Preferred Systems Solutions v. GP Consulting ( 2012 )

Present: All the Justices
PREFERRED SYSTEMS SOLUTIONS, INC.
v. Record No. 111906
GP CONSULTING, LLC
OPINION BY
JUSTICE LEROY F. MILLETTE, JR.
September 14, 2012
GP CONSULTING, LLC
v. Record No. 111907
PREFERRED SYSTEMS SOLUTIONS, INC.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
R. Terrence Ney, Judge
These companion appeals arise out of a dispute between a
government contractor, Preferred Systems Solutions, Inc. (PSS),
and one of its subcontractors, GP Consulting, LLC (GP). PSS
sued GP following GP's termination of its contract with PSS and
its commencement of a subsequent contract with Accenture, LLP,
a PSS competitor. PSS alleged breach of contract,
misappropriation of trade secrets, and tortious interference
with contract, seeking injunctive as well as monetary relief.
PSS was ultimately awarded $172,395.96 in compensatory damages
based on the circuit court's finding that GP breached the
noncompete clause in the parties' contract.
On appeal, GP challenges the circuit court's finding of
liability on the breach of contract claim and the resulting
award of damages, as well as the admissibility of portions of
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the testimony of PSS' corporate representative. PSS challenges
the circuit court's refusal to grant injunctive relief, its
failure to award damages on the tortious interference claim,
and its dismissal of the trade secret claim. We affirm the
judgment of the circuit court.
I. Background
PSS is an information technology contractor that was part
of a team of contractors providing system solutions for the
federal Defense Logistics Agency (DLA). The team of ten
contractors, including Accenture, worked under a blanket
purchase agreement, which did not in itself guarantee work or
funds but rather set up a structure wherein DLA would issue
task orders that contractors would complete and be paid in
increments according to specific deliverables. In this
structure, Accenture was the "team leader" and retained some
degree of oversight but was also a competitor which itself
produced deliverables.
The initial funding source for DLA's systems solutions
project was called the Business Systems Modernization program
(BSM). PSS subcontracted with GP, a consulting firm that
provided the services of a programmer, Sreenath Gajulapalli, to
assist in the systems solutions work that PSS was completing
for DLA. The Subcontractor Agreement for Services, referred to
as a "basic agreement," was to apply to all future work
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assignments between PSS and GP until the agreement was
terminated. The agreement included a covenant not to compete,
which stated:
During the term of this Agreement and for twelve
(12) months thereafter, [GP] hereby covenants and
agrees that they will not, either directly or
indirectly:
(a) enter into a contract as a subcontractor
with Accenture, LLP and or [sic] DLA to
provide the same or similar support that PSS
is providing to Accenture, LLP and/or DLA
and in support of the DLA Business Systems
Modernization (BSM) program.
(b) enter into an agreement with a competing
business and provide the same or similar
support that PSS is providing to Accenture,
LLP and/or DLA and in support of the DLA
Business Systems Modernization (BSM)
program.
In 2007, the BSM program reached "operational capability"
and support for the program transferred into "sustainment,"
meaning that the program was live and only required periodic
maintenance. At this point, DLA's funding source to sustain
BSM no longer arose out of the BSM program but rather out of
its successor program, the Enterprise Business Systems program
(EBS), a funding source that also included other initiatives
not originally included in BSM.
On February 13, 2010, after giving the requisite two
weeks' notice, GP terminated its subcontract with PSS. On
February 16, GP began working for Accenture. At the time GP
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left PSS, it was supporting EBS; at Accenture, it continued to
do the same work.
In May 2010, PSS filed a complaint against GP in the
Circuit Court of Fairfax County, alleging breach of contract,
tortious interference with contract, and misappropriation of
trade secrets. PSS prayed for compensatory and punitive
damages and an injunction requiring GP to cease employment with
Accenture and refrain from using PSS' confidential information.
The circuit court dismissed PSS' trade secret claim on GP's
demurrer.
At trial, PSS' sole witness was its senior vice president
of corporate development, Michael Cuccia. GP presented
testimony from a project manager at DLA, Patricia Whitington,
and from GP's programmer, Gajulapalli. In a letter opinion,
the circuit court held that GP "plainly breached" the
subcontract "when it entered into a contract with Accenture for
services in support of the DLA BSM program." The court awarded
compensatory damages in the amount of $172,395.96. The court
found, however, that PSS failed to prove its claim for tortious
interference and rejected its request for injunctive relief.
Both parties now appeal to this Court.
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II. GP's Appeal
A. Enforceability of the Noncompete Clause
GP assigns error to the circuit court's conclusion that
the noncompete clause is enforceable, arguing that it
impermissibly prohibits indirect competition and is overbroad.
We review the enforceability of a covenant not to compete de
novo. Home Paramount Pest Control Cos. v. Shaffer, 282 Va.
412, 415, 718 S.E.2d 762, 763 (2011); Omniplex World Servs. v.
U.S. Investigations Servs., 270 Va. 246, 249, 618 S.E.2d 340,
342 (2005).
GP first contends that the noncompete clause is ambiguous
and was broadly construed by the circuit court. This
assignment of error thus requires a multi-tiered analysis.
First, we must determine whether the noncompete clause is
indeed ambiguous. Second, if so, we must determine the proper
construction. Third, we must consider whether the appropriate
construction renders the noncompete clause overbroad.
