Star Broadcasting, Inc. v. Reed Smith, LLP , 373 F. App'x 407 ( 2010 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-1314
STAR BROADCASTING, INCORPORATED,
Plaintiff – Appellant,
v.
REED SMITH, LLP,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Claude M. Hilton, Senior
District Judge. (1:08-cv-00616-CMH-JFA)
Argued: March 25, 2010 Decided: April 14, 2010
Before NIEMEYER and KING, Circuit Judges, and Eugene E. SILER,
Jr., Senior Circuit Judge of the United States Court of Appeals
for the Sixth Circuit, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: Arthur Mark Schwartzstein, McLean, Virginia, for
Appellant. William B. Cummings, WILLIAM B. CUMMINGS, PC,
Alexandria, Virginia, for Appellee. ON BRIEF: Jack D. Lapidus,
MACLEAY, LYNCH, GREGG & LYNCH, Washington, D.C., for Appellant.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
In June 2008, Star Broadcasting, Incorporated (“Star”),
instituted this legal malpractice suit in the Eastern District
of Virginia, alleging that the law firm Reed Smith, LLP (“Reed
Smith”), committed malpractice by rendering negligent advice in
its representation of Star. In February 2009, after assessing
the relevant summary judgment record and applicable state law
legal principles — particularly with respect to expert-witness
issues — the district court awarded summary judgment to Reed
Smith. See Star Broad., Inc. v. Reed Smith, LLP, No. 1:08-cv-
00616 (E.D. Va. Feb. 24, 2009) (the “Opinion”). This appeal
followed and, as explained below, we affirm.
I.
A.
In early 1998, the Defense Commissary Agency (the “DeCA”) —
a Department of Defense agency that operates a worldwide chain
of approximately three hundred commissaries providing grocery
items to military personnel, retirees, and their families —
issued a Request for Proposal, seeking a contractor to install,
maintain, and operate a satellite-based radio network in its
2
commissaries (the “RFP”). 1 The RFP explained that the contractor
would be responsible, at no cost to the DeCA, for broadcasting
music and announcements over the radio network. Importantly,
the RFP further specified that the contractor “will be expected
to sell air time to potential advertisers to cover all cost[s]
associated with operation of the network and provide [the] DeCA
with a percentage of revenue generated by its sales.” J.A. 59. 2
In other words, the DeCA expected the contractor to finance the
radio network by selling advertising opportunities to the DeCA’s
vendors — who supplied the commissaries with food and other
items — and to pay a percentage of the resulting advertising
revenue to the DeCA as a commission.
In the spring of 1998, Star — a Minnesota corporation in
the business of installing and operating on-site radio networks
— submitted a contract proposal in response to the RFP. In
November 1998, the DeCA invited Pasquale (“Pat”) DiPlacido —
Star’s sole shareholder, president, and CEO — to present Star’s
proposal at the DeCA’s headquarters in Fort Lee, Virginia.
1
The facts spelled out herein are drawn from the summary
judgment record and are presented in the light most favorable to
Star, as the nonmoving party in the summary judgment
proceedings. See Seabulk Offshore, Ltd. v. Am. Home Assur. Co.,
377 F.3d 408, 418 (4th Cir. 2004).
2
Citations herein to “J.A. ___” refer to the Joint Appendix
filed by the parties in this appeal.
3
Written materials that DiPlacido provided to the DeCA during the
presentation confirmed that Star expected to generate sufficient
advertising revenue from the DeCA’s vendors to cover its costs
of operating the radio network in the commissaries. DiPlacido
emphasized, however, that the DeCA would need to promote the
network and encourage vendors to advertise in order for the
project to be financially viable. Indeed, Star’s written
materials reflected that, pursuant to its proposal, the DeCA
would be obligated to encourage vendors to purchase advertising
from Star at a minimum rate of one quarter of one percent of the
DeCA’s purchases from each vendor. 3 Star referred to this
mechanism — that is, the DeCA’s obligation to promote the radio
network and encourage its vendors to purchase a minimum
percentage of advertising — as “cooperative advertising.”
On February 8, 1999, the DeCA decided to accept Star’s
radio-network proposal for its commissaries. To initiate the
contract-drafting process, a contracting officer at the DeCA
sent Pat DiPlacido of Star a draft contract, which the parties
referred to as the “strawman” agreement (the “strawman”). The
strawman provided that Star, in return for an exclusive license
to operate a radio network in the DeCA’s commissaries, was
3
For example, if the DeCA purchased $1 million in goods
from a particular vendor, the DeCA would encourage that vendor
to purchase at least $2500 in advertising from Star.
