Court Opinion

ID: 9914267
Source: CourtListenerOpinion
Date Created: 2023-12-29 21:00:48.627784+00
Date Added: 2024-06-11T13:10:50.245145
License: Public Domain

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                                            UNPUBLISHED

                               UNITED STATES COURT OF APPEALS
                                   FOR THE FOURTH CIRCUIT

                                              No. 22-1945

        ADVANCED TRAINING GROUP WORLDWIDE, INC.,

                            Plaintiff - Appellant,

                     v.

        PRO-ACTIVE TECHNOLOGIES, INC., d/b/a ProActive Technologies, LLC, f/k/a
        Pro-Active Technologies, L.L.C., d/b/a ProActive Technologies, L.L.C., a Virginia
        Corporation,

                            Defendant - Appellee.

        Appeal from the United States District Court for the Eastern District of Virginia, at
        Alexandria. Patricia Tolliver Giles, District Judge. (1:19-cv-00505-PTG-WEF)

        Argued: October 24, 2023                                    Decided: December 28, 2023

        Before NIEMEYER, GREGORY, and HARRIS, Circuit Judges.

        Affirmed by unpublished opinion. Judge Gregory wrote the opinion, in which Judge Niemeyer
        and Judge Harris joined.

        ARGUED: Joseph Anthony Whitcomb, WHITCOMB, SELINSKY, PC, Denver,
        Colorado, for Appellant. Jeffrey Scott Poretz, MILES & STOCKBRIDGE P.C., Tysons
        Corner, Virginia, for Appellee. ON BRIEF: Nathan J.D. Veldhuis, WHITCOMB,
        SELINSKY, PC, Fredericksburg, Virginia, for Appellant. Joseph M. Rainsbury,
        Richmond, Virginia, Laura G. Liff, Matthew L. Devendorf, MILES & STOCKBRIDGE
        P.C., Tysons Corner, Virginia, for Appellee.

        Unpublished opinions are not binding precedent in this circuit.
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        GREGORY, Circuit Judge:

               This case arises from a dispute between two corporations—Pro-Active

        Technologies (“Pro-Active”) and Advanced Training Group Worldwide (“ATG”)—who

        formed a joint venture to bid on a government contract. The district court entered summary

        judgment for Pro-Active on all but one claim and, following a bench trial, entered judgment

        for Pro-Active on the remaining claim. ATG appealed. Finding no error, we affirm.

                                                    I.

               In 2011, the United States government announced that it was starting the acquisition

        process for the United States Army Special Operations Forces RAPTOR III (“RAPTOR

        III”) contract. Appellee Pro-Active previously bid on the RAPTOR I and RAPTOR II

        contracts but its proposals had been rejected. To improve the competitiveness of Pro-

        Active’s RAPTOR III bid, Pro-Active’s CEO contacted the CEO of ATG, who had special

        forces experience, about the possibility of Pro-Active and ATG working together for

        RAPTOR III. ATG’s CEO agreed, and the two formed a joint venture, which would be

        conducted through RAPTOR Training Services (“RTS”), a limited liability company

        formed for this purpose.

               ATG and Pro-Active entered into a Memorandum of Understanding (“MOU”) to

        govern the joint venture until the parties had the opportunity to negotiate a more formal

        operating agreement. Section 1.0 of the MOU identified the joint venture’s goals:

               The goals of the JV [joint venture] are to secure the single award under the
               SOF RAPTOR III IDIQ; bid on task orders offered under the SOF RAPTOR
               III IDIQ award, and to perform the services required to support successful
               execution of awarded task orders in accordance with the terms and conditions

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               governing the JV as outlined herein and as may be further refined and agreed
               to in the course of JV operation.

        J.A. 2571.

               Under Section 5.0, 67% of “membership interests and voting rights” were

        apportioned to Pro-Active and 33% were apportioned to ATG. J.A. 2572. Section 7.0

        created a six-member Board with three designees from Pro-Active and three designees

        from ATG. J.A. 2572. Section 7.0 did not specify a voting structure among the Board

        members. Finally, Section 20.0 permitted a party to be terminated from the joint venture

        for “breach of this MOU or the JV governing documents.” J.A. 2581. From July 2012,

        when the MOU was signed, until March 2016, the parties operated under the MOU, which

        became a de facto operating agreement.           Neither Pro-Active nor ATG suggested

        negotiating a formal operating agreement or attempted to do so during this time.

