.
an IT service provider. Freddie Mac is a public,
government-sponsored enterprise operating in the secondary
mortgage market. It is currently operating under the
conservatorship of the Federal Housing Finance Agency. On
March 31, 2014, Freddie Mac issued a request for proposal
seeking to improve its IT services. CSC submitted its initial
response on May 19, 2014 and a Best and Final Offer on July
23, 2016. The parties negotiated the agreement over the
following three and a half months. On November 6, 2014, CSC
and Freddie Mac entered into a Master Services Agreement,
under which CSC agreed to provide IT services to Freddie Mac
with the goal of unifying Freddie Mac's data network and
voice services into a common platform. On November 6, 2014,
the parties also entered into Work Order #1, under which CSC
agreed to modernize Freddie Mac's voice network, which
included replacing Freddie Mac's phones (altogether
the Contract is hundreds of pages long, the following
features of the contract bear on the present Motion:
• The agreement set forth numerous Milestone
achievements, which upon their completion entitled CSC to
invoice for the services rendered with respect to that
Milestone. Work Order # 1, Ex. A-3, C-2-A, Table II.
• Milestone completion was subject to approval by
Freddie Mac who could requ* CSC to revise and resubmit if
Freddie Mac identified deficiencies. Work Orde #l, Sched.A,
• Before CSC implemented any changes to the scope of the
work under the Contract it was required to obtain a signed
Change Order from Freddie Mac. MSA, Attachment 7, § 10.
• CSC was required to invoice Freddie Mac for all
amounts due under the Contract within thirty days after the
end of the month in which the services were performed. MSA,
• Freddie Mac could terminate with or without cause and
in either case was obliged to pay Balance Sheet Amounts as
defined by the Contract. Termination without cause (for
convenience) also obliged Freddie Mac to pay an early
termination fee and wind down expenses. MSA, Attachment 9,
§ 1; Work Order # 1, Sched. C, § 6.1.
• Upon termination, Freddie Mac was entitled to purchase
equipment owned by CSC or its subcontractors for the lesser
of the corresponding Balance Sheet Amounts and the actual
amount capitalized by CSC or its subcontractors for assets or
costs incurred, less depreciation. MSA, Attachment 8,
§§ 7.1 & 7.2.
agreement of the parties, the first phase of work performed
under Work Order # 1 focused on the transition to CSC of
Freddie Mac's voice services. The parties quickly ran
into difficulties including a phone outage for Freddie Mac
traders on April 1, 2015. That outage occurred, according to
a CSC Root Cause Analysis, when "[a] dial peer entry
associated to the trader range was removed by human
error." The most significant outage occurred from July
4-6, 2015 when a fiber optic cable was cut-through no fault
of either party-and the phone system failed to fall back to a
working service as intended by the parties. As a result,
phone service was mostly disabled through the weekend and
partially disabled through Monday, July 6, 2015.
that the July 4-6 outage constituted grounds for termination
with cause, the parties stipulated that, by letter dated
August 3, 2015, Freddie Mac terminated the Contract,
effective February 3, 2016. The effective date of termination
was later extended by agreement to December 3, 2016.
filed a Complaint alleging breach of contract and other
injuries on January 5, 2016. Dkt. No. 1. Freddie Mac moved to
dismiss on March 10, 2016. Dkt. No. 6. CSC filed a First
Amended Complaint ("FAC") mooting the motion. Dkt.
No. 24. Freddie Mac again moved to dismiss in part the FAC
for failure to state a claim. Dkt. No. 29. The Court granted
in part and denied in part the Motion. Dkt. No. 40. CSC filed
a Second Amended Complaint ("SAC") on June 2, 2016.
Dkt. No. 43. Freddie Mac moved to dismiss in part the SAC.
Dkt. No. 46. The Motion was denied. Dkt. No. 54. Freddie Mac
filed an answer and asserted counterclaims. Discovery ensued
and at its close, Freddie Mac filed the present Partial
Motion for Summary Judgment. Dkt. No. 167. The matter has
been fully briefed by the parties.
Rule 56(c) of the Federal Rules of Civil Procedure, summary
judgment is proper "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together
with the affidavits, if any, show 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). As the Supreme Court has explained, "this
standard provides that the 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." Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 247-48 (1986). A dispute over an issue of material
fact is "genuine" if "the evidence is such
that a reasonable jury could return a verdict for the
nonmoving party." Id. at 248. In making a
summary judgment determination, the Court must bear in mind
that "[a] complete failure of proof concerning an
essential element of the non-moving party's case
necessarily renders all other facts immaterial."
