Court Opinion

ID: 216703
Source: CourtListenerOpinion
Date Created: 2011-05-13 18:35:52+00
Date Added: 2024-06-11T08:14:54.783596
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                            No. 09-1499

ALLEN F. JOHNSON & ASSOCIATES, LLC,

                Plaintiff – Appellant,

           v.

PORT SECURITY INTERNATIONAL, LLC,

                Defendant – Appellee.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.   T. S. Ellis, III, Senior
District Judge. (1:08-cv-00593-TSE-TCB)

Argued:   March 25, 2011                  Decided:   May 13, 2011

Before MOTZ, GREGORY, and SHEDD, Circuit Judges.

Affirmed by unpublished per curiam opinion.   Judge Motz wrote a
dissenting opinion.

ARGUED: Richard Daniel Kelley, REED SMITH, LLP, Falls Church,
Virginia, for Appellant.    Thomas Kerns McKnight, THOMAS KERNS
MCKNIGHT, PLLC, Washington, D.C., for Appellee.       ON BRIEF:
Michael S. Dingman, Robert M. Diamond, REED SMITH, LLP, Falls
Church, Virginia, for Appellant.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

      Following a bench trial, the district court awarded Allen

F. Johnson & Associates, LLC (AFJ) $230,400 in its breach of

contract action against Port Security International, LLC (PSI)

but denied AFJ’s request for declaratory relief.                   AFJ appeals

the district court’s ruling denying declaratory relief and, for

the following reasons, we affirm.

                                       I.

      On January 5, 2006, AFJ entered into a consulting agreement

with PSI, under which AFJ agreed to help market PSI’s cargo

scanning   business     to    ports    in   Guatemala    and   other   Central

American countries. 1        The Agreement provided that, in the event

PSI   signed   a   contract    for    its   services    with   a   governmental

entity in Central America, PSI would:

      Pay to the Consultant, as per the provisions herein, a
      commission of 20% on the fees collected for incoming
      and outgoing containers by the Principal under the
      agreement for the duration of the contract and its
      renewals, net of any Guatemalan or Central American
      taxes.

(JA at 28).

      1
       Prior to signing the Agreement, PSI had unsuccessfully
attempted to market its services in Guatemala for several years.
AFJ came to PSI’s attention because AFJ’s namesake, Allen
Johnson, was one of the United States’ chief negotiators on the
Central American Free Trade Agreement.

                                        2
       “Payments” under the Agreement “shall only become due when

the Principal or an affiliate of the Principal has been paid by

the customer.”       (JA at 28).          The Agreement also provided that

the   remuneration      provisions       would       survive   termination     of    the

Agreement.

       In November 2006, PSI entered into a ten-year contract with

Compania Bananera Guatemalteca Independiente, S.A. (“Cobigua”),

the operators of the Guatemalan port of Puerto Barrios, for PSI

to handle cargo inspection at the port (the “Cobigua Contract”).

The Cobigua Contract is extendable by agreement of the parties.

Although AFJ assisted in securing the contract, PSI refused to

pay AFJ 20% as provided by the Agreement and instead placed 10%

of the money received from Cobigua in escrow to entice AFJ into

a renegotiation of their commission.

       In   response,      AFJ   filed    this        diversity   action,      seeking

damages     for   breach    of   contract,       a    declaratory   judgment        with

regards to the rights and responsibilities of the parties, and,

in    the   alternative,     quantum      meruit       damages.     AFJ      initially

claimed $2,500,000 in damages for breach, but later requested

only $207,200 — the actual amount it alleged PSI owed at the

time of the action.              After the district court denied cross-

motions     for   summary    judgment,     the       case   proceeded   to    a   bench

trial.      After trial, the district court found that the Cobigua

Contract is within the Agreement, that AFJ is entitled to 20% of

                                          3
Cobigua’s payments to PSI, and that PSI breached the contract by

failing     to   pay    AFJ.        Upon    finding      that     PSI       breached    the

contract, the district court dismissed the quantum meruit claim.

      The district court then turned to the declaratory judgment

claim.    The court first noted that AFJ initially sued for a much

greater amount, before later informing the court that suing for

damages    for   the     entire      life    of    the   contract       would     be    too

speculative      and    that    it    would       instead       seek    a     declaratory

judgment allowing it to sue for damages on future breaches.                             The

court concluded that AFJ had a right to sue for all of the

payments under the Agreement in the current action,                             and that

future    damages      were   not    too    speculative.         It     explained      that

Virginia law would not “sanction eating this piece of pie bite

by bite for the next ten years, or five years.”                             (JA at 395).

Accordingly,     the    court     awarded        AFJ   damages    in    the    amount    of

$230,400—the value of the missed payments, including prejudgment

interest—but denied the requested declaratory relief.                          AFJ filed

a Rule 59(e) motion challenging the district court’s denial of

its   declaratory       judgment,      which       the   district       court     denied.

