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L-3 Communications Corp v. Serco, Inc.

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

March 15, 2018

SERCO, INC., Defendant.


          T. S. Ellis, III United States District Judge.

         Plaintiffs, L-3 Communications Corporation and L-3 Applied Technologies, Inc. (“plaintiffs”), specialize in High Altitude Electro-Magnetic Pulse (“HEMP”) testing and maintenance, which is necessary to prevent EMPs from damaging mission-critical military equipment. Defendant Serco, Inc. (“Serco”) held a prime contract with the United States Air Force that included the provision of HEMP testing. Because Serco did not have the ability to offer HEMP-related services, Serco subcontracted with plaintiffs' predecessor, L-3 Services, to provide HEMP services to the Air Force. Plaintiffs argue that Serco then helped employees at L-3 Services steal L-3 Services' trade secrets and redirect bids for HEMP services to which plaintiffs were entitled to Jaxon, a company formed by former L-3 employees.

         After extended litigation in three courts, [1] spanning over a decade and involving many of the same issues, and after full discovery in this case, Serco now moves for summary judgment. At issue are the following questions: (i) whether plaintiffs' claims are time-barred, and (ii) whether plaintiffs possessed a valid contractual or business expectancy in receiving HEMP-related Task Orders from Serco.

         The matter has been fully briefed and argued, and is now ripe for disposition.


         The entry of summary judgment is appropriate only where there are no genuine disputes of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). That is the situation here. Pursuant to Local Rule 56(B) and the Rule 16(b) Scheduling Order issued in this case, a motion for summary judgment must contain a separately captioned section listing in numbered-paragraph form all material facts as to which the movant contends no genuine dispute exists. See L-3 Commc'ns Corp. v. Serco, Inc., No. 1:15-cv-701 (E.D. Va. Aug. 5, 2015) (Order). Both parties fully complied with Local Rule 56(B) and the Scheduling Order. The following list of undisputed material facts is based on Serco's statement of undisputed material facts and plaintiffs' response to that statement.

