Montalla, LLC V. Commonwealth of Virginia ( 2023 )

COURT OF APPEALS OF VIRGINIA
UNPUBLISHED
Present: Judges Beales, Friedman and Callins
Argued at Richmond, Virginia
MONTALLA, LLC
MEMORANDUM OPINION* BY
v. Record No. 0127-22-2 JUDGE FRANK K. FRIEDMAN
APRIL 25, 2023
COMMONWEALTH OF VIRGINIA,
VIRGINIA DEPARTMENT OF TRANSPORTATION
AND THE COMPTROLLER OF VIRGINIA
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
T. J. Markow, Judge Designate
Thomas A. Coulter (Brian Stolarz; Norton Rose Fulbright US LLP,
on briefs), for appellant.
Jeremy D. Capps (David P. Corrigan; Blaire H. O’Brien; Harmon,
Claytor, Corrigan & Wellman, on brief), for appellee.
This appeal involves the assignment of settled claims and the reach of sovereign immunity.
NXL, Inc. entered a series of contracts with the Commonwealth which spawned significant
disputes. NXL, Inc. ultimately settled these disputes, via mediation, but then assigned its interests
to Montalla, LLC, another construction management company. Montalla pursued claims against the
Commonwealth based on NXL’s underlying contracts. Montalla now appeals the circuit court’s
decision sustaining the Commonwealth’s plea in bar of sovereign immunity. Additionally,
Montalla challenges several related rulings denying its motion to reconsider and declining to grant
Montalla’s motion to amend its pleading. Montalla makes a compelling argument that its assignor,
*
This opinion is not designated for publication. See Code § 17.1-413,
NXL, was wronged by the Commonwealth; but governing precedent requires us to affirm the
judgment of the circuit court, denying Montalla the relief it seeks.
BACKGROUND1
The Virginia Department of Transportation (“VDOT”) manages an annual budget of more
than $7 billion. In order to better meet its obligations, VDOT established an Assurance and
Compliance Office (“ACO”). The ACO was charged with conducting internal reviews and
investigations regarding VDOT’s spending and charges. To aid in analyzing these expenses, ACO
required consultants and contractors to submit audit reports, which allowed ACO to check
compliance with Federal Acquisition Regulation (“FAR”) overhead rates. Disputes between NXL,
Inc. (“NXL” or “the Company”) and VDOT began after ACO implemented enhanced scrutiny of
the contractor’s FAR compliance audits.
Federal law requires that any contract or subcontract awarded for engineering and design
services by state transportation departments be performed and audited in compliance with the cost
principles outlined in FAR. See 23 U.S.C. § 112(b)(2)(B); 23 CFR § 172.11. These FAR cost
principles allow contractors to be reimbursed from VDOT for their indirect overhead. It follows
that consulting firms—like NXL—who contract with VDOT are required to submit an indirect rate
audit report for each fiscal year. When the annual audits do not provide sufficient information to
justify the reimbursement rates that have been requested, federal regulations permit state
transportation departments to dispute the indirect cost reimbursement rates cited by the contractor.
See 48 § CFR 31.201-2(d).
NXL’s disputes with VDOT centered around three VDOT consulting contracts that NXL
won in 2014. In May 2014, NXL agreed to provide engineering services for the Northern Virginia
1
When the circuit court decides a case on a demurrer and special plea as it did here, “we
consider the facts stated and all those reasonably and fairly implied in the light most favorable to
the nonmoving part[y].” Kaltman v. All Am. Pest Control, Inc., 281 Va. 483, 486 (2011).
-2-
District (the “Northern Virginia Contract”). The contract stated that it was a fixed billable contract
and that the total maximum compensation would not exceed $5 million. The contract also provided
that the contractor is to receive reimbursement for direct costs, as well as a percentage of the
indirect costs. This contract included a costs section specifying that the consultant must submit an
invoice that “shall include all work completed during the invoice period. Such invoice shall also
include all materials, salaries, rentals, travel expenses, profit, field and office equipment, supplies
and any other items utilized to complete the work.” Later in 2014, NXL and VDOT would execute
two very similar agreements to serve the Lynchburg (the Lynchburg Contract) and Hampton Roads
areas (the Hampton Roads Contract).