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
"Although the court must draw all justifiable inferences
in favor of the nonmoving party, the nonmoving party must
rely on more than conclusory allegations, mere speculation,
the building of one inference upon another, or the mere
existence of a scintilla of evidence." Dash v.
Mayweather, 731 F.3d 303, 311 (4th Cir. 2013).
22.3 of the MSA provides that "all aspects of the
parties' relationship" will be interpreted and
construed according to New York law. Applying Virginia's
choice of law rules, the Court will honor the choice of law
clause contained in the MSA and will apply New York law to
its analysis of the contract. "Virginia law looks
favorably upon choice of law clauses in a contract, giving
them full effect except in unusual circumstances."
Colgan Air, Inc. v. Raytheon Aircraft Co., 507 F.3d
270, 275 (4th Cir. 2007) (citing Hitachi Credit Amer.
Corp. v. Signet Bank, 166 F.3d 614, 624 (4th Cir.
New York Law, "when parties set down their agreement in
a clear, complete document, their writing should.. .be
enforced according to its terms." Vermont Teddy Bear
Co., Inc. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475
present Motion concerns three issues. First, whether CSC can
recover as a matter of law on certain of its claimed elements
of damages for breach of contract. Second, whether CSC has
stated a claim for breach of the covenant of good faith and
fair dealing and gross negligence or willful misconduct.
Third, whether Freddie Mac is entitled to summary judgment on
its counterclaim for the transfer of certain equipment from
CSC at the price to which it believes it is entitled. The
memorandum deals with each of these issues in turn.
Whether CSC Can Recover Certain of Its Claimed Elements of
Damages as a Matter of Law
Mac contends that CSC is not entitled to obtain damages on
many of its claims arising out of the Contract or CSC's
performance in support of the Contract. Specifically, Freddie
Mac states that as a matter of law, CSC is not entitled to:
certain allegedly untimely invoice payments; payments for
work not authorized by change orders; the amount of CSC's
balance sheet, above a cap of $693, 488.07; and early
termination fees and wind down expenses. With the exception
of three invoices discussed in detail below, the Court agrees
that Freddie Mac is not otherwise obligated to pay the
disputed invoices. The Court further finds that the balance
sheet recovery is capped at $693, 488.07 and that CSC is not
entitled to early termination fees or wind down expenses.
parties disagree on whether Freddie Mac is obligated to pay
invoices submitted for services rendered by CSC under the
Contract. Specifically, Freddie Mac contends that as a matter
of law it should not be required to pay invoices 1-4, 34-48,
and 53 on the CSC Invoices Exhibit supplied by Freddie Mac.
See Oakes Decl. 3.
contract provides that "CSC shall invoice Freddie Mac
for all amounts due under this Agreement on a calendar
monthly basis within thirty (30) days after the end of the
month in which the Services were performed." MSA §
6.1(a). If an invoice is not provided to Freddie Mac by that
date, "Freddie Mac will have no obligation to pay for
such Services." MSA § 6.1(d). However, § 3.2
to Schedule C to Work Order #1 prohibits CSC from invoicing
"for the component of the Base Charge prior to CSC's
achievement of the applicable Acceptance Criteria for the
Payment Milestone related to the Base Charges." If CSC
believes it is entitled to payment but is not able to
precisely invoice for the amount owed, it is permitted to
list the entry on the invoice for the relevant month and
subsequently bill for the exact amount when calculable. MSA
§ 6.1(d). But in no case is Freddie Mac obligated to pay
for services invoiced in this manner more than ninety (90)
days after the service was provided. Id. If Freddie
Mac refuses to pay a properly filed invoice which exceeds a
certain amount, CSC is entitled to demand that any
subsequently disputed amounts be held in escrow until the
dispute is resolved. MSA § 6.7.
noted above, Freddie Mac has provided a list of all invoices
it received from CSC with corresponding "reasons for
nonpayment" where relevant. See Oakes Decl. 3.
Of the 54 invoices, 18 are identified as "Base
Fees/Consumption"; six are identified as
"Transition Milestones"; four are identified as
"Change Orders"; five are identified as
"Electronic Fax"; two are identified as "1GB
Circuit"; and ...