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Gradillas Court Reporters, Inc. v. Cherry Bekaert, LLP

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

November 6, 2018

GRADILLAS COURT REPORTERS, INC., Plaintiff,
v.
CHERRY BEKAERT, LLP, et al., Defendants.

          UNITED STATES MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION

          Robert J. Krask United States Magistrate Judge

         This matter comes before the Court on a motion for summary judgment filed by defendants Cherry Bekaert, LLP, and Sara Crabtree.[1] ECF No. 62. The motion was referred to the undersigned United States Magistrate Judge on August 7, 2018, pursuant to 28 U.S.C. § 636(b)(1)(B) and Federal Rule of Civil Procedure 72(b). ECF No. 71. For the reasons discussed below, the undersigned recommends that the motion for summary judgment be GRANTED.

         I. PROCEDURAL BACKGROUND

         On May 16, 2017, plaintiff, Gradillas Court Reporters, Inc. ("GCRI"), filed a two-count complaint against Cherry Bekaert, LLP ("Cherry Bekaert"), Sara Crabtree ("Crabtree"), and "Does 1 through 50, inclusive" in the Superior Court for the District of Columbia. Complaint ("Compl."), ECF No. 1-2. The complaint alleges that defendants breached a contract to provide accounting and government contracting services to GCRI and committed "[professional [n]egligence" in conjunction with the untimely submission of GCRI's bid for a contract with the Securities and Exchange Commission ("SEC"). Compl. ¶¶ 56-69.

         Defendants Cherry Bekaert and Crabtree (hereafter "defendants") removed the case to the United States District Court for the District of Columbia on June 14, 2017, ECF No. 1, and subsequently moved to dismiss the case for lack of venue and jurisdiction, or to transfer the case to the Eastern District of Virginia. ECF No. 11. Following a hearing on October 6, 2017, the court granted the motion to transfer the case to the Eastern District of Virginia. ECF No. 16.[2]Defendants answered the complaint on November 27, 2017. ECF No. 24.

         On January 18, 2018, GCRI moved for partial judgment on the pleadings against the defendants on its breach of contract claim. ECF No. 37. By report and recommendation dated March 2, 2018, United States Magistrate Judge Douglas E. Miller recommended that GCRI's motion be denied, but that defendants' affirmative defense alleging GCRI's failure to mitigate damages be struck. ECF No. 45 at 1-2. The Court adopted and approved Judge Miller's findings and recommendations on April 2, 2018. ECF No. 52.

         On July 17, 2018, defendants moved for summary judgment on four grounds. First, defendants argue that GCRI's contract with Cherry Bekaert expressly bars claims for consequential damages, like the $12, 205, 421.00 in lost profits sought in recovery for counts one and two. ECF No. 63 at 13-18; Compl. ¶¶ 51, 62, 69. Second, defendants claim entitlement to judgment as a matter of Virginia law because GCRI's claims "are so speculative and contingent that they cannot form the basis of any cause of action," ECF No. 63 at 18, and the opinions of government contracting experts cannot remedy this deficiency, id. at 26-28. Third, defendants claim that, in the absence of a duty owed to GCRI independent of any contractual relationship, no claim of professional malpractice or negligence can survive. Id. at 28-29. Finally, defendants argue that Crabtree, as a Cherry Bekaert employee, is entitled to judgment as a matter of law on both claims because she was neither a party to any contract nor liable in her personal capacity for any breach of professional services. Id. at 29-30.

         GCRI filed a response in opposition to defendants' motion for summary judgment on July 31, 2018, ECF No. 64, and defendants replied thereto on August 6, 2018, ECF No. 70. Thereafter, the Court permitted GCRI to supplement the factual record on September 24, 2018, with evidence of a new contract award to GCRI by the SEC, and authorized the defendants to file a sur-reply on September 26, 2018. ECF Nos. 74-75, 79, 82.