               RTS was awarded the RAPTOR III contract in February of 2014. The award was

        an indefinite delivery indefinite quantity (“IDIQ”) contract for goods and services relating

        to the training of special-operations soldiers. The government had discretion to place task

        orders, which outlined the parameters of individual assignments to be completed, on the

        RAPTOR III contract or use another contractor. The RAPTOR III contract was a “small

        business set-aside”—it had to be awarded to a small business, and that small business had

        to perform at least 50% of the labor required under the contract organically, meaning it had

        to perform the work itself without contracting it out. Work subcontracted to other

        businesses did not count toward this requirement, known as the 51% Rule, even if the

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        subcontractor was itself a small business. The 51% Rule was expressly incorporated into

        the RAPTOR III contract and was never modified.

              In October of 2015, government representatives first raised concerns about RTS’s

        compliance with the 51% Rule. At the time, RTS was only completing about 11 percent

        of the work organically. To address these concerns, ATG and Pro-Active contemplated

        adding one or more small businesses to the joint venture as “Class B members” in a non-

        voting capacity. Work performed by Class B members would increase the amount of work

        performed organically. The companies identified as potential Class B members would not

        join the joint venture without a formal operating agreement, so ATG and Pro-Active began

        negotiating an agreement. Pro-Active sent a first draft of the Operating Agreement to ATG

        on March 21, 2016, but negotiations soon stalled over disagreements concerning Board

        member voting. ATG insisted that because ATG named half of the Board members, ATG

        was allotted 50% of the Board’s vote, while Pro-Active insisted that the 67/33 voting

        provision in Section 5.0 also applied to the Board. At around the same time, ATG sent

        drafts of exclusive sub-contracting agreements to the potential Class B members. Because

        sub-contracted work did not count toward the 51% Rule, ATG’s attempt to sign potential

        Class B members as exclusive sub-contractors undermined RTS’s compliance with the

        51% Rule.

              Several months later, in October of 2016, a government representative reached out

        to RTS about moving several large military training exercises to the RAPTOR III contract.

        However, RTS’s receipt of this work was contingent on whether RTS could confirm to the

        government that it could perform the new work in compliance with the 51% Rule. At the

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        same time, despite renewed negotiations, the parties remained unable to agree on the terms

        of a formal Operating Agreement. Several days later, Pro-Active sent ATG a letter

        terminating ATG from the joint venture on the asserted bases that ATG’s insistence of

        50/50 Board voting was a breach of the MOU and ATG’s intransigence was preventing the

        parties from adding Class B members to the joint venture, which, in turn, was preventing

        compliance with the 51% Rule.

               ATG filed suit against Pro-Active alleging breach of contract, multiple counts of

        tortious interference with a contract, tortious interference with business expectancy, and

        unjust enrichment. The parties’ discovery disclosures were governed by a stipulated

        protective order, which defined what information was confidential and limited the ways in

        which confidential information could be used and to whom it could be disclosed. During

        discovery, the district court sanctioned ATG’s counsel for violation of the parties’

        stipulated protective order. Following expert discovery, the court struck ATG’s damages

        expert and subsequently granted Pro-Active’s motion in limine to preclude ATG from

        introducing evidence relating to claimed damages at trial. As a result, ATG proceeded on

        a claim for only nominal damages. The district court granted partial summary judgment

        for Pro-Active, dismissing the tortious interference and unjust enrichment claims but

        denying summary judgment on the breach of contract claim. Following a two-day bench

        trial, the district court concluded that ATG had first breached the agreement by insisting

        on a 50/50 voting split in contravention of Section 5.0 of the MOU, and that ATG thus

        could not maintain a breach of contract claim against Pro-Active. Accordingly, the district

        court entered judgment for Pro-Active. ATG appealed.

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                                                      II.

               ATG first appeals the district court’s verdict on the breach of contract claim.