The FAR Rate Issue
When Virginia companies submit the required FAR audit, the firm’s indirect overhead costs
may be reimbursed, and this is what becomes known as the FAR rate. VDOT then reviews and
approves the FAR rates which were derived from the audits. In 2014, after the Company won the
Northern Virginia, Lynchburg, and Hampton Roads VDOT Contracts as prime consultants, NXL
used FAR rates to calculate the fixed billable hourly rates under these contracts. These rates were
approved by VDOT. VDOT subsequently created the ACO, which was assigned responsibilities
including the FAR audit process. In 2015, ACO demanded that NXL resubmit previously approved
FAR audits because they did not meet the standards of the FAR regulations, in ACO’s opinion.
The Dispute Regarding the 2014 Contracts
At the heart of the disagreement over FAR rates between VDOT and NXL was ACO’s
argument that the Company was being overcompensated for services due to high overhead rates and
improper “lease payments of vehicles used by its construction inspectors.” Essentially, ACO
conducted VDOT’s review and believed that NXL was overbilling for the cost of vehicles which
-3-
were being leased.2 VDOT treated vehicle lease costs as direct expenses that were meant to be
paid/repaid to the Company. ACO believed that the vehicle lease rates did not comply with FAR,
as required by federal law and outlined in each of the 2014 contracts. The Company insisted that
ACO was selectively misinterpreting FAR to VDOT’s benefit and to the detriment of the company.3
VDOT Unilaterally Cuts Montalla’s Overhead Rates
Around July 2016, VDOT’s ACO Director, Bradley W. Gales, sent a letter to NXL
officially rejecting its overhead rate based on a FAR audit. However, Gales did not indicate what
would have been the proper rate for the Company to use. Shortly after, Jeffrey R. Allen, the Senior
Assistant Attorney General with the Office of the Attorney General (“OAG”) contacted the
Company’s attorney and informed the Company that it was not entitled to bill for any overhead and
that the overhead rate which used to be 128.8% to 137.94% in the contracts was now 0%. VDOT
stated if the Company did not comply, it would consider terminating all its contracts with the
Company.
In March 2017, ACO provided contingent approval of the Company’s 2014-2015 audits,
allowing a 75% provisional overhead rate, which was still far below VDOT’s earlier approved
rate. Shortly after, the Company claimed it began losing an immense amount of money. NXL
alleged that it lost money for every hour it billed. The more hours its employees worked, the
2
VDOT explains in its brief that “NXL billed VDOT for the cost of vehicles leased from
a company owned by a family member of its chief executive officer, but only provided
documentation sufficient for leases from an independent third party billed at a market rate.” In
other words, VDOT suspected NXL was charging based on a market rate which was higher than
NXL’s actual cost.
3
Evidence would show that there was a rift within VDOT at this time, with ACO
insisting upon lower lease rates, while VDOT officials believed NXL was entitled to the higher
rates that had been negotiated. To neutralize ACO’s efforts to rewrite VDOT’s position on FAR
rates, VDOT began drafting the first Instructional Informational Memorandum (“IIM”), which
would have validated the Company’s position and its right to continue to bill and be reimbursed per
its existing contract FAR rates. While this internal disagreement played out, ACO officials
imposed their reading of the rate rules on NXL.
-4-
more money the company was losing. This not only affected the Company’s prime contracts but
also had an impact on every VDOT contract where the Company worked as a subconsultant.
There was never any official action to modify the Company’s contracts and have them reflect the
0% and 75% change rates; instead, the ACO was simply rejecting the Company’s contract terms
for payment of much higher pre-approved FAR rates. VDOT did eventually allow NXL to
resume charging FAR overhead rates beginning in September 2017. At this time ACO approved
a set of reimbursement rates, 91.01% and 99.13%, which were above the arbitrary provisional
rates, but still significantly below the rates of 137.94% and 128.28% which had been previously
agreed upon contractually.