• Plaintiff, L-3 Communications Corporation is a Delaware corporation headquartered in New York, NY. The other plaintiff, L-3 ATI, is a Delaware corporation with its principal place of business in San Diego California. L-3 ATI is the successor in interest to L-3 Services, which performed HEMP-related services.
• Defendant, Serco, Inc., is a defense contractor which held the prime contract with the U.S. Air Force to provide a number of services at the U.S. Air Force Space Command. Serco is a New Jersey corporation headquartered in Reston, VA.
• On April 14, 2004, the Air Force awarded a prime contract to Serco, [2] which required Serco to provide a number of services to the Air Force, including testing and upgrading Air Force sites to protect them from HEMP events, such as nuclear explosions. The prime contract is performed in Serco's Colorado Springs, Colorado office because the Air Force headquarters is located in Colorado.
• On December 30, 2004, Serco awarded Subcontract No. SI-2004-SC203333 (the “Subcontract”) to the Titan Corporation (“Titan”), thepredecessor to L-3 Services. The Subcontract between Serco and Titan provides that the Subcontract is the sole source of Task Orders and that the Subcontract's terms govern any Task Orders Serco might issue to Titan. See Id. § H.31. The Subcontract further provides that the subcontractor is prohibited from assigning the Subcontract without Serco's written consent, which Serco may withhold in its discretion. See Id. § H9. The Subcontract also includes a limitation of liability clause, written in all capital letters that limits the availability of lost profit damages. § H.11
• Under the Subcontract, Serco issued Requests for Proposals (“RFPs”) to Titan seeking bids on various Task Orders to be issued under the Subcontract. These RFPs stated that “Serco also reserves the right to make one award, multiple awards, or no award, depending on the best interest of Serco, ” and that “Serco may reject any and all offers or waive informalities and minor irregularities in the proposals received.” See, e.g., Ex. 7.
• On March 18, 2008, Serco and Titan entered into a modification of the Subcontract for the purpose of “chang[ing] the name of the Subcontractor to L-3 Services.” See Def. Ex. 3. This modification identifies L-3 Services as the named Subcontractor, and L-3 Services is also the signatory. See id. L-3 Services' HEMP business was located in Colorado. L-3 Services was the predecessor to L-3 ATI, one of the plaintiffs in this case. L-3 Communications Corporation, the other plaintiff, was the parent company of L-3 Services.
• On June 6, 2008, L-3 Services' employee Randy White incorporated Jaxon with his wife, Joni White, in Colorado. In early December 2008, Randy White informed Serco Program Manager Donald Eich that he planned to retire from L-3, and later that month, White officially announced his retirement from L-3 Services.
• Jaxon received its first RFP from Serco on March 3, 2009, and on June 30, 2009, Serco's Colorado Springs office entered Subcontract No. S2TM9SC407 with Jaxon.
• Serco retained its Subcontract with L-3 Services and continued to award Task Orders to L-3 Services, Jaxon, and others from 2009 to 2014.
• On August 18, 2009, L-3 Services employee Charles Crain recommended to L-3 Services that a letter be sent to Serco warning that if Serco allowed Jaxon to use L-3 Service's technology, it would “become a party to pirating IP and could be subject to civil litigation.” See Ex. 27 at 83, 310-13, Ex. 16.
• In October and November 2009, Crain filed an ethics complaint against Jaxon and Serco with L-3 Services and the Air Force Inspector General. Plaintiffs contended in the ethics complaint that Randy White, Scott White, Susie Rettig, Jim Youngman, and John McClure breached their employment agreements in 2008 by stealing L-3 Services' trade secrets and customer lists to assist in the formation of Jaxon. See Ex. 29 at 199. The Air Force investigated the complaint, but no action was taken.
• On November 23, 2010, L-3 Services and L-3 Communications filed a complaint against Jaxon and various Jaxon personnel in the U.S. District Court for the District of Colorado (the “Colorado Action”). Although Serco was not named in the suit, the lawsuit alleged that Serco had participated in an “illegal scheme” beginning in 2007. See Ex. 9 ¶ 75. On February 11, 2011, L-3 Services and L-3 Communications filed an Amended Complaint with similar allegations against Serco. The various L-3 entities and Jaxon settled the Colorado action on March 4, 2016. All claims were settled and Jaxon obtained a release from the L-3 entities.
• On November 9, 2011, while the litigation with Jaxon was ongoing, L-3 went though a corporate restructuring. L-3 ATI, a new corporation and one of the plaintiffs in this case, was incorporated in Delaware, and on December 11, 2011, L-3 Services and L-3 ATI entered into a Contribution Agreement by which certain assets were transferred from L-3 Services to L-3 ATI. The Contribution Agreement excluded transfer of any asset for which prior consent was required. This exclusion included L-3 Services' Subcontract with Serco.
• On May 1, 2014, L-3 Communications and L-3 ATI (but not L-3 Services) filed a complaint against Serco in the Circuit Court for Fairfax County (the Fairfax Action). Plaintiffs alleged that collusion between Serco and Jaxon began well before Serco first began awarding Task Orders to Jaxon in 2009, including an allegation that White had colluded with Serco in 2008. The Fairfax Action asserted claims against Serco for: (i) tortious intereference with employment agreements; (ii) tortious interference with a contract or business expectancy; (iii) civil conspiracy; and (iv) statutory business conspiracy under Va. Code § 18.2-499, 500. On September 30, 2014, plaintiffs filed an Amended Complaint in the Fairfax Action, detailing further misconduct of Serco and Jaxon beginning in 2008. Soon after the filing of the Amended Complaint, Serco filed a Demurrer and Plea in Bar.
• On May 1, 2015, the Fairfax Court sustained the Demurrer in part, ruling that Colorado law applied to the case and that plaintiffs' business expectancy and business conspiracy claims must be dismissed because those claims do not exist under Colorado law. The state court judge identified five acts in Colorado that completed the alleged tort and gave rise to L-3's claims: (i) Serco's alleged exclusion of L-3 from the bidding process for the 2009 Task Orders; (ii) Serco's alleged failure to publicly advertise most of the 2009 Task Orders; (iii) Serco's alleged prevention of L-3 from submitting competitive bids; (iv) Serco's alleged bid rigging; and (v) Serco's alleged teaming with Jaxon, despite its alleged knowledge that Jaxon was using L-3's proprietary information. The state court judge held that “all the alleged acts previously cited which occurred in Colorado and prior to Serco's termination of L-3's business expectancy were sufficient to be deemed the last act necessary to make L-3's claim for tortious interference with business expectancy actionable. As such, this Court has determined that Colorado law applies.”
• Plaintiffs nonsuited the Fairfax Action effective May 29, 2015.
• On June 3, 2015, shortly after non-suiting the Fairfax action, plaintiffs filed a complaint in the Eastern District of Virginia. On September 2, 2015, plaintiffs filed an amended complaint, and Serco filed a motion to dismiss.
• On October 30, 2015, the federal district judge originally assigned to the case[3] granted Serco's Rule 12(b)(1) motion to dismiss for lack of standing. As Judge Lee explained, “the subcontract is the center of the dispute . . . [a]nd since the subcontract does not name either [plaintiff] and neither [plaintiff] is an assignee of the contract, then they cannot have any business expectancy which arise[s] outside of the contract.”
• Plaintiffs appealed and the Fourth Circuit reversed. See L-3 Commc'ns Corp. v. Serco, Inc., 673 Fed.Appx. 284, 285 (4th Cir. 2016) (unpublished). The Fourth Circuit explained that, while plaintiffs' allegations were sufficient to establish standing at the pleading stage, “[t]he separate but related question whether [plaintiffs] have alleged business expectancy is one properly considered under Federal Rule of Civil Procedure 12(b)(6) or on a motion for summary judgment.” Id.
• The case was returned to the district court and a scheduling order was entered. Serco sought leave to file a 12(b)(6) motion. By Order, the federal district judge originally assigned to the case denied the request for leave to file a 12(b)(6) motion and informed the parties that neither was permitted to file or renew ant dispositive motions until the completion of ...

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