        “Following a bench trial, we review a district court’s factual findings for clear error and its

        legal conclusions de novo.” Nat’l Fed’n of the Blind v. Lamone, 813 F.3d 494, 502 (4th

        Cir. 2016). “In cases in which a district court’s factual findings turn on assessments of

        witness credibility or the weighing of conflicting evidence during a bench trial, such

        findings are entitled to even greater deference.” Helton v. AT&T Inc., 709 F.3d 343, 350

        (4th Cir. 2013).

               The MOU provides that Virginia law governs this case. Under Virginia law, the

        “‘party who commits the first breach of contract,’ if material, ‘is not entitled to enforce the

        contract’ and thereby excuses the nonbreaching party from performance.” VEPCO v.

        Bransen Energy, Inc., 850 F.3d 645, 655 (4th Cir. 2017) (quoting Horton v. Horton, 487

        S.E.2d 200, 203–04 (Va. 1997)). In other words, if ATG materially breached the MOU

        before Pro-Active unilaterally terminated ATG from the joint venture, ATG’s breach of

        contract claim fails because ATG was the first to breach. See id. “The type of evidence

        required to establish a material breach of contract will vary depending on the facts

        surrounding a particular contract,” but material breach is proven “when the evidence

        establishes that the breach was so central to the parties’ agreement that [the breach] defeated

        an essential purpose of the contract.” Horton v. Horton, 487 S.E.2d 200, 204 (Va. 1997).

               The essential purpose of the contract, as established in Section 1.0 of the MOU, was

        to secure the RAPTOR III contract and carry out task orders offered by the government

        under that contract. Accordingly, under the agreement, each party had an obligation to

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        conduct itself in a way that was not antithetical to the pursuit of that purpose. If ATG’s

        course of conduct undermined the joint venture’s ability to pursue this stated goal, that

        conduct “defeats the essential purpose of” the MOU, and thus amounts to a material breach.

        The district court recognized that this is the proper legal standard under which to analyze

        the parties’ conduct, and so did not err as to the legal conclusions underlying its verdict.

               Whether ATG’s course of conduct undermined this essential purpose is a factual

        finding that we review for clear error. The district court found that the government

        conditioned a large award of task orders on RTS’s compliance with the 51% Rule. J.A.

        4042, 4045. To comply with this requirement, RTS had to add Class B members to the

        joint venture. J.A. 4046. If RTS could not confirm to the government that it could comply

        with the 51% Rule, task orders would be steered away from RTS and given to other

        companies. J.A. 4055. Therefore, if the parties could not reach agreement as to the terms

        of the Operating Agreement so as to add Class B members, RTS would lose a substantial

        portion of its work under the RAPTOR III contract, defeating the purpose of the joint

        venture.   Id.   ATG’s insistence on per capita voting for Board members prevented

        agreement on the Operating Agreement, which prevented addition of Class B members,

        which, in turn, defeated an essential purpose of the contract such that ATG’s conduct was

        a material breach. J.A. 4057.

               These factual findings are all supported by citations to the record and accurately

        reflect the evidence presented therein. Though there is conflicting evidence in the record,

        we must credit the district court’s weighing of the evidence, and conflicting evidence alone

        is not a basis for reversal. See TFWS, Inc. v. Franchot, 572 F.3d 186, 196 (4th Cir. 2009)

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        (“[I]f the district court’s account of the evidence is plausible in light of the record in its

        entirety, we will not reverse the district court’s finding simply because we have become

        convinced that we would have decided the question of fact differently.” (internal quotation

        omitted)). Further, the district court did not base its conclusion that ATG prevented the

        addition of Class B members on ATG’s refusal to sign the Operating Agreement alone.