4
obliged to install, maintain, and operate the network at no cost
to the DeCA. Other than granting Star an exclusive license, the
strawman imposed no obligations on the DeCA. Notably, the
strawman did not reference Star’s proposed cooperative
advertising program. After forwarding the strawman to Star, the
DeCA also scheduled a meeting with Star officials, to be held on
February 18, 1999, in order to finalize the license agreement.
Prior to the February 18 meeting of Star and the DeCA, Pat
DiPlacido contacted Glenn Mahone, primarily a commercial
transactions partner in Reed Smith’s Pittsburgh office, and
requested that Mahone and Reed Smith represent Star in
negotiating the final terms of the license agreement with the
DeCA. Between February 9 and February 16, 1999, Pat and Frank
DiPlacido (Pat’s brother and Star’s vice-president) discussed
the strawman with Mahone on multiple occasions. The DiPlacidos
advised Mahone that the radio network could not be successful
without a cooperative advertising program. Attorney Mahone thus
knew that Star would not enter into a license agreement unless
the DeCA agreed to promote the radio network and encourage its
vendors to purchase advertising. Accordingly, Mahone prepared,
on behalf of Star, a revised strawman agreement (the “revised
strawman”) that included a “best efforts” provision, obligating
the DeCA to “use its best efforts to assist Star in the
development and implementation of an effective advertising
5
inventory sales program.” J.A. 135. The revised strawman
further obligated the DeCA to develop and implement “a vendor
cooperative advertising program . . . with a minimum of one-
quarter (1/4) of (1) one percent participation rate designated
for In-Store Radio” and “programs designed to promote the In-
Store Radio Network to commissary vendors.” Id. at 136. Mahone
advised Star that the best efforts clause included in the
revised strawman “met Star’s needs” and obligated the DeCA to
promote the radio network and implement a cooperative
advertising program. Id. at 224. Mahone did not, in his work
for Star, consult with a government contracts specialist, nor
did he research any legal principles that could possibly limit
the DeCA’s ability to promote Star’s radio network.
On March 12, 1999, after the DiPlacidos and Mahone met with
DeCA officials at Fort Lee to discuss the revised strawman, the
parties executed their agreement (the “License Agreement” or
“Agreement”). The License Agreement called for Star to sell
advertising directly to the DeCA’s vendors, but required the
DeCA to exercise its best efforts to assist Star in implementing
an advertising sales program to attract vendors to advertise on
the radio network. In particular, the DeCA agreed to assist
Star in developing and implementing a cooperative advertising
program, with a targeted minimum participation rate of one
quarter of one percent. The Agreement further obligated the
6
DeCA to inform vendors of Star’s radio network in the
commissaries and encourage their full participation in
advertising opportunities available through Star.
Shortly thereafter, Star began performing under the License
Agreement by installing its in-store radio network in the DeCA’s
commissaries and selling advertising opportunities to the DeCA’s
vendors. Mahone and Reed Smith had no further professional
contact with Star concerning the Agreement until September 2002.
B.
In approximately June of 2002, more than three years after
the License Agreement had been executed, the DeCA requested a
meeting with the DiPlacidos concerning Star’s failure to abide
by the Agreement’s installation timeline, which specified that
Star was to complete installation of the radio network in the
commissaries by November of 2000. 4 The DeCA was also concerned
about maintenance problems experienced at those commissaries
where Star had installed the radio network. Star thus agreed to
meet with the DeCA and included as a meeting agenda item its
concern that the DeCA had not implemented the Agreement’s
cooperative advertising program with its vendors. On September
25, 2002, the DiPlacidos (without Mahone) met with the DeCA
4
By June 2002, Star had completed installation in about 90
of the DeCA’s commissaries.
7
officials at Fort Lee. With respect to the cooperative
advertising program, the DeCA asserted that it was willing to do
all that it could to promote the radio network but that it could
not legally require its vendors to participate therein. When
Star explained that the cooperative advertising program did not
require the DeCA’s vendors to purchase advertising, the DeCA
asked Star for drafts of documents it might use to facilitate
the cooperative advertising program.
