United States District Court, E.D. Virginia, Norfolk Division
UNITED STATES MAGISTRATE JUDGE'S REPORT AND
J. Krask United States Magistrate Judge
matter comes before the Court on a motion for summary
judgment filed by defendants Cherry Bekaert, LLP, and Sara
Crabtree. 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.
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.
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.Defendants answered the complaint on
November 27, 2017. ECF No. 24.
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.
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.
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.
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.
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.
GCRI and Cherry Bekaert's March 27, 2012 Letter of
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.
seeing advertisements for Cherry Bekaert's accounting and
government contracting services, in late March
Gradillas contacted Cherry Bekaert 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").
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
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
The Engagement Letter's Material Terms
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.
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.
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
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
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.
"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
"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.
Services Provided After Endorsement of the Engagement Letter,
but Before 2017
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!").
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.
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.
2014, among other tasks, Crabtree assisted Gradillas and GCRI
with preparing and submitting a bid to provide domestic court
reporting services to the SEC. 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.
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
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.
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.
The 2017 SEC Solicitation and GCRI's Relationship with
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.
e-mail dated February 22, 2017, Gradillas notified Crabtree
about the solicitation. ECF No. 63-8. The e-mail stated, in
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).
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
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 ...