        The district court also pointed to ATG’s efforts to enter into exclusive subcontracting

        agreements with the potential Class B members. Under these exclusive agreements, the

        potential Class B members could only have performed work subcontracted through ATG,

        which would have prevented them from becoming Class B members, such that RTS would

        have remained unable to comply with the 51% Rule even if a new Operating Agreement

        had been signed. J.A. 4057. Because the district court’s determination that this course of

        conduct prevented RTS from being able to pursue its stated goal was not clearly erroneous,

        we affirm the district court’s verdict. 1

               ATG makes much of the fact that negotiating the terms of a new agreement does

        not constitute a breach. But any course of conduct can constitute a breach if it has the

        effect of defeating an essential purpose of the contract.        See Breach, Black’s Law

        Dictionary (11th Ed. 2019) (defining a breach as a violation of an obligation or agreement

        “whether by neglect, refusal, resistance, or inaction”). While negotiation, no matter how

        vigorous or discordant, cannot constitute a breach standing alone, when placed in the

               1
                Because ATG failed to establish Pro-Active’s liability on its breach of contract
        claim, we need not address any of the discovery rulings relating to evidence of damages
        that ATG additionally challenges. See Herman v. Legent Corp., No. 94-1445, 1995 WL
        115879, at *11 n.25 (4th Cir. 1995).
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        context of the facts of this case, ATG’s insistence on per capita voting was part of the

        course of conduct that irredeemably frustrated the purpose of the agreement. Even though

        the negotiations, alone, were not a breach, they contributed to ATG’s breach because they

        resulted in RTS being unable to add Class B members, which prevented RTS from

        receiving and carrying out task orders in accordance with the joint venture’s stated purpose.

                                                    III.

               ATG also challenges the district court’s grant of summary judgment on its tortious

        interference claims. ATG alleged below that Pro-Active interfered with ATG’s contracts

        with third-party entities by encouraging those entities to become Class B members of the

        joint venture. ATG also alleged that Pro-Active tortiously interfered with ATG’s business

        expectancy in receiving future task orders. “We review a district court’s grant of summary

        judgment de novo.” Guthrie v. PHH Mortg. Corp., 79 F.4th 328, 342 (4th Cir. 2023).

               Under Virginia law, a prima facie case of tortious interference with contract requires

        the plaintiff to prove:

               (1) the existence of a valid contractual relationship or business expectancy;
               (2) knowledge of the relationship or expectancy on the part of the interferor;
               (3) intentional interference inducing or causing a breach or termination of the
                   relationship or expectancy; and
               (4) resultant damage to the party whose relationship or expectancy has been
                   disrupted.

        Chaves v. Johnson, 335 S.E.2d 97, 102 (Va. 1985). The district court correctly concluded

        that ATG failed to meet its burden of establishing the third element, because ATG had not

        shown that any of the third-party entities breached or terminated their contracts with ATG.

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               In addition to the four elements required for a tortious interference with contract,

        tortious interference with business expectancy requires interference by “improper means

        or methods.” Preferred Sys. Sols., Inc. v. GP Consulting, LLC, 732 S.E.2d 676, 688 (Va.

        2012). “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.” Id.

               Assuming, without deciding, that ATG can establish the first four elements of a

        tortious interference with business expectancy claim, summary judgment was proper

        because ATG’s claim fails on the “improper means or methods” element. ATG has not

        pointed to any improper conduct by Pro-Active. ATG and Pro-Active agreed to work

        toward adding Class B members to the joint venture. ATG does not dispute this, but only

        contends that it was hotly disputed which entities to add. Even though ATG and Pro-Active

        had not yet agreed on which entities to add, Pro-Active’s conduct toward the agreed-on

        end of adding Class B members, even if overhasty, was not an “improper means or method”

        as contemplated under Virginia law.       See Preferred Sys. Sols., 732 S.E.2d at 688.

        Accordingly, we affirm the district court’s grant of summary judgment on all tortious

        interference claims.

                                                    IV.

               ATG also appeals the district court’s denial of leave to amend the complaint, filed

        in January 2020, after the close of discovery and after Pro-Active had filed its motion for

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        summary judgment. The district court denied leave to amend on four grounds: (1) because

        of the advanced stage of litigation, granting leave to amend would be “extremely

        prejudicial to defendant”; (2) ATG had improperly delayed filing its motion to amend; (3)

        the motion to amend was a bad faith attempt to disqualify Pro-Active’s counsel; and (4)

        the motion was futile.

               We review a denial of leave to amend the complaint for an abuse of discretion.