The Company Agrees to Mediation—and Successfully Mediates the Dispute to a
Resolution and Voluntarily Pays the Negotiated Sums
Without pre-approved FAR rate reimbursements, the Company was suffering financially.
It agreed to try to resolve its dispute with VDOT through mediation. During the mediation,
VDOT argued in favor of ACO’s position on FAR reimbursement. However, just a month before
the mediation, the VDOT Commissioner, with the support of the OAG, approved VDOT’s official
correspondence to the Federal Highway Administration which recognized that ACO’s criticism of
NXL’s rates was likely improper. This was not revealed to NXL during the mediation negotiations.
Ultimately, because of their severe financial loss, the Company acceded to a mediated settlement
agreement in which it would “refund” VDOT $4 million for prior billings.
The parties also agreed to mutual releases, covenants, and conditions. Specifically, NXL
agreed to release VDOT from all claims associated with the specified disputes, “whether asserted or
could have been asserted” against VDOT arising out of the dispute “including, but not limited to,
the withholding of approximately Two Million Eight Hundred Thousand Dollars ($2,800,000.00)
NXL claimed VDOT wrongfully withheld when VDOT withheld indirect overhead costs in 2016
and 2017.” In return, VDOT agreed to release NXL from all claims related to FAR indirect cost
-5-
overhead audits, direct cost audits, and other related audits of payments and reimbursements that
VDOT alleged constituted overbillings by NXL. Furthermore, the Company was not allowed to
recover amounts VDOT prevented it from billing. The parties never officially modified any of the
relevant 2014 contracts.
The Company Contends that Economic Duress Caused it to Sign the Settlement Agreement
Appellant asserts that NXL only participated in the mediation and consented to the
settlement agreement because of economic duress caused by VDOT. Appellant contends that NXL
could either go along with the agreement or become bankrupt. The settlement agreement included a
provision accommodating for financial difficulties and allowed NXL to pay the $4 million over a
span of four years. NXL, however, elected to pay VDOT $3.875 million promptly, which VDOT
agreed to accept as full payment of the debt since it was paid early.
IIM Background and Events Following the Mediation
As noted above, VDOT wrestled internally regarding the proper analysis of FAR overhead
and vehicle charges in 2016-17. VDOT began drafting its first IIM in order to neutralize ACO’s
efforts to rewrite VDOT’s position on FAR rates. The IIM was meant to validate NXL’s position
and its right to continue to bill and be reimbursed per its existing contract FAR rates. In July 2016,
there was an IIM prepared which would have allowed the Company’s requested reimbursements.
At the same time, ACO endeavored to change the existing VDOT policy regarding the FAR rate
reimbursement and rescind the July 2016 IIM. ACO, after successfully quashing the 2016 IIM,
quickly moved to impose the debilitating 0% reimbursement rate on the Company. After the 2016
IIM was rescinded, VDOT embarked immediately on a new IIM in an effort to formally overrule
the ACO, resulting in the 2017 IIM, which supported the Company’s position regarding its charges.
A few months after the mediation—which was held October 10, 2017—but weeks before
the settlement agreement was finalized, VDOT issued an IIM on December 20, 2017. The IIM
-6-
described how VDOT is going to pay consultants for vehicle leases/rentals used on construction
inspection projects. The IIM allowed companies to be reimbursed a fixed monthly rate for vehicles
regardless of ownership or types of leases. Put another way, less than two months after the
mediation session between VDOT and the Company, where VDOT insisted that the Company owed
VDOT substantial amounts of money due to overpayment for leased vehicles, VDOT implemented
a vehicle reimbursement plan that allowed a fixed reimbursement rate for construction inspection
vehicles to consultants regardless of who owns the vehicle and regardless of the type of lease
involved—this was the very position NXL had advocated during its dispute with VDOT.
