Navar, Inc. v. Federal Business Council , 291 Va. 338 ( 2016 )

PRESENT: Lemons, C.J., Goodwyn, Mims, McClanahan, Powell, and Kelsey, JJ., and Millette,
S.J.
NAVAR, INC.
OPINION BY
v. Record No. 150522 JUSTICE CLEO E. POWELL
April 28, 2016
FEDERAL BUSINESS COUNCIL, ET AL.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Brett A. Kassabian, Judge
Navar, Inc. (“Navar”) appeals a $1.25 million judgment for breach of a non-disclosure
agreement and misappropriation of trade secrets in violation of the Virginia Uniform Trade
Secrets Act (“the Act”), Code § 59.1-336 et seq. Federal Business Council (“FBC”) and
Worldwide Solutions, Inc. (“Worldwide Solutions”) assign cross-error to the trial court’s
judgment notwithstanding the verdict finding that a teaming agreement was not enforceable as a
contract.
I. BACKGROUND
The United States Defense Threat Reduction Agency (“Defense Agency”) uses private
contractors to provide labor and materials for conferences and events it hosts domestically and
abroad. In 2011, the Defense Agency sought a prime contractor to provide event-planning
services for a five-year term. Under Section 8(a) of the Small Business Act, 15 U.S.C. § 631 et
seq., federal agencies may conduct competitions for contracts in which only certain companies
may compete (“set-aside contract”) through the business development program. See 13 C.F.R.
Part 124 (2016). The Defense Agency treated the event-planning contract as a set-aside contract
that was limited to an Alaska Native Corporation (“ANC”) as defined in 13 C.F.R. § 124.3.
FBC is a contractor that provides planning services for government conferences held
domestically. Worldwide Solutions is a contractor that manages government conferences that
are held abroad. FBC and Worldwide Solutions (collectively “Plaintiffs”) were ineligible to bid
for the work under the Small Business Act. Plaintiffs agreed to offer their services as joint
subcontractors to a company eligible to bid as prime contractor on the Defense Agency contract.
On March 21, 2011, Plaintiffs approached Concentric Methods, LLC, (“Concentric”) a
wholly owned subsidiary of an ANC, about serving as the prime contractor for a bid.
Subsequently, Plaintiffs and Concentric worked on a proposal for the Defense Agency, including
preparation of a slide presentation. On March 23, 2011, Worldwide sent a draft of the slide
presentation to the Defense Agency for comment. On March 24, 2011, the Plaintiffs and
Concentric met with the Defense Agency about their proposal. Following this meeting,
Concentric discovered it was ineligible to serve as a prime contractor and substituted its
corporate affiliate, Navar, as the prime contractor for the proposal.
On May 18, 2011, Plaintiffs entered into a non-disclosure agreement (“NDA”) with
Navar. The NDA provided that “confidential information” shall not be “disclosed by the
recipients to any third parties not intended, nor otherwise used by the recipient for any purpose
inconsistent with the intention of the parties stated herein without the prior written consent of the
disclosing party.”
On May 20, 2011, the parties attended a meeting with the Defense Agency to discuss
their proposal. The parties used a 38-page slideshow during their presentation to the Defense
Agency. This slide presentation was similar to the presentation that Plaintiffs and Concentric
had drafted for their previous meeting with the Defense Agency prior to Navar’s substitution for
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Concentric. The Plaintiffs supplied the majority of the content for the slideshow with FBC
providing 80 to 90 percent and Worldwide Solutions providing 10 percent.
On May 24, 2011, the parties entered into a Teaming Agreement, which provides that if
Navar were awarded a prime contract then it would negotiate in good faith with Plaintiffs and,
“upon arriving at prices, terms and conditions acceptable to the parties,” enter into subcontracts.
The Teaming Agreement stated that it will expire if the parties were unable, “negotiating in good
faith to reach agreement on the terms of a subcontract.” The “Statement of Work,” Exhibit A to
the Teaming Agreement, also provides that “[Navar] will receive, at a minimum, 51% of the
labor hours and labor dollars in accordance with directed [section] 8(a) awards.” 1
On April 13, 2012, the Defense Agency awarded Navar a five-year prime contract with a
maximum value of $55 million (“prime contract”). In November 2012, negotiations broke down
between Navar and the Plaintiffs over the division of work through subcontracts. Navar did not
extend subcontracts to either Plaintiff. The Plaintiffs then filed a seven-count complaint against
Navar, asserting claims for breach of contract, unjust enrichment, quantum meruit, and trade
secret misappropriation.
The Plaintiffs alleged, as relevant here, that Navar breached the NDA (Count I) by using
their confidential information to obtain the Defense Agency contract, but not sharing work with
them; breached the Teaming Agreement (Count II) by failing to award a subcontract to them;
and violated the Act (Counts VI & VII) by misusing their trade secrets to win and perform the
1
13 C.F.R. § 124.510(a) states, “To assist the business development of Participants in the
8(a) BD program, an 8(a) contractor must perform certain percentages of work with its own
employees. These percentages . . . are the same as those established for small business set-aside
prime contractors, and are set forth in § 125.6 of this title.” 13 C.F.R. § 125.6(a)(1) requires the
prime contractor in a contract for services to “perform at least 50 percent of the cost of the
contract incurred for personnel with its own employees.” 13 C.F.R. § 125.6(a)(2) also requires
the prime contractor in a contract for supplies or products “will perform at least 50 percent of the
cost of manufacturing the supplies or products.”