This appeal followed.

                                            II.

      On appeal, AFJ contends that the district court erred in

resolving    its    declaratory        judgment        claim.      In       denying    that

                                             4
request, the district court found that, because the Agreement is

an indivisible contract, not an installment contract, AFJ is

required     to    sue    on    the     entire      contract    and    could   not    bring

successive actions for future breaches of the Agreement.

                                               A.

       “Under      Virginia     law,     rights      of   action      generally    do   not

arise upon future periodic obligations until they are due, even

though there has been a default in the performance of one of the

earlier     periodic       obligations.”             Wiglesworth       v.   Taylor,     391

S.E.2d      299,    303    (Va.       1990).         However,    if     a   contract     is

represented        by    “one   single     and      indivisible       contract    and   the

breach gives rise to one single cause of action, it cannot be

split into distinct parts and separate actions maintained for

each.”      Jones v. Morris Plan Bank, 191 S.E. 608, 609 (Va. 1937).

A rule of thumb for deciding whether a contract is divisible or

indivisible is that “[i]f the same evidence will support both

actions there is but one cause of action.”                            Id. at 610.        In

Jones, the Supreme Court of Virginia set forth the general rule

that   an    installment        contract       is     considered      divisible      unless

there is an acceleration clause.                    See id.

       The district court determined that the Agreement is not an

installment        contract,      but    rather      is   an   indivisible       contract,

relying on Heirs of Roberts v. Coal Processing Corp., 369 S.E.2d

                                               5
188 (Va. 1988). 2        In Roberts, a landowner leased the mineral

rights in his land to a coal company in exchange for royalty

payments.        The royalty payments were due “when (1) the coal was

sold to lessees’ customers and (2) the proceeds of such sales

were ‘in the hands’ of the lessees.”                Id. at 190.        The Supreme

Court     held    that   the   contract       was   indivisible      because    the

contract “provides for no periodic reports or statements to the

lessors concerning lessees’ receipts, nor does it provide any

other means whereby the lessors could know when, or if, the

lessees had become indebted to them.”                Id.     The Roberts Court

further explained that the contract differed from an installment

contract where payments were due at specified times because it

“contains no fixed time or schedule of times for performance”

and   the   coal    company    could   have    “arrang[ed]      to   postpone   the

actual arrival of proceeds into their hands.”                    Id.    Thus, the

Roberts Court characterized the lease agreement as “executory”

because the decision to sell the coal, and therefore trigger the

lease’s payment provision, rested entirely in the hands of the

coal company.       See id.

      The    district    court    applied      Roberts     to    conclude      that,

because PSI’s payments to AFJ under the Agreement were not due

      2
        Inexplicably, AFJ’s brief includes no discussion of
Roberts although it is the principal case relied on by the
district court in denying AFJ’s requested relief.

                                        6
at specified times and were tied to PSI’s actions in obtaining a

contract    with   a   third    party,       the       Agreement    is    indivisible.

Thus, the district court noted that AFJ had the right to sue for

the entire amount of the contract when it brought the action,

and that determining the amount of future damages is a common

practice and not a reason to declare the contract divisible.

See Roberts, 369 S.E.2d at 190 (noting that “[i]n the case of an

indivisible” contract, plaintiff “has the election of pursuing

his remedy when the breach occurs, or of awaiting the time fixed

by the contract for full and final performance”).

                                         B.

      We agree with the district court that, under Roberts, the

Agreement    is    indivisible     and       AFJ       is   not    entitled    to     its

requested    declaratory       relief.        On       appeal,    AFJ    restates    its

position below that the Agreement is an installment contract and

that its future damages were too speculative to pursue.                             AFJ’s

damages, however, are no more speculative than the landowner’s

damages in Roberts would have been had he sued immediately upon

the coal company’s failure to pay royalties.                       Likewise, AFJ is

correct that an installment contract can give rise to multiple

lawsuits.    AFJ simply has failed to address the district court’s

conclusion    that,    under      Roberts,         the      Agreement     is   not     an

installment contract.          Like the contract examined in Roberts,

the   Agreement     does   not     specify         a     timeframe       for   specific

                                         7
payments, but rather ties payment to when PSI actually collects

money from a third party—Cobigua. 3      Thus, like the coal company

in Roberts, PSI could have agreed with Cobigua to take a lump

sum payment at the end of the ten-year agreement.              Although

perhaps farfetched, this scenario highlights the fact that the

“timing” of the payment is “entirely within [PSI’s] control.”

Roberts, 369 S.E.2d at 190.