GP argues that the noncompete clause is ambiguous because
it can be read two ways: either that the phrase "and in
support of the DLA Business Systems Modernization (BSM)
program" narrows the function to which the clause applies, or,
in the alternative, that the same phrase is merely descriptive
of the work PSS provided to Accenture or DLA but not
proscribing GP's potential work. GP argues that the circuit
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court employed the latter interpretation and that such an
interpretation renders the clause overbroad.
Whether the language of a contract is ambiguous is a
question of law that we review de novo. Eure v. Norfolk
Shipbuilding & Drydock Corp., 263 Va. 624, 631, 561 S.E.2d 663,
667 (2002). We have said that "[c]ontract language is
ambiguous when 'it may be understood in more than one way or
when it refers to two or more things at the same time.'" Id.
at 632, 561 S.E.2d at 668 (quoting Granite State Ins. Co. v.
Bottoms, 243 Va. 228, 234, 415 S.E.2d 131, 134 (1992)). Yet we
have also explained:
Contracts are not rendered ambiguous merely because
the parties or their attorneys disagree upon the
meaning of the language employed to express the
agreement. Even though an agreement may have been
drawn unartfully, the court must construe the language
as written if its parts can be read together without
conflict.
Doswell Ltd. P'ship v. Virginia Elec. & Power Co., 251 Va. 215,
222-23, 468 S.E.2d 84, 88 (1996) (internal citation omitted).
"Words that the parties used are normally given their usual,
ordinary, and popular meaning." D.C. McClain, Inc. v.
Arlington Cnty., 249 Va. 131, 135, 452 S.E.2d 659, 662 (1995).
Additionally, "[n]o word or clause in the contract will be
treated as meaningless if a reasonable meaning can be given to
it, and there is a presumption that the parties have not used
words needlessly." Id. at 135-36, 452 S.E.2d at 662.
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With this guidance, we conclude that the noncompete clause
at issue here is unambiguous. Although the language of the
noncompete clause is not a model of artful construction, the
ordinary meaning of the conjunctive "and" suggests an
additional requirement rather than a descriptive phrase.
Moreover, if the phrase in question was merely descriptive, it
would have been needlessly redundant.
While we are not bound by the circuit court's
interpretation of the contract, Eure, 263 Va. at 631, 561
S.E.2d at 667, we note that its letter opinion suggests that it
also considered the noncompete clause to be unambiguous,
stating that it was "very narrowly drawn" and "specific as to
what type of work was to be prohibited." Furthermore, the high
level of specificity of the circuit court's factual finding of
the breach – finding not merely that GP entered into a contract
with Accenture for similar services but specifically services
"in support of the DLA BSM program" – suggests that the court
likewise viewed this phrase as a functional element of the
clause.
Having determined the unambiguous meaning of the
noncompete clause, we now turn to the question of whether it is
overbroad.
Restraints on trade are not favored in Virginia; hence,
contracts in restraint of trade are enforceable only if
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"narrowly drawn to protect the employer's legitimate business
interest, . . . not unduly burdensome on the employee's ability
to earn a living, and . . . not against public policy."
Omniplex, 270 Va. at 249, 618 S.E.2d at 342. The employer bears
the burden of proving these factors. Modern Env'ts, Inc. v.
Stinnett, 263 Va. 491, 493, 561 S.E.2d 694, 695 (2002). In
evaluating these factors, we consider the function, geographic
scope, and duration of the restriction. Home Paramount, 282
Va. at 415, 718 S.E.2d at 764 (citing Simmons v. Miller, 261
Va. 561, 581, 544 S.E.2d 666, 678 (2001)). We assess these
elements together rather than as distinct inquiries. Id. at
415-16, 718 S.E.2d at 764.
Here, the duration element is narrowly drawn to a period
of only twelve months. We have also established that the
function element is narrowly drawn to work in support of a
particular program run under the auspices of a particular
government agency, limited to the same or similar type of
information technology support offered by PSS on the BSM
program.
The circuit court found that the noncompete clause
proscribed work for only two specific companies – Accenture and
DLA. That finding, however, ignores part (b), which speaks
generally to a "competing business." As the work done for this
"competing business" is likewise restricted to work on the BSM
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program, this restriction is thus limited to only companies who
have successfully bid with DLA to work on the BSM project. The
blanket purchase agreement indicates that this group consisted
of eight companies in addition to PSS and Accenture. For
context, the circuit court made note of the testimony of PSS'
corporate representative that there were 400-500 other
programming jobs supporting the exact same software system in
the Washington, D.C., area alone that were not proscribed by
this agreement.
GP additionally alleges that the language of the contract
fails to limit its scope to direct competitors. This Court has
held restrictive covenants unenforceable when the alleged form
of competition was too indirect and tenuous. See, e.g., Home
Paramount, 282 Va. at 418, 718 S.E.2d at 765 (holding a
restrictive covenant overbroad – and hence unenforceable —
because it prohibited any involvement, even as a passive
investor, in the pest control business). This line of
precedent does not, however, stand for the proposition that the
word "indirect" acts as a per se bar to enforcement. The word
"indirectly" in the clause at issue here is an adverb modifying
the verb phrase "enter into [a contract]." This wording merely
bars the circumvention of the otherwise valid restrictive
covenant by engaging in a series of subcontracts so as not to
directly enter into a contract with the proscribed competitors.