Appellant alleges that NXL learned of the 2017 IIM on January 11, 2018, after it had agreed
to the mediation settlement terms, but before the settlement agreement became enforceable by the
Governor’s approval on February 20, 2018. Appellant argues that the 2017 IIM represented a
change in VDOT’s approach to reimbursement for vehicle overhead costs from what VDOT had
presented during the October mediation with NXL. Appellant also points out that the VDOT
Commissioner attended the mediation session and that the Commissioner was the one to approve
the IIM prior to the mediation. When NXL learned of the IIM, it engaged in efforts to have the
settlement agreement modified. The Company met with the VDOT Commissioner and sent a
follow up letter to the Commissioner in 2018 expressing its concerns “regarding VDOT’s conduct
toward the company.” The Company eventually filed a FOIA request. In response, VDOT
ultimately provided substantive information which revealed details about the internal war between
VDOT’s Chief Engineer and the ACO regarding the interpretation of FAR for vehicle lease
payments. Notably, the Company learned that VDOT was ready to proclaim its official position as
early as March 2017, in full alignment with the Company, that vehicle lease rates were fully
reimbursable, regardless of the ownership issues raised by ACO. In the interim, however, ACO
imposed its auditing will on NXL, leading to the challenged mediation.
-7-
Assignment of NXL’s Claims to Montalla
After January 3, 2019, NXL changed its name to Contana, Inc. (“Contana”). On December
28, 2019, Contana assigned its rights related to the settlement agreement along with the underlying
contracts which were part of that settlement agreement to Montalla. Montalla then filed suit in the
Circuit Court of the City of Richmond seeking to void the settlement agreement and proceed on
claims of breach of contract. Montalla sought a declaratory judgment that the settlement agreement
was “null and void based upon economic duress” (count one). Montalla also asked the circuit court
to vacate the settlement agreement under Code § 8.01-581.26 which permits the voiding of a
mediation for fraud or other improprieties (count two). Montalla next asserted a breach of contract
based on “breach of the implied duty of good faith and fair dealing” (count three). Finally, Montalla
alleged material breaches of Montalla’s underlying contracts with VDOT (count four) and an
“unconstitutional regulatory taking of [its] property without just compensation” (count five).
Demurrer and Appeal
VDOT filed a demurrer and pleas in bar and briefs in support. VDOT’s pleas in bar asserted
accord and satisfaction, expiration of the statute of limitations, and sovereign immunity. On
September 13, 2021, the circuit court heard oral argument on the demurrer and pleas in bar. At the
hearing, the circuit court held that the complaint sufficiently pled facts to establish a claim of
economic duress and overruled VDOT’s Demurrer on that issue. The circuit court granted VDOT’s
plea in bar regarding sovereign immunity as to counts one (seeking declaratory judgment that
settlement is null and void) and two (seeking to have mediated settlement vacated under Code
§ 8.01-581.26). The circuit court declined to dismiss the remaining counts on the basis of sovereign
immunity. The following day, however, the circuit court issued a letter stating “[h]aving
reconsidered my ruling of September 13, 2021, I sustain the defendant’s plea of sovereign immunity
and because of that ruling the entire case must be dismissed.”
-8-
The circuit court memorialized its decision in a written order dated January 4, 2022,
sustaining VDOT’s plea in bar of sovereign immunity and dismissing Montalla’s complaint with
prejudice. The circuit court denied Montalla’s motion for reconsideration and request for leave to
amend its complaint. This appeal followed.
ANALYSIS
In multiple assignments of error, Montalla presents five arguments. First, Montalla asserts
that the circuit court erred in sustaining VDOT’S plea in bar of sovereign immunity and by
dismissing Counts I-III; these counts involved attempts to void the settlement agreement (Count I),
void the mediation (Count II), and to challenge VDOT’s actions as a breach of the implied duty of
good faith and fair dealing (Count III). Next, Montalla claims that the circuit court erred by
dismissing Counts IV and V, which challenged VDOT’s alleged breaches of the underlying 2014
contracts (Count IV) and VDOT’s “unlawful taking” of the Company’s contractual proceeds (Count
V). Montalla additionally contends that the circuit court erred by withdrawing, without explanation,
its initial September 13, 2021 oral ruling, which overruled VDOT’s demurrer in part. Finally,
Montalla claims that the circuit court erred by denying its motion for reconsideration and by failing
to permit its request for leave to amend. We address each argument in turn.