     The Supreme Court of Virginia, in Roberts, has already held

that a contract like the consulting agreement in this case is an

indivisible   contract,   not   an   installment   contract.    Settled

Virginia law provides that a party may not split an indivisible

contract into multiple suits.        Flora, Flora & Montague, Inc. v.

Saunders, 367 S.E.2d 493, 495 (Va. 1988) (“A claim arising from

an indivisible contract cannot be split and made the subject of

separate actions.”).

     3
       We also agree with the district court that the fact that
the Cobigua Contract between PSI and Cobigua provides for
monthly installment payments to PSI does not transform the
Agreement into an installment contract.       The Roberts Court
focused on the fact that the “timing” of the payments to lessees
was “entirely” within their control.    369 S.E.2d at 190.   How
the lessees exercised that timing was simply not relevant to
determining whether the underlying lease was divisible.

                                     8
                              III.

     For the foregoing reasons, we affirm the denial of AFJ’s

request for declaratory relief.

                                                     AFFIRMED

                                  9
DIANA GRIBBON MOTZ, Circuit Judge, dissenting:

      With respect, I dissent.             In my view, the district court

erred in characterizing AFJ’s request for declaratory relief as

impermissible claim-splitting.

      Virginia law forbids a plaintiff from splitting a claim

“into distinct parts” and maintaining “separate actions” if a

“transaction       is    represented    by    one     single     and    indivisible

contract     and   the    breach   gives     rise    to    one   single    cause   of

action.”     Jones v. Morris Plan Bank of Portsmouth, 168 Va. 284,

290   (1937).       Only   if   “the   same    evidence       will     support”    all

actions is there “one cause of action.”                   Id. at 291.     Here, “the

same evidence” cannot support actions for each breach of the

consulting agreement, and so there is not “one cause of action.”

      Rather, AFJ’s remuneration under the consulting agreement

rests on evidence as to factors that may well vary each month.

That remuneration turns on the amount and timing of Cobigua’s

payments to PSI, JA 28, and the Cobigua Contract renders those

payments contingent on a host of factors, including the number

of containers screened per month, the promptness of Cobigua’s

payment, and Cobigua’s potential renewal of the contract beyond

the 10-year initial period.            JA 100-101.         The first variable --

number of containers screened -- seems particularly dependent on

a   number   of    unforeseeable    economic        and    geopolitical     factors.

Thus, while claims for present and future damages share a common

                                        10
factual foundation, e.g. that AFJ helped PSI secure the Cobigua

Contract and that the parties intended the agreement to cover

Puerto    Barrios       screenings,        the      damages    calculations       turn   on

entirely different facts.

       The differences in the causes of action here demonstrate

the rationale for Virginia’s general rule that a contract “to

pay money in installments is divisible in its nature.”                              Jones,

168 Va. at 292 (internal quotation omitted).                       Indeed, “rights of

action generally do not arise upon future periodic obligations

until they are due, even though there has been a default in the

performance       of       one    of     the   earlier        periodic    obligations.”

Wiglesworth v. Taylor, 239 Va. 603, 607 (1990).                                PSI assumed

such “periodic” obligations to AFJ, and those obligations differ

even     more    than       do    those    under      other     types     of     divisible

installment contracts.              Cf. tenBraak v. Waffle Shops, Inc., 542

F.2d 919, 924 n.6 (4th Cir. 1976) (rent).

       Furthermore, the structure of the consulting agreement here

demonstrates its divisibleness.                  See Shelton v. Stewart, 193 Va.

162, 167 (1951) (“the question of whether a contract is entire

or severable is one of intention, to be determined from the

language    .    .     .    and    the    subject      matter     of     the    agreement”

(internal       quotation         omitted)).          The     remuneration       provision

states that “payments shall only become due when [PSI] has been

paid by the customer.”              JA 28.       The use of the plural “payments”

                                               11
suggests that the provision contemplates multiple and separate

payments, with each only becoming calculable after PSI “has been

paid by the customer.”           Id.     The agreement’s severability clause

also proclaims the parties’ intent that each provision stand

independently from the rest.             JA 30; cf. Shelton, 193 Va. at 167

(“a contract is entire when . . . it contemplates and intends

that each and all of its parts . . . shall be common each to the

other and interdependent” (internal quotation omitted)).

     Because of the contract’s structure, a single breach is not

“of a permanent nature” such that it “produces all the damage

which can ever result from it.”                 Hampton Roads Sanitation Dist.

v.   McDonnell,      234   Va.    235,     239    (1987)   (internal        quotation

omitted).        Instead,    PSI’s       missed     payments    “occur      only    at

intervals” and “each occurrence inflicts a new injury.”                            Id.

Indeed,   AFJ    persuasively          argues    that   Virginia    law     bars   any

attempt here to anticipate and calculate future damages; the

dependency      of   the    damages      on     unpredictable      future     factors

renders     them     impermissibly         “contingent,        speculative,        and

uncertain.”        Crist v. Metropolitan Mortg. Fund, Inc., 231 Va.