9
In other words, GP cannot do indirectly what it is directly
prohibited from doing. The clause, in sum, does not prohibit
indirect competition but rather prohibits GP from entering into
a contract as a subcontractor or sub-subcontractor with
Accenture, DLA, or any other competing business to provide the
same or similar support that PSS is providing in support of the
BSM program.
The lack of a specific geographic limitation is not fatal
to the covenant because the noncompete clause is so narrowly
drawn to this particular project and the handful of companies
in direct competition with PSS. We accordingly conclude that
the noncompete clause is not overbroad and is thus enforceable.
B. Factual Finding of Breach
GP also assigns error to the circuit court's finding that
it breached the noncompete clause, arguing that there was no
evidence presented that GP's work at Accenture was on the BSM
program. We find evidence sufficient to support the judgment.
Following a bench trial, a finding of fact by the trial
court will not be disturbed unless it is "plainly wrong or
without evidence to support it." Cardinal Dev. Co. v. Stanley
Const. Co., 255 Va. 300, 302, 497 S.E.2d 847, 849 (1998)
(citations omitted). PSS' corporate representative did provide
testimony that BSM was "the same as" EBS. Even the DLA project
manager, testifying on behalf of GP, indicated that the
10
software put in place during the original phase of BSM required
ongoing support or sustainment that was at least a part of EBS.
The circuit court made an explicit factual finding that GP was
working "in support of" BSM when the company began to work for
Accenture. We cannot say that this finding rises to the level
of plain error.
C. Admissibility of Cuccia's Testimony
GP additionally assigns error to the circuit court's
admission of portions of PSS' corporate representative Cuccia's
testimony based on two grounds: that elements of the testimony
constituted inadmissible hearsay and that elements of the
testimony were speculative.
The record does indeed reflect an objection based on
hearsay. It does not, however, reflect contemporaneous
objections to any part of Cuccia's testimony as being
speculative. This allegation occurs for the first time in GP's
closing brief. In the context of a bench trial, we have
previously recognized that a challenge to the sufficiency of
evidence may be preserved for appeal when made in closing
argument. Little v. Cooke, 274 Va. 697, 718, 652 S.E.2d 129,
142 (2007); see also Fortune v. Commonwealth, 14 Va. App. 225,
227, 416 S.E.2d 25, 27 (1992). An argument first made in
closing, however, has never been allowed in a manner so as to
obviate the requirement of a contemporaneous objection when
11
challenging the admissibility of witness testimony. This is
particularly true for an objection alleging that testimony is
speculative, because such an objection often invites further
questioning of the witness so as to determine the basis for his
claims. To hold otherwise would eviscerate the contemporaneous
objection rule in bench trials and undermine the adversarial
process. The challenge to the testimony as speculative is thus
barred under Rule 5:25.
The hearsay objection can be found during the questioning
of Cuccia by the circuit court during direct examination. The
trial court is permitted to question witnesses; we have said
that it "has a right and, indeed, at times a duty to question a
witness provided [it] does not disclose bias in so doing."
Goode v. Commonwealth, 217 Va. 863, 865, 234 S.E.2d 239, 240
(1977) (citing Skipper v. Commonwealth, 195 Va. 870, 879, 80
S.E.2d 401, 406 (1954), and Mazer v. Commonwealth, 142 Va. 649,
655, 128 S.E. 514, 516 (1925)); see also Va. R. Evid. 2:614(b)
("In a civil or criminal case, the court may question
witnesses, whether called by itself or a party, subject to the
applicable rules of evidence.") While this Court has advised
caution in the judicial interrogation of witnesses in a jury
trial out of concern that the jury might perceive a bias and
thus be prejudiced, Goode, 217 Va. at 865, 234 S.E.2d at 240,
no such concern is present in a bench trial, affording the
12
trial court further leeway. See Flannery v. Norfolk, 216 Va.
362, 368, 218 S.E.2d 730, 735 (1975) ("[J]udges are suited by
training and experience to disregard potentially prejudicial
comments.").
At the request of the circuit court, Cuccia clarified
statements concerning PSS' inability to simply reassign GP's
work to another subcontractor. Cuccia testified that PSS was
unable to replace GP because Accenture took PSS' place
fulfilling DLA's needs: the task or "billet" was still being
performed by GP but billed through Accenture rather than PSS.
Counsel for GP stated his hearsay objection as follows:
"Mr. Cuccia just testified to funding not being provided and
opportunities not being provided, and so forth, and I think
that's hearsay at this point. There's certainly no documentary
evidence before us that shows that funding was cut off or they
didn't receive funding."
It is incumbent on the objecting party to state with
clarity his objection "and his grounds therefor," Code § 8.01-
384(A), so that the trial court is provided "an opportunity to
rule intelligently" on that issue. United Leasing Corp. v.
Lehner Family Bus. Trust, 279 Va. 510, 519, 689 S.E.2d 670, 675
(2010) (internal quotation marks omitted); see also Va. R.
Evid. 2:103(a)(1) ("Error may not be predicated upon admission
. . . of evidence, unless . . . [a]s to evidence admitted, a
13
contemporaneous objection is stated with reasonable certainty
as required in Rule 5:25 . . . .").