I. The Plea in Bar was Properly Sustained as to Counts I-III
“A plea in bar asserts a single issue, which, if proved, creates a bar to a plaintiff’s recovery.”
Kinsey v. Va. Elec. & Power Co., 300 Va. 124, 131 (2021) (quoting Massenburg v. City of
Petersburg, 298 Va. 212, 216 (2019)). “[W]here a plea in bar presents a question of law and there
are no disputed facts relevant to the issue, we review the circuit court’s decision to sustain the plea
in bar de novo.” Bragg Hill Corp. v. City of Fredericksburg, 297 Va. 566, 577 (2019).
Montalla contends that the circuit court erred in sustaining VDOT’s plea in bar of sovereign
immunity to Counts I-III. Regarding Count I, Montalla argues that sovereign immunity does not
-9-
apply to actions based on valid contracts entered into by duly authorized government agents.
Regarding Count II, Montalla argues that the Commonwealth agreed to participate in the mediation
and therefore is not able to invoke sovereign immunity to now shield itself from claims based on
laws which govern mediations. Finally, Montalla argues that Count III concerns contracts between
the parties, and therefore sovereign immunity is not applicable. Each argument fails.
A. Count I: Sovereign Immunity Applies to Equitable Claims Such as
Rescission of a Contract
Montalla argues that sovereign immunity does not apply to valid contracts entered into by
the Commonwealth. It contends that the settlement agreement should be void based on economic
duress and, because Count I is contract based, sovereign immunity cannot shield VDOT from
liability. The Commonwealth counters that sovereign immunity is alive and well in the
Commonwealth of Virginia, Messina v. Burden, 228 Va. 301, 307 (1984), and “[a]s a general rule,
the Commonwealth is immune both from actions at law for damages and from suits in equity to
restrain governmental action or to compel such action.” Afzall ex rel. Afzall v. Commonwealth, 273
Va. 226, 231 (2007) (quoting All. to Save the Mattaponi v. Commonwealth, 270 Va. 423, 455
(2005)). The Commonwealth further notes that sovereign immunity serves “a multitude of
purposes” including protecting the public purse, and providing for the smooth operation of
government. Id.4 Those purposes are furthered by applying sovereign immunity to VDOT. See
Main v. Dep’t of Highways, 206 Va. 143, 150-51 (1965).
Montalla correctly asserts that sovereign immunity does not bar actions to enforce a valid
contract entered into by an authorized agent of the Commonwealth. See Wiecking v. Allied Med.
Supply Corp., 239 Va. 548, 552-53 (1990) (seeking to enforce contract). However, voiding a
4
The sovereign immunity enjoyed by the Commonwealth extends to its agencies, as well
as their officers. See Rector & Visitors of the Univ. of Va. v. Carter, 267 Va. 242, 244 (2004);
see also All. to Save the Mattapoini, 270 Va. at 455 (“[H]igh-level governmental officials
generally have been afforded absolute immunity.”).
- 10 -
contract is not the same as enforcing one. Here, Montalla is not seeking simply to hold the
“sovereign . . . liable for its contractual debts as any citizen would be . . . .” Id. at 553. Instead, it
seeks to have the settlement agreement adjudicated as void. It is essentially arguing that the parties
should be returned to their status quo. “If rescission is granted, the contract is terminated for all
purposes, and the parties are restored to the status quo ante.” Young-Allen v. Bank of America, N.A.,
298 Va. 462, 468 (2020). This would have the effect of equitable recission. “[T]he aim of equity is
to award complete, just and equitable relief, with a view to restoring the parties to the status quo and
equitably adjusting their interests under the circumstances of the case.” Devine v. Buki, 289 Va.