         On October 16, 2018, the Court heard oral argument on the motion for summary judgment. Don Howarth, Esq., Suzelle M. Smith, Esq., and Robert M. Tata, Esq., represented GCRI. J. Peter Glaws, IV, Esq., represented defendants. The court reporter was Rebecca Braley. As the matter is fully briefed and has been argued, it is ripe for decision.

         II. FACTUAL BACKGROUND

          The following facts have been gathered from the pleadings, the parties' factual recitations for and in opposition to summary judgment, and the exhibits appended to the summary judgment filings, including excerpts of deposition testimony. Where there are inconsistencies among these sources, the Court recounts the facts in the light most favorable to GCRI.

         A. GCRI and Cherry Bekaert's March 27, 2012 Letter of Engagement

         Josephine Gradillas ("Gradillas"), a resident of Los Angeles, California, founded GCRI in 2001 and is its sole owner. ECF No. 67 at ¶¶ 1-2. GCRI is in the business of providing court reporting and transcription services, and providing private copies of the same to parties for a fee. Id. at¶4.

         After seeing advertisements for Cherry Bekaert's accounting and government contracting services, in late March 2012[3] Gradillas contacted Cherry Bekaert[4] seeking assistance for her business. Compl. ¶¶ 10-12, 14-17; ECF No. 63-1 at 1-2. This contact led to the entry of a "letter of arrangement" between GCRI and Cherry Bekaert. ECF No. 63-2 ("engagement letter").

         The typewritten engagement letter, dated March 22, 2012 and set forth on Cherry Bekaert letterhead, was signed by John Carpenter as "engagement principal" for the firm. Id. at 1, 4. The terms of the letter are described in detail below. The next day, "Government Consultant" Crabtree sent Gradillas an e-mail forwarding a copy of the "general consulting engagement letter [outlining GCRI's] working relationship" with Cherry Bekaert, and identified herself as "the primary consultant assigned to support you ...." ECF No. 63-1 at 1.

         On March 27, 2012, Gradillas signed, dated, and accepted the terms of the engagement letter in her role as GCRI's president. ECF No. 63-2 at 4; ECF No. 63-3 at 6 (249:12-250:5).

         B. The Engagement Letter's Material Terms

         The opening paragraph of the engagement letter indicates Cherry Bekaert will serve "as consultants" for GCRI, identified as "the 'Company, '" and recites that the letter "sets forth the nature and scope of the services [to be provided], the related fee arrangements and other terms and conditions designed to assure that [the] services are performed to achieve mutually agreed upon objectives." ECF No. 63-2 at 1. Although identifying John Carpenter as engagement principal, the letter states that "[t]he actual personnel who perform the work will vary depending on the areas of expertise ... [needed] to complete the engagement." Id.

         In summarizing the services to be provided, the engagement letter indicates that Cherry Bekaert "will provide general consulting and accounting assistance as requested by the Company[, ] [which] . . . consulting assistance may include, but not be limited to, general accounting assistance, advising on pricing and indirect rate structures, advising on general government contract matters and proposals, advising on tax matters, and other areas as mutually agreed." Id.

         With respect to fees, the engagement letter provides that "fees for the services described above are generally based on the time spent at [Cherry Bekaert's] established hourly rates, adjusted for other appropriate factors, including the difficulty of the assignment, the experience of the professional expertise of the personnel assigned, time limitations imposed, risks and responsibilities the work entails, and the value of our services." Id. at 3. Further, it recites that such fees "will be billed periodically as charges are incurred and . . . invoices are payable on presentation." Id. The engagement letter then recites hourly rates, "currently effective . . . through August 1, 2012," for various types of Cherry Bekaert personnel ranging, for example, from $140.00-5210.00 for a "Staff/Senior Accountant" up to $300.00-$395.00 for a "Partner/Principal." Id. Beneath this generic listing, the engagement letter also identifies hourly rates for two specified Cherry Bekaert personnel: Sara Crabtree at $265.00 and John Ford at $350.00. Id.

         Beneath the heading of "STANDARD TERMS AND CONDITIONS," the engagement letter also contains eight sub-headings and paragraphs, some of which are noted below. Id. at 2-3. With respect to the "Nature of Engagement," the letter recites that Cherry Bekaert "will not audit or review financial information and will not express an opinion or any form of assurance on it." Id. at 2.