Hearsay is "a statement, other than one made by the
declarant while testifying at the trial or hearing, offered in
evidence to prove the truth of the matter asserted." Va. R.
Evid. 2:801(c); Burns v. Gagnon, 283 Va. 657, 682, 727 S.E.2d
634, 649 (2012). Based on counsel's explanation, however, the
objection was not aimed at any one particular statement by the
witness but rather at the basis for Cuccia's knowledge – that
his knowledge arose from out-of-court documents. * An
intelligent ruling in this instance required further factual
inquiry into the basis for Cuccia's statements to the judge:
whether his statements arose from personal knowledge or from
documents not in evidence.
The questioning of witnesses lies in the sound discretion
of the trial court, and the standard of review as to the
admissibility of testimony is abuse of discretion. Avent v.
Commonwealth, 279 Va. 175, 197, 688 S.E.2d 244, 256 (2010)
(citing John Crane, Inc. v. Jones, 274 Va. 581, 590, 650 S.E.2d
851, 855 (2007)). As we have said, the trial court is
*
Although the stated ground perhaps goes most properly to
lack of personal knowledge rather than hearsay, the circuit
court understood the nature of the objection and the two issues
were sufficiently linked due to the alleged out-of-court
documents so as to consider the issue preserved under Rule
5:25.
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permitted to question witnesses. In a bench trial, when such
questioning elicits testimony the admissibility of which
depends on disputed underlying facts, it is well within the
discretion of the trial court to permit counsel to explore
these facts during examination of the witness. See Va. R.
Evid. 2:611(a) ("The mode and order of interrogating witnesses
and presenting evidence may be determined by the court so as to
. . . facilitate the ascertainment of the truth . . . .");
2:611(b) (allowing, in addition to questions concerning the
subject matter of direct examination and the credibility of the
witness, "[t]he court [to], in the exercise of discretion,
permit inquiry into additional matters [during cross-
examination] as if on direct examination").
In accordance with that discretion, the circuit court did
not rule immediately on the objection. Instead, it stated:
"Well, he's been responding to my questions. You're going to
have the opportunity to cross-examine."
PSS had already laid reasonable grounds for the conclusion
that the testimony was within Cuccia's personal knowledge. PSS
established on direct examination that he was senior vice
president of corporate development for PSS, that his duties
included serving as acting manager for the programming support
offered to DLA, and that he was familiar with the history of
15
PSS and its information technology contracting with the federal
government.
The circuit court gave GP the opportunity to challenge the
foundation of Cuccia's testimony and whether it was supported
by a sufficient basis of personal knowledge during cross-
examination. GP indeed asked questions relating to funding
changes and further developed that testimony during cross.
Cuccia admitted that he did not know whether PSS' contract
value was affected by GP's move (a statement that was possibly
but not clearly referring to the contract value of the blanket
purchase agreement rather than a particular task order). He
maintained that PSS nonetheless incurred a loss because it was
paid on the basis of deliverables and task orders that involved
a calculation of "full-time equivalents," or hours built up,
and he was not "allow[ed] to fill the billet because the . . .
full-time equivalents hours on the task order were taken away
as a result of GP [conducting the same work for Accenture]."
Cuccia confirmed that no task orders or documents of full-time
equivalents were entered into evidence by PSS. GP did not
renew the hearsay objection, however; nor did it ask that the
circuit court rule on its earlier objection.
The mere failure to introduce corroborating task orders or
other documents, while perhaps raising issues of credibility,
does not suffice to render the testimony of a corporate
16
representative inadmissible. The only fact relevant to the
objection is whether these documents were the sole source of
his knowledge of funding, and this was neither asked nor
established.
Never having been asked to revisit the objection, the
circuit court did not make a clear ruling on the issue. Unlike
a jury, however, the trial court when sitting as the finder of
fact "is presumed to have excluded from [its] analysis of the
issues all incompetent evidence" that might surface during
testimony. Adams v. Adams, 233 Va. 422, 429, 357 S.E.2d 491,
495 (1987). Given this presumption and the lack of compelling
evidence in the record to suggest that the testimony was
inadmissible, we are unable to conclude that the circuit court
erred in its consideration of Cuccia's testimony.
D. Lost Profits
In denying PSS' tortious interference claim, the circuit
court found that there was no guarantee of future contracts
between PSS and DLA, and that PSS failed to prove that it could
not hire other subcontractors who could do the same work. GP
alleges that, in light of these factual findings, PSS cannot
demonstrate lost profits and therefore is not entitled to
compensatory damages. GP additionally argues that the quantum
of damages is speculative. We disagree.
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1. Future Contracts
When a noncompete clause is breached, the nonbreaching
party is entitled to the benefit of the bargain: to "put[] the
party injured in the same position, as far as money can do it,
as he would have been if the contract had been performed."
Appalachian Power Co. v. John Stewart Walker, Inc., 214 Va.
524, 535, 201 S.E.2d 758, 767 (1974) (internal quotation marks
omitted). In order to prove lost profits, as claimed here, PSS
had to show: (1) that Accenture billed the work in question;
(2) that PSS would have continued to bill for the work had the
work not moved to Accenture; and (3) the amount that PSS would
have made from billing the work. Western Insulation, LP v.