In late September 2002, Pat DiPlacido contacted Mahone and
engaged him and Reed Smith to assist Star in drafting documents
that the DeCA might use to implement cooperative advertising
agreements with the commissaries’ vendors. As a result, Mahone
prepared a series of documents that set forth the “details” and
“requirements” of the proposed cooperative advertising program.
These documents specified that the program “would consist of
participation by the Vendor in the DeCA In-Store Radio Network
. . . based on a [rate of one quarter of one percent] of [the]
DeCA purchases from the Vendor as a participation rate,” and
that each vendor would pay Star for the advertising it
purchased. J.A. 151. The proposed cooperative advertising
program would thus be implemented by agreements between the DeCA
and its vendors, with Star as the third-party beneficiary.
In addition to drafting the cooperative advertising
documents, Mahone also prepared a proposed amendment to the
8
License Agreement (the “proposed amendment” or “amendment”).
The proposed amendment included a provision mandating that the
DeCA implement a cooperative advertising program, specifying
that
[the] DeCA shall develop and implement procedures,
with the buyers and merchandise managers, to inform
vendors of the [radio network] . . . and encourage
their full participation in the In-Store Radio
advertising and promotion opportunities available
through Star and the Network. A cooperative
participation rate for all vendors and service
contractors would be a targeted minimum of one-quarter
(1/4) of one percent (1%) of all [the] DeCA purchases
. . . .
J.A. 161. On December 19, 2002, Frank DiPlacido sent the
various cooperative advertising documents and the proposed
amendment to the DeCA.
Six months later, on June 18, 2003, a DeCA contracting
officer wrote to Star and rejected the proposed cooperative
advertising program and the proposed amendment. The DeCA
official explained that the cooperative advertising program
would illegally obligate the DeCA to enter into advertising
agreements with its vendors, requiring that such vendors
purchase advertising from Star. The DeCA’s letter emphasized
that the “Standards of Conduct for government personnel do not
permit us to require that our suppliers use specific
merchandising or advertising sources.” J.A. 168. The DeCA
insisted, however, that it would continue to promote Star’s
9
radio network within its regulatory limitations (e.g., by
announcing the network’s availability, displaying Star’s
informational brochures and posters, and advising vendors of
advertising opportunities).
Shortly after receiving the DeCA’s June 18, 2003 letter,
Pat DiPlacido again consulted with Mahone, seeking to identify
Star’s options. Mahone advised Star that the portion of the
License Agreement calling for a cooperative advertising program
was enforceable and that the DeCA, by failing and refusing to
implement the program, had breached the Agreement.
Nevertheless, he advised DiPlacido that Star should continue to
operate its radio network and complete the installation thereof
in the commissaries, emphasizing that Star had already failed to
adhere to the installation timeline and thus might be unable to
enforce the Agreement against the DeCA. Mahone advised that
Star could seek to recoup its losses in a breach of contract
lawsuit to be pursued after the Agreement’s expiration. Once
again, Mahone did not consult any of his colleagues at Reed
Smith, including those in the firm’s government contracts group.
Consistent with Mahone’s advice, Star continued to perform under
the Agreement. In August 2004, however, the DeCA exercised its
right not to extend the Agreement beyond its termination date of
December 31, 2005.
10
C.
On June 13, 2008, approximately two-and-a-half years after
the License Agreement had expired, Star initiated this
malpractice suit against Reed Smith in the Eastern District of
Virginia, invoking diversity jurisdiction under 28 U.S.C.
§ 1332. 5 The complaint alleged that Mahone and Reed Smith had
failed to “competently represent Star in its relationship with
[the] DeCA” by neglecting to “appropriately involve Reed Smith’s
government contracts attorneys . . . to determine whether the
contract he negotiated for Star was enforceable.” J.A. 18.
Star alleged that a reasonable lawyer negotiating a complex
transaction with a governmental agency would have first
consulted with a lawyer experienced in government contracts.
The complaint also alleged that, had Mahone done so, he would
have learned that federal regulations barred the DeCA from
endorsing the radio network and would have advised Star
accordingly. Star thus alleged that Mahone’s and Reed Smith’s
negligence was the proximate cause of all losses incurred by
Star as a result of the License Agreement.
Reed Smith moved for summary judgment on November 17, 2008,
contending, inter alia, that Star had failed to produce
5
Star is a Minnesota corporation with its principal place
of business in Minneapolis. Reed Smith is a limited liability
partnership, and none of its partners are citizens of Minnesota.