         Under the sub-heading titled "Limitation on Damages," the engagement letter provides that "[i]n no event shall either [GCRI] or [Cherry Bekaert] be liable for consequential, special, indirect, incidental, punitive, or exemplary damages, costs, expenses or losses in an excess of [Cherry Bekaert's] fees." Id.

         Beneath "Services," the engagement letter recites that Cherry Bekaert's "services may include advice and recommendations; but decisions in connection with the implementation and communication of such advice and recommendations will be [GCRI's] sole responsibility." Id.

         Under "Term," the engagement letter recites that "[u]nless terminated sooner in accordance with its terms, this arrangement shall terminate on the completion of [Cherry Bekaert's] services hereunder. This arrangement may be terminated by either party at any time by giving written notice to the other party not less than thirty calendar days before the effective date of termination." Id. at 3.

         C. Services Provided After Endorsement of the Engagement Letter, but Before 2017

         After acceptance of the engagement letter, Cherry Bekaert and Crabtree initially worked on assisting GCRI to obtain a General Services Administration ("GSA") certification and placement on a GSA schedule of candidates available for government contracting work. ECF No. 63-3 at 6 (250:6-251:7); ECF No. 63-1 at 1-2. Crabtree and Cherry Bekaert mostly concluded this work on December 7, 2012. ECF No. 63-4 at 1-3 (telling Gradillas, "you are all set; anyone searching GSA Advantage will now see you!").

         That same day, Gradillas inquired about Crabtree's availability, around New Year's Day, to review a draft proposal Gradillas was hoping to work on for "an offering in Fedbizopps coming out on Dec[ember] 24th." Id. at 1. Although Crabtree promptly indicated that she was available to do this work, Gradillas later informed her, on January 10, 2013, that the solicitation in question "was really too small." Id. at 13.

         Instead, on January 10, 2013, Gradillas requested Crabtree's assistance with reporting fourth quarter 2012 sales to GSA and troubleshooting GCRTs listing in the Dynamic Small Business Search ("DSBS") system, and Crabtree agreed to do these tasks. Id. at 6-7. After checking on the latter issue, on January 10, 2013, Crabtree advised that GCRTs account and profile were complete, that her search of the DSBS system revealed the profile, and provided confirmation of the same to Gradillas. Id. at 8, 10-12. On January 11, 2013, Crabtree submitted GCRTs fourth quarter sales data to GSA and provided confirmation of the same to Gradillas. Id. at 13, 16.

         In 2014, among other tasks, Crabtree assisted Gradillas and GCRI with preparing and submitting a bid to provide domestic court reporting services to the SEC.[5] ECF No. 64 at 11-12, ¶ 3; ECF No. 63-3 at 5 (133:16-135:1). The SEC awarded this contract to Behmke Reporting and Video Services ("Behmke"), rather than GCRI. ECF No. 63-3 at 5 (133:16-134:6); ECF No. 63-6 at 4 (18:17-19:8); see also ECF No. 69-17 at 2.

         During the latter part of 2015, in conjunction with GCRTs work for the Food and Drug Administration ("FDA") and with the agreement of Gradillas, Crabtree began identifying herself as GCRTs contract manager when dealing with federal agencies. ECF No. 69-20 at 5 (334:4-21) (noting that Gradillas assented and told Crabtree "I want you to do everything. Please handle it all."); ECF No. 69-21 at 12 (244:11-16).