Moore, 242 Fed. Appx. 112, 120 (4th Cir. 2007) (applying
Virginia law in overruling the award of compensatory damages in
a noncompete case). In this assignment of error, GP questions
whether the circuit court's explicit factual finding that there
was no guarantee of future contracts with DLA bars recovery by
implying that PSS failed to prove the second element. We hold
that it does not.
The circuit court observed that there was no "guarantee"
of future contracts between PSS and DLA; indeed, the blanket
purchase agreement did not obligate DLA to continually offer
task orders, and no contractual promise of a year's worth of
future task orders apparently existed, due to the manner in
18
which the government contractors were paid. The standard of
proof, however, is not that of a "guarantee." The plaintiff is
tasked merely with proving the elements of damages from lost
profits by a preponderance of the evidence. See Agostini v.
Consolvo, 154 Va. 203, 217, 153 S.E. 676, 680 (1930). Despite
its factual finding that no future contract was guaranteed, the
circuit court could still have found by a preponderance of the
evidence that PSS would have continued to bill for the work had
GP not moved to Accenture.
This factual finding, necessarily implied by its award of
damages on the breach of contract claim, is "entitled to the
same weight as a jury verdict," Jean Moreau & Assocs. v. Health
Ctr. Comm'n, 283 Va. 128, 142, 720 S.E.2d 105, 113 (2012)
(internal quotation marks omitted), and we will not disturb it
unless it is "plainly wrong or without evidence to support
[it]." Id. (internal quotation marks omitted); Code § 8.01-
680.
PSS provided evidence of a track record of its own
purchase orders with GP for EBS-related work, a method long
accepted in Virginia to establish evidence of lost profits.
Commercial Bus. Sys. v. Bellsouth Servs., 249 Va. 39, 50, 453
S.E.2d 261, 268-69 (1995). PSS then provided a year's worth of
GP's bills to Accenture for EBS-related work of a similar
nature, with similar billing titles. PSS' corporate
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representative testified that, prior to GP's move to Accenture,
PSS had a business expectancy of continued work from DLA to be
billed through PSS to GP. No evidence was presented by GP
that, absent GP's move to Accenture, Accenture would have
nonetheless moved the billet in question from PSS. We cannot
say that the circuit court plainly erred in finding by a
preponderance of the evidence that, absent the breach, PSS
would have continued to bill and to be compensated for the work
performed by GP for Accenture.
2. Calculation of Lost Profits
Claims for compensatory damages – in this case, lost
profits – must be proved with reasonable certainty. ADC
Fairways Corp. v. Johnmark Constr., Inc., 231 Va. 312, 318, 343
S.E.2d 90, 93 (1986). The standard of review for a damages
calculation has been framed as whether there were "sufficient
facts" to support the award. Nichols Constr. Corp. v. Virginia
Machine Tool Co., 276 Va. 81, 89, 661 S.E.2d 467, 472 (2008)
(internal quotation marks omitted). We have said that damages
awards must not be "contingent, speculative, or uncertain."
Sunrise Continuing Care, LLC v. Wright, 277 Va. 148, 154, 671
S.E.2d 132, 135 (2009). "Damages are not rendered uncertain
because they cannot be calculated with absolute exactness. It
is sufficient if a reasonable basis of computation is
afforded." Washington Golf & Country Club, Inc. v. Briggs &
20
Brennan Developers, Inc., 198 Va. 586, 592, 95 S.E.2d 233, 238
(1956) (internal quotation marks omitted).
As stated earlier, calculation of lost profits based on
the track records of profits in established companies has long
been an accepted method of estimating damages awards. See,
e.g., Commercial Bus. Sys., 249 Va. at 50, 453 S.E.2d at 268
("When an established business, with an established earning
capacity, is interrupted and there is no other practical way to
estimate the damages thereby caused, evidence of the prior and
subsequent record of the business has been held admissible to
permit an intelligent and probable estimate of damages."
(quoting Mullen v. Brantley, 213 Va. 765, 768, 195 S.E.2d 696,
699-700 (1973))). While never explicitly addressed in Virginia
in the context of a noncompete clause, several of our sister
states have approved the use of subsequent profits from the
benefiting competitors as evidence in damages calculations for
breach of covenants not to compete, provided that the profits
can be sufficiently tied to the injured party. E.g., Trilogy
Network Sys. v. Johnson, 172 P.3d 1119, 1121 (Idaho 2007);
TruGreen Cos. v. Mower Bros., 199 P.3d 929, 933 (Utah 2008).
Here, PSS used not the exact profits of Accenture, but rather
the time billed to Accenture combined with its own established
profit margin to calculate damages. The circuit court used
these figures to arrive at what it deemed to be a reasonable,
21
non-speculative award of damages. We find no error in the
circuit court's determination.
3. Other Subcontractors
The circuit court's factual finding on the tortious
interference claim that PSS "failed to show that it could not
have hired other subcontractors who could have done the same
work" is irrelevant to the award of compensatory damages for
breach of contract. The ability of PSS to hire other, equally
qualified subcontractors is rendered immaterial in light of
Cuccia's unrefuted testimony that Accenture moved the billet
for this work from PSS to Accenture. Absent this billet, PSS
would not have been able to receive funding for or pay a
subcontractor hired to replace GP. The circuit court's finding
pertains only to the availability of other qualified
contractors; the circuit court made no explicit finding as to
PSS' ability to bill DLA for the work of these contractors.