190, 195 (1986).       Accordingly, each breach should be treated as

a new injury, subject to recovery at the time of that breach.

     In holding to the contrary, my friends in the majority and

the district court principally rely on Heirs of Roberts v. Coal

Processing Corp., 235 Va. 556 (1988).                    In that case, Roberts

                                          12
conveyed mineral rights in his land to two lessees, who received

the right to enter and mine minerals in exchange for a promise

to pay Roberts “ten cents per ton arising from the sale of any

Coal or other mineral that may be mined or obtained from the

land . . . after the same is sold and the receipts are in the

hands of the [lessees].”              Id. at 556.          The court held that

contract     indivisible     because      it    “contains    no     fixed    time    or

schedule of times for performance.”                   Id. at 560.     Since payment

depended on “the proceeds of such sales [being] ‘in the hands’

of the lessees,” an event resting “entirely within the lessees’

control,”    the    court    noted    that      the    lessees    could   delay     any

obligation to pay Roberts by simply “postpon[ing] the actual

arrival of proceeds into their hands.”                    Id. at 561.        For this

reason, the court distinguished the contract in Roberts from

those “providing for payment in installments, due at specified

times” and ruled that it qualified as an “entire contract.”                       Id.

       This case critically differs from Roberts.                     For although

the consulting agreement itself does not fix exact dates for the

payment of commissions, it requires that PSI pay commissions

when   PSI   “has   been    paid     by   the    customer”    under    the    Cobigua

Contract.     JA 28.        The Cobigua Contract in turn establishes a

fixed schedule for payments to PSI, requiring Cobigua to make a

payment “[a]t the end of each month.”                   JA 100.     The consulting

agreement therefore provides that AFJ’s commissions become “due”

                                          13
after Cobigua makes its underlying payments -- no later than the

end of each month.      JA 28; see VMI v. King, 217 Va. 759 (1977)

(cause of action accrues once plaintiff has a “right to demand

and receive[] payment”).       And unlike the lessees in Roberts, PSI

cannot    manipulate   Cobigua’s   payments     so   as   to    nullify   its

present obligation to AFJ, because the Cobigua Contract provides

for automatic payment “without demand” from PSI.                JA 100.    In

other words, given that the consulting agreement takes on the

Cobigua   Contract’s   fixed   schedule,   it   becomes    an    installment

contract that Virginia law treats as divisible. *

     In sum, permitting separate claims here would not subject

PSI to repetitive “vexatious litigation,” Jones, 168 Va. at 292,

     *
       In addition, I note that Roberts analyzes a contract’s
divisibility in the context of the statute of limitations. Id.
at 561-62. There, the court’s holding benefited the plaintiffs,
because their cause of action did not accrue until the
expiration of the contract term.    Id.   But here the district
court’s ruling severely prejudices the plaintiff, because it
deprives AFJ of any remedy for PSI’s ongoing breach of the
consulting agreement.   The Roberts reasoning, articulated in a
context in which the equities lined up differently, may not
necessarily apply in the present context. After all, Virginia’s
claim-splitting rule constitutes a “rule of justice, not to be
classed among technicalities” and an “equitable interposition of
the courts [made for] reasons of public policy.” Jones, 168 Va.
at 292 (internal quotation omitted).       The district court’s
“equitable interposition” seems misplaced here, because AFJ has
extracted no prejudicial advantage by suing for compensatory
damages now and future damages later. See Pollard & Bagby, Inc.
v. Morton G. Thalhimer, Inc., 169 Va. 529, 536 (1938) (noting
that the election of remedies rule aims to prevent the plaintiff
from “gain[ing] an advantage” or forcing the defendant to
“suffer[] a disadvantage”).

                                    14
nor     would   it    permit      AFJ     to       extract    an       undeserved      double

recovery.       Cf. X-It Products, L.L.C v. Walter Kidde Portable

Equipment,      Inc.,    227     F.    Supp.     2d    494,   524      (E.D.    Va.    2002).

Accordingly, in my view, the majority, like the district court,

errs in applying the equitable bar on claim-splitting in this

case.

      Since     the     district        court       premised       its     order      denying

declaratory relief solely on an incorrect legal conclusion, we

should vacate that order and remand to the district court to

determine       whether     to        exercise        its    jurisdiction        to     award

declaratory relief.         See MedImmune, Inc. v. Genentech, Inc., 549

U.S. 118, 136 (2007); White v. Nat’l Union Fire Ins. Co., 913

F.2d 165 (4th Cir. 1990).               In doing so, we should hold that the

claim-splitting         doctrine       does    not     provide     a     good   reason    for

refusing declaratory relief.

                                              15