         In performing the tasks described above and others reflected in Cherry Bekaert's timekeeping records, Crabtree logged hundreds of time entries in 2013, 2014, 2015, and 2016 for work performed for GCRI. ECF No. 63-5 at 2-5. These entries included, for example, listings for "FDA support," "[f]ormatting assistance for proposal," "call with Josephine re: int'l tax issues and payment plan," "[r]eview FDA project cash flow w Sara [Revisions to model," "EEOC proposal," "2015 GSA IFF reporting," "FDA contract support," "DOL BPA proposal," "SBA 8(a) audit support," "Army Ft. Bliss BPA quote," "NRC [s]olicitation review," "NRC proposal," "FERC proposal," "NNSA DOE proposal," "GSA 4lh quarter 2014 IFF submission," "DOJ security review," etc. In the years preceding 2017, Crabtree logged well over 300 hours working on tasks for GCRI, and Cherry Bekaert billed GCRI over $100, 000 for such services. Id. at 1-5.

         Over time, the fees charged by Cherry Bekaert for Crabtree's time increased. Prior to August 1, 2012, see ECF No. 63-2 at 4, Cherry Bekaert billed her time at $265.00 per hour. ECF No. 70-1 at 1. By November 2012, this rate increased to $280.00 per hour. ECF No. 70-2 at 1. And, in March 2017, Cherry Bekaert charged $325.00 per hour for Crabtree's services. ECF No. 70-3 at 1-2. In e-mails from March 2017, Crabtree identified her title within Cherry Bekaert as "Senior Manager - Government Contractor Services." See, e.g., ECF No. 63-17 at 1.

         D. The 2017 SEC Solicitation and GCRI's Relationship with Defendants

         On February 10, 2017, the SEC issued a solicitation for a contractor to provide worldwide deposition and transcription services for a base year commencing June 26, 2017, and four ensuing possible option years. ECF No. 63-9 at 1-4, 10, 15 (specifying that SEC sought "a qualified woman-owned small business contractor to provide" said services to SEC headquarters and 11 regional offices pursuant to an "Indefinite Delivery, Indefinite Quantity" contract for the base period and subsequent option periods, "if exercised"). The solicitation directed interested bidders to submit, not later than noon on March 17, 2017 (Eastern Standard Time): (a) a Volume I technical proposal directed to "the technical requirements of the solicitation document"; and (b) a Volume II price proposal, with various attachments directed to pricing for the base and possible option years. Id. at 35-40.

         By e-mail dated February 22, 2017, Gradillas notified Crabtree about the solicitation. ECF No. 63-8. The e-mail stated, in pertinent part:

I use the query of 561492. SEC has posted SECHQU7R0005 for worldwide reporting. I would like to offer our proposal. The Response Date i[s] March 17, 2017. One of the questions I would have - if they invite emails - is where will the depositions and/or hearings take place? What cities and countries. They list only Toronto, Canada and Georgia. Please let me know what info you need from me - anything in the way of drafts and of course past experience. I will start a draft on all work we have done for the SEC out of country. They have a special 'Go/NoGo factor' attached. I will start a draft for you to look at, detailing this requirement. Thank you so much, Josephine.

Id. (removing e-mail formatting).

         At deposition, Gradillas testified she communicated with Cherry Bekaert by telephone on or about February 22, 2017. ECF No. 69-19 at 6 (123:6-13). Gradillas indicated this conversation preceded the e-mail because, in the first sentence of the e-mail, Gradillas references the "NAICS code to help [Crabtree] locate the - the specific proposal." Id. at 6 (121:2-8). Gradillas then denied remembering anything further about this call. Id. at 6 (121:9-11). Soon thereafter, however, Gradillas responded as follows:

Q. [] Did you have any verbal discussion with anybody at Cherry Bekaert around this time, around February 22, couple days before, couple days after, about Cherry Bekaert doing the work on the - on the solicitation?
A. Yes. I believe the conversation preceding the e-mail was a discussion just about that - Q. And in any of those - A. - to offer the work to them so that they could prepare the proposal for us and that they would submit it and that they would send a bill and that we would pay it. I wanted that proposal to be done because it was huge. I remember that. I thought it was absolutely worldwide. It was huge.
Q. Okay. In those conversations in that time frame around February 22 with Cherry Bekaert, did you discuss what would be the rates that they would charge you for the work you wanted them to do?
A. I do not recall that.
Q. You - do you specifically recall saying to someone at Cherry Bekaert in that time frame that you would pay ...

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