The finding of the circuit court therefore does not necessarily
conflict with award of damages for breach of contract.
III. PSS' Appeal
A. Demand for Injunctive Relief
In its first three assignments of error, PSS asserts that
the circuit court erred by declining to award injunctive relief
in addition to, or in lieu of, compensatory damages for GP's
breach of the noncompete clause. We disagree.
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"[T]he granting of an injunction is an extraordinary
remedy and rests on sound judicial discretion to be exercised
upon consideration of the nature and circumstances of a
particular case." Levisa Coal Co. v. Consolidation Coal Co.,
276 Va. 44, 60, 662 S.E.2d 44, 53 (2008). We thus will not
disturb the circuit court's decision to deny PSS injunctive
relief "unless it is plainly wrong." Snead v. C&S Props.
Holding Co., 279 Va. 607, 613, 692 S.E.2d 212, 215 (2010).
The circuit court provided four reasons for refusing to
enjoin GP from working for Accenture: (1) the twelve-month
noncompete period had run; (2) PSS waited two months after GP
began working for Accenture to bring suit; (3) PSS did not seek
a preliminary injunction against GP; and (4) PSS failed to
"demonstrat[e] that monetary damages would be inadequate and
that only the imposition of an injunction would provide
adequate relief." PSS expends much effort refuting the first
three reasons, but it gives relatively short shrift to the
fourth — which is the one of most significance.
This Court has long said that "[t]o secure an injunction,
a party must show irreparable harm and the lack of an adequate
remedy at law." Black & White Cars, Inc. v. Groome Transp.,
Inc., 247 Va. 426, 431, 442 S.E.2d 391, 395 (1994). PSS argues
in conclusory fashion that "[t]he damages awarded were
inadequate to remedy the irreparable harm suffered by PSS when
23
GP . . . breached the [noncompete clause]." As support for
this claim, PSS relies on the following testimony from Cuccia,
which it submits establishes that its investment in DLA's
systems "[s]olution go[es] beyond some of the lost profit
awarded by the [circuit] court":
Q. Why does PSS include noncompete terms in its
agreements?
A. There is a number of reasons why we do it; one
is to protect our business interest, and it takes a
lot of resources for the bid and the proposal process
to win these types of procurements or these types of
blanket purchase order agreements. There's a large
investment that's made in obtaining these vehicles, as
well as finding the resources to staff these
positions. It's a cumbersome, expensive process to
find and retain quality resources. So it's, you know,
it's something that we take very seriously.
Q. How do you find these quality resources?
A. We have a large recruiting staff that's
recruiting these resources based on job descriptions
and what the customer is looking for to achieve their
mission goals.
This testimony does not support, much less prove, that
damages were inadequate to remedy the harm PSS incurred as a
result of GP's breach of the noncompete clause; it simply goes
to the business need for such a clause. There is no reason
that an investment into bidding for "procurements" or
recruiting staff could not be a quantifiable, compensable
damage to PSS, provided that it could offer the evidence upon
which to calculate the amount of damage sustained. The fact
24
that PSS failed to offer any such evidence does not render its
harm irreparable.
Furthermore, Cuccia made other statements during his
testimony that flatly contradict PSS' argument that damages
were inadequate. After testifying that PSS had sustained
damages when GP went to work for Accenture, he was asked
whether "those damages [could] be calculated." He responded,
"Yes," and then went on to describe a method of calculation:
"Damages are calculated by looking at what we were – what we
bid – the hourly rate that we bid on the task order for those
support services and what we are paying for those services.
The difference between the two on an hourly rate is damages."
Using this method, he was able to offer a numerical calculation
that he claimed constituted PSS' "total" damages.
Given that PSS failed to prove a necessary predicate for
injunctive relief — that it lacked an adequate remedy at law —
we hold that the circuit court was not plainly wrong in
declining to enjoin GP from working for Accenture. In light of
this conclusion, we need not address PSS' arguments that the
circuit court erred by holding PSS accountable for not bringing
suit against GP sooner and not seeking a preliminary
injunction, and by not allowing PSS to waive damages and elect
injunctive relief.
25
B. Tortious Interference Claim
In its fourth and fifth assignments of error, PSS argues
that the circuit court erred by failing to award compensatory
and punitive damages on its tortious interference claim.
The circuit court concluded that PSS had failed to prove
its tortious interference claim because it was not "guaranteed"
work from DLA "even if GP had continued to work for [PSS]," and
because it did not demonstrate that "it could not have hired
other subcontractors who could have done the same work." In
addition, the circuit court found that, "even if PSS could have
shown that GP's breach tortiously interfered with [PSS']
contract with DLA and/or Accenture," there was no separate harm
apart from the harm PSS suffered as a result of GP's breach of
the noncompete clause. (Emphasis omitted.) We agree that PSS
failed to prove its tortious interference claim, but for a
different reason.