        Glaser v. Enzo Biochem, Inc., 464 F.3d 474, 476 (4th Cir. 2006). Though the district court

        here justified its denial of the motion to amend on four separate grounds, only one properly

        supported reason is required for the denial to be within the district court’s discretion. See

        Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir. 1986) (“[L]eave to amend a

        pleading should be denied only when the amendment would be prejudicial to the opposing

        party, there has been bad faith on the part of the moving party, or the amendment would

        be futile.” (emphasis added)). The district court’s reliance on the fact that permitting

        amendment at this advanced stage of litigation would prejudice Pro-Active satisfies this

        requirement. We have previously stated that a district court does not abuse its discretion

        in denying leave to amend when the amendment would add a new legal theory to the case

        after the close of discovery. See Davison v. Randall, 912 F.3d 666, 690 (4th Cir. 2019);

        Equal Rts. Ctr. v. Niles Bolton Assocs., 602 F.3d 597, 603–04 (4th Cir. 2010). Accordingly,

        we need not address the remaining grounds offered by the district court, see Johnson, 785

        F.2d at 509, and we affirm the district court’s denial of leave to amend.

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                                                      V.

               Finally, ATG appeals the district court’s sanctions order awarding Pro-Active

        attorney’s fees for prosecuting its motion to enforce the Protective Order. 2 “We review a

        district court’s issuance of sanctions for failure to comply with a discovery order for an

        abuse of discretion.” Bizprolink, LLC v. Am. Online, Inc., 140 F. App’x 459, 461–62 (4th

        Cir. 2005). A district court’s finding that a party “deliberately disregarded [a] pre-trial

        order is a factual finding of fault” that “can be overturned by this court only if clearly

        erroneous.” Rabb v. Amatex Corp., 769 F.2d 996, 1000 (4th Cir. 1985).

               The magistrate judge found that ATG violated the pre-trial order. This finding is

        based on the fact that a spreadsheet presented by ATG to Pro-Active during settlement talks

        included information that could only have been derived from documents designated OCEO

        (“Outside Counsel’s Eyes Only”). Though ATG argued that the information was publicly

        available, Pro-Active disagreed, arguing that, though more general information is publicly

        available, the specific details in the chart were not. The magistrate judge agreed with Pro-

        Active. This factual finding, which the district court affirmed, is not clearly erroneous.

               2
                 ATG did not present any arguments supporting its position in its Opening Brief.
        Rather, it incorporated by reference the arguments made with respect to the same issue in
        other briefing. The practice of incorporating documents by reference “at best betrays sloth
        and at worst represents an attempt to evade Rule 32(a)(7)’s limitations on the length of
        briefs.” 16AA Fed. Prac. & Proc. Juris. § 3974 (5th ed.). “[C]ourts have stated that
        arguments incorporated by reference need not be considered on appeal.” United States v.
        Bales, 813 F.2d 1289, 1297 (4th Cir. 1987); see also Cray Commc’ns, Inc. v. Novatel
        Computer Sys., Inc., 33 F.3d 390, 396 n.6 (4th Cir. 1994). However, because ATG’s
        challenge to the sanctions order fails even if it were properly presented, we need not
        determine whether ATG failed to preserve these arguments.
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               The magistrate judge imposed two sanctions: it ordered ATG to bear the costs Pro-

        Active had incurred in prosecuting the motion and limited ATG’s ability to use the

        information at trial by requiring that ATG introduce the evidence either through Pro-

        Active’s witnesses or ATG’s expert witnesses, but not through ATG’s lay witnesses.

        Neither is an abuse of discretion, because both sanctions ordered by the court are expressly

        contemplated by Federal Rule of Civil Procedure 37—indeed, one is required. Fed. R. Civ.

        P. 37(b)(2)(A)(ii), 37(b)(2)(C). Accordingly, the district court’s imposition of sanctions

        was not an abuse of discretion.

                                                    VI.

               In sum, we affirm the district court’s verdict on the breach of contract claim, affirm

        the district court’s grant of summary judgment on the tortious interference claims, and

        affirm the district court’s various orders rendered during discovery and leading up to trial.

                                                                                        AFFIRMED

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