162, 173 (2015) (citing Newton v. Newton, 199 Va. 654, 660 (1958)).
As the Supreme Court observed in Afzall, the Commonwealth generally is immune “from
suits in equity . . . .” Afzall, 273 Va. at 231. Similarly, the Commonwealth is immune from
liability for damages and from suits to restrain governmental action or to compel such action.
See Ligon v. Cnty. of Goochland, 279 Va. 312, 316 (2010); see also Daniels v. Mobley, 285 Va.
402 (2013) (holding that to the extent plaintiff had requested a declaration of his rights, such
declaration would be barred by sovereign immunity).
Montalla’s effort to obtain a declaratory judgment that the settlement agreement is null
and void, and seeking to compel VDOT to return all amounts paid under the settlement
agreement is a request for equitable relief dressed in breach of contract clothing. See Denton v.
Browntown Valley Assocs., Inc., 294 Va. 76, 82 (2017) (specific performance is an equitable
remedy and a suit in equity for specific performance is distinct from an action at law for breach
of contract).5
5
Moreover, in the context of construction claims against VDOT, the Commonwealth has
only waived its sovereign immunity through mandatory procedures contained in Code
§ 33.2-1101. We discern no indication that the Commonwealth has abrogated its immunity from
equitable claims seeking to rescind or void a settlement agreement related to construction claims.
- 11 -
In short, numerous cases confirm that the Commonwealth is immune to suits in equity.
See Azfall, 273 Va. at 231; All. To Save the Mattaponi, 270 Va.at 423; Hinchey v. Ogden, 226
Va. 234, 239 (1983). Because we find that sovereign immunity applies in this context, and
because the Commonwealth has not waived sovereign immunity in this setting, the circuit court
properly ruled that the Commonwealth enjoys sovereign immunity with respect to Count I’s
attempt to “void the Settlement Agreement.”6
B. Count II: Sovereign Immunity Was Not Explicitly Waived by the
Commonwealth Under Code § 8.01-581.26
Next, Montalla argues that Code § 8.01-581.26 “permits a Court to vacate a mediated
agreement, or vacate an order from a mediation, when the agreement was ‘procured by fraud or
duress, or is unconscionable.’” Montalla states that “[t]he Commonwealth expressly permitted its
agencies to engage in mediation and Chapter 21.2 of Title 8.01 governs all mediations in Virginia.”
Therefore, Montalla reasons that the Commonwealth cannot agree to mediation and at the same
time shield itself from what arises from its participation.
Montalla asserts “that the Commonwealth implicitly waived its immunity by authorizing
public bodies to engage in alternative dispute resolution, including mediation, through Virginia
Code § 2.2-4366.” However, Montalla’s “implicit waiver” claim is decidedly uphill because it is
well-settled that waivers of sovereign immunity “must be explicitly and expressly announced.”
Afzall, 273 Va. at 230. Indeed, any waiver the General Assembly makes of the Commonwealth’s
6
The Supreme Court has also made it abundantly clear that quasi-contract claims cannot
be maintained against the Commonwealth. See Wiecking, 239 Va. at 551-52 (holding:
(1) quasi-contractual doctrines are premised on the absence of a valid contract; (2) the
Commonwealth’s common law liability for its contracts does not encompass quasi-contractual
claims; and (3) any relief based on such claims must be authorized through a statute abrogating
the Commonwealth’s sovereign immunity). Similarly, this Court in XL Specialty Ins. Co. v.
Commonwealth, Dep’t of Transp., 47 Va. App. 424, 433-34 (2006), recognized this principle,
noting that courts have not extended the Commonwealth’s waiver of sovereign immunity for
contractual suits to equitable remedies absent an explicit statutory waiver.
- 12 -
sovereign immunity will be strictly construed, as it is a statute in derogation of the common law.