PSS asserts that GP tortiously interfered with the blanket
purchase agreement, which it submits is a nonterminable-at-will
contract. By its terms, however, the blanket purchase
agreement does not obligate DLA to do anything until it places
an order: "This [blanket purchase agreement] does not
constitute an obligation of any funds. The Government is
obligated only to the extent of the individually specified
orders issued under the context of this [agreement]." In
26
effect, the blanket purchase agreement is just an agreement to
agree: it gives PSS (along with nine other contractors) an
opportunity to receive work from DLA, but it does not obligate
DLA to provide work. During trial, PSS produced no DLA task
order that was operative at the time GP went to work for
Accenture. At most, then, PSS' tortious interference claim is
one for tortious interference with a business or contract
expectancy, not with a nonterminable-at-will contract. See
Duggin v. Adams, 234 Va. 221, 226, 360 S.E.2d 832, 836 (1987).
To establish a claim for tortious interference with a
business or contract expectancy, PSS was required to show that
(1) it had a contract expectancy; (2) GP knew of the
expectancy; (3) GP intentionally interfered with the
expectancy; (4) GP used improper means or methods to interfere
with the expectancy; and (5) PSS suffered a loss as a result of
GP's disruption of the contract expectancy. Maximus, Inc. v.
Lockheed Info. Mgmt. Sys. Co., 254 Va. 408, 413, 493 S.E.2d
375, 378 (1997). PSS was not, however, required to show that
GP acted with malice or engaged in any other egregious conduct.
Id. at 414, 493 S.E.2d at 378.
Even assuming that PSS established the other elements of
its tortious interference claim, it failed to prove that GP
used improper methods or means to interfere with PSS' business
or contract expectancy with DLA. The only act that PSS points
27
to as evidence of an improper method or means on the part of GP
is its breach of the noncompete clause. While improper methods
or means need not be "inherently illegal or tortious," id., we
hold that the breach of a noncompete clause is not in itself an
improper method or means.
Improper methods or means generally involve violence,
threats or intimidation, bribery, unfounded litigation, fraud,
misrepresentation or deceit, defamation, duress, undue
influence, misuse of inside or confidential information, breach
of a fiduciary relationship, violation of an established
standard of a trade or profession, unethical conduct, sharp
dealing, overreaching, or unfair competition. Duggin, 234 Va.
at 227-28, 360 S.E.2d at 836-37. PSS produced no evidence that
GP committed any of these acts in connection with its breach of
the noncompete clause. Indeed, there is no evidence that GP
even acquired or used PSS' trade secrets or confidential
information to compete with PSS. Cf. Peace v. Conway, 246 Va.
278, 282, 435 S.E.2d 133, 135 (1993).
We accordingly hold that the circuit court did not err by
concluding that PSS had failed to prove its tortious
interference claim. In view of this conclusion, we need not
address PSS' contentions that the circuit court erred by
finding that PSS did not establish that it was "guaranteed"
28
work from DLA, that it could not hire another subcontractor,
and that it did not suffer separate harms.
C. Trade Secret Claim
In its sixth and final assignment of error, PSS asserts
that the circuit court erred by dismissing its claim under the
Uniform Trade Secrets Act (Act), Code §§ 59.1-336 through -343,
on GP's demurrer. According to PSS, its complaint sufficiently
alleges the elements of a trade secret claim. We disagree.
The circuit court's sustaining of GP's demurrer is subject
to de novo review by this Court. Lee v. City of Norfolk, 281
Va. 423, 432, 706 S.E.2d 330, 334 (2011). In conducting our
review, we accept as true the facts alleged in PSS' complaint
and give PSS the benefit of all reasonable inferences that may
be drawn from those facts. Station #2, LLC v. Lynch, 280 Va.
166, 169, 695 S.E.2d 537, 539 (2010). We do not, however,
admit the correctness of PSS' legal conclusions. Yuzefovsky v.
St. John's Wood Apts., 261 Va. 97, 102, 540 S.E.2d 134, 137
(2001).
To state a trade secret claim, a plaintiff must allege
sufficient facts to establish (1) the existence of a trade
secret, and (2) its misappropriation by the defendant.
MicroStrategy Inc. v. Li, 268 Va. 249, 263, 601 S.E.2d 580, 588
(2004) (citing Code § 59.1-336). The Act defines a "trade
secret" as
29
information, including but not limited to, a formula,
pattern, compilation, program, device, method,
technique, or process, that:
1. Derives independent economic value, actual or
potential, from not being generally known to, and
not being readily ascertainable by proper means
by, other persons who can obtain economic value
from its disclosure or use, and
2. Is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.
Code § 59.1-336. And it goes on to define "misappropriation"
as
1. Acquisition of a trade secret of another by a
person who knows or has reason to know that the trade
secret was acquired by improper means; or
2. Disclosure or use of a trade secret of another
without express or implied consent by a person who
a. Used improper means to acquire knowledge of
the trade secret; or
b. At the time of disclosure or use, knew or had
reason to know that his knowledge of the trade
secret was
(1) Derived from or through a person who had
utilized improper means to acquire it;
(2) Acquired under circumstances giving rise
to a duty to maintain its secrecy or limit
its use;
(3) Derived from or through a person who
owed a duty to the person seeking relief to
maintain its secrecy or limit its use;
or
(4) Acquired by accident or mistake.
Id.
30
In its complaint, PSS makes the following allegations in
support of its trade secret claim:
34. PSS' Confidential Information as defined in the
[Subcontractor] Agreement is a Trade Secret as defined
by Va. Code § 59.1-336.
35. Upon information and belief, GP has and continues
to acquire and misappropriate PSS' Trade Secrets.