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prime contract. Plaintiffs also asserted equitable claims as alternatives to the breach of contract
claims (Counts III–V).
At the time of trial, the Defense Agency, under the prime contract, had ordered $18.6
million in work from Navar and Navar had received $2 million in payments under the prime
contract. Worldwide Solutions presented evidence that its profit margin for the type of work it
would have completed under a subcontract was approximately 10 percent. FBC presented
evidence that its profit margin was between 17 and 25 percent for such work. Based on this
evidence, Plaintiffs contended they were entitled to their lost profits for breaches of the NDA and
Teaming Agreement. The Plaintiffs did not present expert testimony to support their damages
claim.
Aside from evidence about the May 20, 2011 meeting with the Defense Agency, the
Plaintiffs did not present any evidence that Navar used their confidential information to obtain
the prime contract. On cross-examination, FBC’s president, Mike O’Neill, testified that he saw
evidence from internal documents produced during discovery that suggested Navar had used
information shared by FBC to perform the prime contract. However, O’Neill neither identified
nor described those documents with any specificity. At the close of the Plaintiffs’ evidence, the
trial court denied Navar’s motion to strike the evidence as insufficient to prove the breach of
contract (Counts I & II) and trade secrets claims (Counts VI & VII).
For Counts I and II, the jury found that Navar had breached the NDA and Teaming
Agreement and awarded each Plaintiff a total of $500,000 in damages for both counts combined.
For Count VI, the jury found that Navar had misappropriated FBC’s trade secrets under the Act
and awarded $250,000 in damages. For Count VII, the jury found that Navar had not
misappropriated Worldwide Solutions’s trade secrets.
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Navar filed a motion to reconsider the trial court’s ruling on the motion to strike. The
trial court set aside the verdict on breach of the Teaming Agreement (Count II) because it
determined the agreement was unenforceable as an “agreement to negotiate open issues in good
faith within a framework . . . I cannot conclude that it is anything other than that as opposed to an
enforceable contract in this case that gives rise to a claim that should have gone to the jury as to a
breach of contract.” The trial court denied the motion to reconsider as to Count I and Count VI
and entered judgment in favor of Plaintiffs in the total amount of $1.25 million.
II. ANALYSIS
When the sufficiency of a plaintiff’s evidence is challenged by a
motion to strike, the trial court should resolve any reasonable
doubt as to the sufficiency of the evidence in plaintiff’s favor and
should grant the motion only when “it is conclusively apparent that
plaintiff has proven no cause of action against defendant,” or when
“it plainly appears that the trial court would be compelled to set
aside any verdict found for the plaintiff as being without evidence
to support it.”
Saks Fifth Ave., Inc. v. James, Ltd., 272 Va. 177, 188, 630 S.E.2d 304, 311 (2006) (quoting
Williams v. Vaughan, 214 Va. 307, 309, 199 S.E.2d 515, 517 (1973)).
A. Non-Disclosure Agreement
Navar argues that it did not breach the NDA and that Plaintiffs failed to prove any
monetary damages they incurred due to the breach of the NDA. 2 “‘[T]he elements of a breach of
contract action are (1) a legally enforceable obligation of a defendant to a plaintiff; (2) the
defendant’s violation or breach of that obligation; and (3) injury or damage to the plaintiff
caused by the breach of obligation.’” Ulloa v. QSP, Inc., 271 Va. 72, 79, 624 S.E.2d 43, 48
(2006) (quoting Filak v. George, 267 Va. 612, 619, 594 S.E.2d 610, 614 (2004)). “A plaintiff
2
Navar erroneously recites Count VII (finding for Navar on the Trade Secrets Act) in its
assignment of error instead of Count VI (finding for Worldwide Solutions on the Trade Secrets
Act); we have addressed Count VI.
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. . . must prove two primary factors relating to damages. First, a plaintiff must show a causal
connection between the defendant’s wrongful conduct and the damages asserted. Second, a
plaintiff must prove the amount of those damages by using a proper method and factual
foundation for calculating damages.” Saks Fifth Ave., Inc., 272 Va. at 189, 630 S.E.2d at 311
(citations omitted).
Plaintiffs argue that Navar breached the NDA by using their confidential information to
obtain the prime contract for itself without then hiring Plaintiffs as subcontractors to the prime
contract. However, nothing in the NDA asserts that that was the intent of the parties. Recital B
of the NDA states: “Each Party hereto desires to disclose to the other certain information relating
to teaming discussions for research and development enterprise event and conference support,
each party receiving the other’s proprietary information shall only use the information to
evaluate whether to enter into and complete the aforementioned matter and shall not use it for
any other reason.” Plaintiffs failed to show at trial how Navar misused their confidential
information under the NDA. Plaintiffs presented no evidence of a misappropriation within the
meaning of Code § 59.1-336. Plaintiffs also failed to show how the NDA required Navar to use
Plaintiffs as subcontractors. Based on this evidence, Navar cannot be found liable for breach of
contract. The trial court erred in denying the motion to reconsider Navar’s motion to strike.