See Rector & Visitors of the Univ. of Va. v. Carter, 267 Va. 242, 245 (2004). Here, Code
§ 8.01-581.26 does not expressly abrogate the Commonwealth’s immunity from suit. The fact that
a public body simply participates in a mediation does not equate to an explicit waiver of sovereign
immunity related to claims arising out of that mediation. A waiver of sovereign immunity cannot
be implied from general statutory language. Ligon, 279 Va. at 318.
In Afzall, the question was whether Code § 8.01-66.9 “evinces an intention on the part of the
General Assembly to waive sovereign immunity so as to permit a party to seek judicial review by
way of a motion for declaratory judgment of action taken pursuant to that Code section.” 273 Va. at
233. The Commonwealth in Afzall noted that Code § 8.01-66.9 “makes it clear that when the
General Assembly intends to waive sovereign immunity and provide a particular procedure for an
injured person to follow in seeking judicial review, it knows how to demonstrate that intention.” Id.
at 233-34. The Supreme Court found that sovereign immunity applied in Afzall because the
Commonwealth had not waived the defense. Id.
Code § 8.01-581.26, relied upon here by Montalla, states:
Upon the filing of an independent action by a party,7 the court shall
vacate a mediated agreement reached in a mediation pursuant to
this chapter, or vacate an order incorporating or resulting from
such agreement, where:
1. The agreement was procured by fraud or duress, or is
unconscionable;
2. If property or financial matters in domestic relations cases
involving divorce, property, support or the welfare of a child
are in dispute, the parties failed to provide substantial full
disclosure of all relevant property and financial information; or
7
Montalla was not a literal “party” to the mediation. It was assigned the claims by NXL.
Neither side has briefed whether Montalla qualifies as a party under this statute. We assume
without deciding that it is a party for the purposes of this analysis.
- 13 -
3. There was evident partiality or misconduct by the mediator,
prejudicing the rights of any party.
For purposes of this section, “misconduct” includes failure of the
mediator to inform the parties at the commencement of the
mediation process that: (i) the mediator does not provide legal
advice, (ii) any mediated agreement may affect the legal rights of
the parties, (iii) each party to the mediation has the opportunity to
consult with independent legal counsel at any time and is
encouraged to do so, and (iv) each party to the mediation should
have any draft agreement reviewed by independent counsel prior to
signing the agreement.
The code section sets forth the conditions under which mediations can be vacated including
fraud or duress, failure to provide proper financial information, or where there was misconduct by
the mediator. There is no language whatsoever within the section that expressly or explicitly states
a waiver of sovereign immunity. In the absence of such an express waiver, sovereign immunity
cannot be deemed to have been waived under Code § 8.01-581.26—and the Commonwealth,
accordingly, enjoys the protection of sovereign immunity. See Azfall, 273 Va. at 230-31.
C. Count III: Montalla’s Reliance on the Duty of Good Faith and Fair
Dealing Claim Does Not Prevail Here Where the Challenged Disputes
Have Been Fully Settled and Where they Involve Allegations of Improper
Conduct in Negotiating the Settlement at the Mediation
Montalla argues that VDOT breached the covenant of good faith and fair dealing by
“reducing contract reimbursement to 0% for eight months and then increasing it to 75%, which was
still below contract rates, all under a flawed FAR interpretation.” Furthermore, when NXL
attempted to mediate in good faith, Montalla contends that VDOT and OAG continued to breach the
covenant of good faith and fair dealing by making misleading statements during the settlement
negotiations and ultimately leading NXL to accept the mediated agreement under duress.
Montalla next argues that the United States Court of Appeals for the Fourth Circuit has
called the duty of good faith and fair dealing a “fundamental premise of contract law,” and has held
that “it is a basic principle of contract law in Virginia, as elsewhere that . . . a party may not exercise
- 14 -
contractual discretion in bad faith, even when such discretion is vested solely in that party.”