36. Upon information and belief, GP used improper
means to acquire and misappropriate PSS' Trade
Secrets.
37. PSS' efforts to secure its Trade Secrets from
disclosures are reasonable under the circumstances.
38. GP has a duty to maintain the secrecy of PSS'
Trade Secrets.
39. GP's appropriation of the Trade Secrets was
willful and malicious.
40. GP used the Trade Secrets with a conscious
disregard of PSS' rights and intending to ruin PSS'
business, reputation and client relationships.
The Subcontractor Agreement for Services defines "Confidential
Information" as
any data or information, other than Trade Secrets,
that is of value to PSS and is not generally known to
competitors of PSS. Confidential Information shall
include, but is not limited to, lists of PSS' current
or potential customers, the identity of various
suppliers, information about PSS' executives and
employees, financial information, price lists, pricing
policies and PSS' business methods. Confidential
Information also includes information of the type
described above which PSS obtains from another party
and which PSS treats as Confidential Information,
whether or not owned or developed by PSS.
31
We find the allegations in PSS' complaint insufficient to
support a trade secret claim. Although Virginia is a notice
pleading jurisdiction, see Rule 1:4(d), a complaint must still
"contain[] sufficient allegations of material facts to inform a
defendant of the nature and character of the claim" being
asserted by the plaintiff. CaterCorp, Inc. v. Catering
Concepts, Inc., 246 Va. 22, 24, 431 S.E.2d 277, 279 (1993).
PSS' complaint fails to meet this standard with respect to the
trade secret claim, for it contains nothing more than
conclusory assertions. The complaint, for instance, does not
identify what trade secrets GP misappropriated; instead, it
simply references a laundry list of items that PSS considers to
be "Confidential Information." Nor does it identify the
improper means by which GP obtained the trade secrets or how GP
has used those secrets; rather, it merely states that "GP used
improper means to acquire and misappropriate PSS' Trade
Secrets" and that "GP used the Trade Secrets with a conscious
disregard of PSS' rights and intending to ruin PSS' business,
reputation and client relationships."
Because PSS' complaint fails to set forth the material
facts necessary to sustain the trade secret claim, we conclude
that the circuit court did not err by dismissing the claim on
GP's demurrer.
32
IV. Conclusion
For the foregoing reasons, we find no error in the circuit
court's awarding damages to PSS for lost profits as a result of
GP's breach of the noncompete clause. We also find no error in
the circuit court's refusal to grant PSS injunctive relief, its
conclusion that PSS failed to prove tortious interference, or
its dismissal of PSS' trade secret claim. The judgment of the
circuit court is thus affirmed.
Record No. 111906 – Affirmed.
Record No. 111907 – Affirmed.
JUSTICE McCLANAHAN, concurring.
I agree with the majority opinion. However, in Part
III.B., the Court concludes, without reference to the source of
duty rule, that GP's mere breach of the noncompete clause in
its employment contract with PSS was insufficient to meet the
improper methods or means element for PSS's tortious
interference claim. I write separately to explain that, when
such a breach is the sole basis for asserting tortious
interference, it is the source of duty rule that renders the
claim deficient as a matter of law.
In deciding whether a certain act or occurrence sounds in
breach of contract, breach of a duty arising in tort, or both,
a court must ascertain "the source of the duty violated."
Richmond Metro. Auth. v. McDevitt Street Bovis, Inc., 256 Va.
33553, 558, 507 S.E.2d 344, 347 (1998); see Kaltman v. All
American Pest Control, Inc., 281 Va. 483, 490-93, 706 S.E.2d
864, 869-70 (2011); Dunn Constr. Co. v. Cloney, 278 Va. 260,
266-67, 682 S.E.2d 943, 946 (2009). This rule "avoid[s]
turning every breach of contract into a tort." Dunn, 278 Va.
at 267, 682 S.E.2d at 946. Under the rule, damages incurred as
a result of the breach of a duty assumed only by a contract, as
opposed to a common law or statutory duty, "remain the sole
province of the law of contracts." Filak v. George, 267 Va.
612, 618, 594 S.E.2d 610, 613 (2004). As we explained in
Foreign Mission Board v. Wade, 242 Va. 234, 409 S.E.2d 144(1991), "in certain circumstances the actions of the party
breaching the contract can show both a breach of the contract
terms and a tortious breach of duty"; however, "the duty
tortiously or negligently breached must be a common law duty,
not one existing between the parties solely by virtue of the
contract." Id. at 241, 409 S.E.2d at 148 (citations and
internal quotation marks omitted)). See Ventas, Inc. v. HCP,
Inc., 647 F.3d 291, 311 (6th Cir. 2011) (acknowledging that a
mere breach of contract is not sufficient to establish improper
means for tortious interference claim); Kapunakea Partners v.
Equilon Enters. LLC, 679 F. Supp. 2d 1203, 1217-19 (D. Haw.
2009) (same); JRS Products, Inc. v. Matsushita Elec. Corp. of
Am., 8 Cal. Rptr. 3d 840, 852 (Cal. Ct. App. 2004) ("[A] breach
34
of contract claim cannot be transmuted into tort liability by
claiming that the breach interfered with the promisee's
business.").
Accordingly, I concur with the Court's holding that the
circuit court reached the right result in ruling that PSS
failed to prove its tortious interference claim against GP.
35