Regarding Count VI, Navar did not disclose or use the trade secrets in violation of the
Trade Secrets Act. At the time of the prime contract award to Navar, Navar was authorized to
use the information by the NDA. Nothing in the Trade Secrets Act or the NDA required Navar
to use Plaintiffs as subcontractors, which is Plaintiffs’ primary complaint. 3
3
Because there was no breach and therefore no damages, assignment of error 2 regarding
remittitur of the amount of damages awarded in Counts I and VI is moot.
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B. Teaming Agreement
The trial court did not err in finding the Teaming Agreement was unenforceable as a
binding contract. This Court said in Allen v. Aetna Casualty & Surety Co., 222 Va. 361, 281
S.E.2d 818 (1981):
[T]here must be mutual assent of the contracting parties to terms
reasonably certain under the circumstances in order to have an
enforceable contract. Here, there was no such mutual
commitment. No sum was specified in the agreement, nor was any
method or formula alleged for determining the amount payable in
[the transaction]. A court should not determine the terms . . . upon
which the parties might ultimately agree. As the agreement
provided no reasonable basis for affording a remedy for its breach,
it is too vague and indefinite to be enforced.
Id. at 364, 281 S.E.2d at 820 (citations omitted).
In W.J. Schafer Assocs. v. Cordant, Inc., 254 Va. 514, 520, 493 S.E.2d 512, 515 (1997),
the Court found a teaming agreement unenforceable as a contract because it
show[ed] by its express terms that it was not an enforceable
contract for the sale of digitizers. There was no mutual
commitment by the parties, no obligation on the part of Ogden
[part of the teaming agreement] to sell the digitizers or on the part
of Cordant to purchase them, no agreed purchase price for the
product, and, indeed, no assurance that the product would be
available when needed. It follows, therefore, that, if the Teaming
Agreement was not enforceable against Ogden as a contract for the
sale of goods, it also was not enforceable against Schafer under the
claim that Schafer was Ogden’s delegate within the meaning of the
Uniform Commercial Code, i.e., Code § 8.2-210(1).
The same logic was also applied by the United States District Court for the Eastern
District of Virginia in Cyberlock Consulting, Inc. v. Info. Experts, Inc., 939 F. Supp. 2d 572, 578
(E.D. Va. 2013), aff’d, No. 13-1599, 2014 U.S. App. LEXIS 322 (4th Cir. Jan. 8, 2014).
Applying Virginia contract law, the court said:
[I]t is “well settled under Virginia law that agreements to negotiate
at some point in the future are unenforceable.” Beazer Homes
Corp. v. VMIF/Anden Southbridge Venture, 235 F. Supp. 2d 485,
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490 (E.D. Va. 2002). Accordingly, “an agreement to ‘negotiate
open issues in good faith’ to reach a ‘contractual objective within
[an] agreed framework’ will be construed as an agreement to agree
rather than a valid contract.” Virginia Power Energy Mktg., Inc. v.
EQT Energy, LLC, 3:11CV630, 2012 U.S. Dist. LEXIS 98553, at
*4 (E.D. Va. July 16, 2012) (quoting Beazer, 235 F. Supp. 2d at
491).
In Schafer and Cyberlock, teaming agreements were found to be unenforceable as
contracts because they merely set out agreements to negotiate future subcontracts in good faith.
Here, the Teaming Agreement does not contain a sum, or any reasonably certain method for
determining a sum, or any requirement that Plaintiffs and Navar mutually agreed that Plaintiffs
would be the actual subcontractors hired by Navar once the prime contract was awarded.
Plaintiffs did not present any evidence to support their argument beyond arguing that they were
entitled to a full 49% workshare because the Teaming Agreement stated Navar would “receive,
at a minimum, 51% of the labor hours and labor dollars.” This figure, however, may simply
reflect attention to the requirement found in 13 C.F.R. § 125.6(a)(1) that the prime contractor
“perform at least 50 percent of the cost of the contract incurred for personnel with its own
employees.” Further, plaintiffs did not present any expert evidence to support their argument
that the standard in the industry was that subcontractors were guaranteed 49% of the work share.
The evidence showed email exchanges mentioning workshare percentages, but no written
documents were produced regarding any actual agreement governing the workshare split.
The rules of contract law do not apply to the Teaming Agreement because it is merely an
agreement to agree to negotiate at a future date. Accordingly, Plaintiffs are not entitled to
damages for breach of the Teaming Agreement.
III. CONCLUSION
For the foregoing reasons, we will reverse the judgment of the trial court denying Navar’s
motion to strike Counts I and VI of the complaint that allege breach of the non-disclosure
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agreement and a violation of the Virginia Trade Secrets Act, respectively, and enter judgment for
Navar on both of those counts. Additionally, we will affirm the judgment of the trial court for
Navar notwithstanding the verdict on Count II of the complaint alleging breach of the Teaming
Agreement.
Reversed in part,
affirmed in part,
and final judgment.
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