11
sufficient expert testimony to establish the elements of its
malpractice claim. In response, Star asserted that expert
testimony was not required to survive a summary judgment motion,
as its malpractice claim turned upon matters within the common
knowledge of laypersons. In the alternative, Star maintained
that summary judgment was precluded because its expert witnesses
had forecast sufficient proof of its malpractice claim,
including the applicable standard of care, Reed Smith’s breach
thereof, and proximate causation.
In its Opinion of February 24, 2009, the district court
carefully assessed the parties’ contentions and determined to
grant Reed Smith’s summary judgment request. The Opinion
recognized that to establish a professional malpractice claim
under Virginia law, the plaintiff must present expert testimony
on the applicable standard of care, any breach thereof, and
proximate causation, unless the claim turns upon matters within
the common knowledge of a layperson. See Opinion 16–17 (citing
Gregory v. Hawkins, 468 S.E.2d 891, 893 (Va. 1996); Heyward &
Lee Constr. Co. v. Sands, Anderson, Marks & Miller, 453 S.E.2d
270, 272 (Va. 1995); Seaward Int’l v. Price Waterhouse, 391
S.E.2d 283, 287 (Va. 1990)). 6 Because Star’s claim involved a
6
Virginia law governs Star’s malpractice claim against Reed
Smith because the License Agreement was executed and the alleged
(Continued)
12
complicated contractual agreement and the possible applicability
of government regulations outside the common knowledge of a
layperson, the court determined that Star was obligated to
present expert testimony. See id. at 17 (citing Gregory, 468
S.E.2d at 893).
The district court then assessed the reports and
depositions of Star’s proposed expert witnesses, concluding that
they had not forecast sufficient evidence to withstand the
summary judgment request of Reed Smith. Importantly, the
Opinion observed that none of Star’s experts had rendered an
expert opinion on whether Reed Smith’s alleged negligence was
the proximate cause of Star’s claimed damages. See Opinion 17–
19. For example, the court acknowledged that Michael Rigsby,
whose opinions Star presented to establish the appropriate
standard of care and causation, asserted that Mahone should have
consulted a government contracts lawyer before advising Star as
to the enforceability of the “best efforts” clause in the
License Agreement. The court emphasized, however, that Rigsby
offered “no opinion whatsoever as to what would or should have
happened if Mr. Mahone had done so.” Id. at 18. Similarly, the
court assessed the testimony of L. James D’Agostino, Star’s
negligent advice was at least partially rendered in the
Commonwealth of Virginia.
13
proposed expert witness on government contracts, and ascertained
that he too had expressed no opinion with respect to causation.
Id. at 17. Although D’Agostino asserted that applicable federal
regulations barred the DeCA from obligating its vendors to
purchase advertising from Star, he relied exclusively on a Court
of Federal Claims decision — PinPoint Consumer Targeting Servs.,
Inc. v. United States, 59 Fed. Cl. 74 (2003) — rendered well
after Mahone had advised Star that the cooperative advertising
provision was enforceable. D’Agostino failed to present an
expert opinion on whether a government contracts lawyer would
have advised Mahone, prior to the PinPoint decision, that the
DeCA was legally barred from participating in the cooperative
advertising program. Accordingly, the court found that Star had
failed to produce sufficient expert testimony and awarded
summary judgment to Reed Smith. See Opinion 22.
Star timely noted this appeal, and we possess jurisdiction
pursuant to 28 U.S.C. § 1291.
II.
On appeal, Star maintains that the district court erred in
awarding summary judgment to Reed Smith. 7 We review de novo such
7
More specifically, Star makes two appellate contentions:
(1) that the district court erred in concluding that expert
testimony was required to establish the elements of its
(Continued)
14
an award, viewing the facts in the light most favorable to the
nonmoving party. See Lee v. York County Sch. Div., 484 F.3d
687, 693 (4th Cir. 2007). Summary judgment may be awarded only
if “there is no genuine issue as to any material fact and . . .
the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(c).
Having had the benefit of oral argument and having
carefully considered the briefs, the joint appendix, and the
applicable authorities, we are satisfied that summary judgment
was properly awarded in this case. Accordingly, we affirm the
judgment entered in favor of Reed Smith, substantially for the
reasons spelled out by the district court. See Opinion 16–23.
AFFIRMED
malpractice claim; and (2) that even if expert testimony was
required, the depositions and reports of its three expert
witnesses were sufficient to withstand the summary judgment
request of Reed Smith.
15