Virginia Vermiculite, Ltd. v. Peers, 156 F.3d 535, 542 (4th Cir. 1998). Montalla also notes that
various courts have stated that the “need for mutual fair dealing” is “no less required in contracts to
which the government is a party.” North Star Alaska Housing Corp. v. United States, 76 Fed. Cl.
158, 187 (Fed. Cl. 2007); see also United States v. Centex Corp., 395 F.3d 1283, 1304 (Fed. Cir.
2005).
Again, while Montalla makes a compelling argument that NXL was ill-treated by VDOT,
the law does not offer appellant relief under these unique facts.8 If appellant is seeking to recover
damages based on a theory of good faith and fair dealing regarding the underlying 2014 contracts,
those claims were conclusively resolved through the settlement agreement. Specifically, NXL
agreed that
VDOT shall be released, acquitted and forever discharged, from
any and all past, present and future actions, claims, debts,
demands, damages, actions, causes of action, costs, expenses,
compensation, third party actions, and/or liability, whether known
or unknown, whether at law or in equity, whether asserted or could
have been asserted which NXL may have or might claim against
VDOT arising out of or relating to the Disputes, including, but not
limited to, the withholding of approximately Two Million Eight
Hundred Thousand Dollars ($2,800,000.00) NXL claimed VDOT
wrongfully withheld when VDOT withheld indirect overhead costs
in 2016 and 2017.
Thus, appellant finds itself in a legal conundrum: in attempting to proceed on “good faith”
claims with respect to the underlying 2014 contract claims, its assignor has settled and released the
claims. See, e.g., Erie Ins. Co. v. McKinley Chiropractic Ctr., 294 Va. 138, 139 (2017) (holding an
assignee of a chose in action was barred from suit against a defendant when the assignor had
8
To the extent appellant is seeking to void the settlement agreement due to claims that the
Commonwealth does not enjoy sovereign immunity in this context, the same reasoning as applied in
previous sections governs. The Commonwealth is entitled to rely upon sovereign immunity with
respect to equitable claims, quasi-contract claims, and alleged misconduct under Code
§ 8.01-581.26.
- 15 -
released his claims in a settlement agreement with defendant). The settlement agreement releasing
the assigned claims remains in full force. 9
By contrast, if Montalla is claiming that the mediation negotiation itself constituted a
violation of the duty of good faith and fair dealing, the Company faces another significant
roadblock.10 Montalla relies on the Restatement (Second) of Contracts § 205 to establish that
“every contract imposes upon each party a duty of good faith and fair dealing in its performance and
its enforcement.” But the comments to the Restatement undercut Montalla’s assertion that the
covenant applies to contract negotiation: § 205 “does not deal with good faith in the formation of a
contract. Bad faith in negotiation, although not within the scope of this Section, may be subject to
sanctions.” Id. cmt. c.
Virginia law on this subject is not robust; however, it is consistent with the Restatement.
The covenant of good faith and fair dealing is an implied duty that each party to a contract owes to
its contracting partner; it imposes obligations on both contracting parties that include the duty not to
interfere with the other party’s performance and not to act so as to destroy the reasonable
9
Moreover, the record reflects that NXL elected to make “early” payment of the
negotiated sum due. It did so with knowledge that VDOT had negotiated the dubious ACO
overhead theory at the mediation despite VDOT’s awareness that it imminently planned to
jettison this overhead calculation theory under the 2017 IIM. In fact, NXL protested this very
fact to VDOT’s Commissioner before making payment. While we need not reach the issue of
voluntary payment given the posture of the pleadings, our Supreme Court has consistently held
that “[v]oluntary payment of a judgment deprives the payor of the right of the appeal.” Citizens
Bank & Tr. Co. v. Crewe Factory Sales Corp., 254 Va. 355, 355 (1997); see D.R. Horton, Inc. v.
Board of Supervisors for Cnty. of Warren, 285 Va. 467, 472 (2013) (noting the voluntary payment
doctrine prevents a party from recovering funds paid voluntarily even if the demand is illegal).
Notably, the voluntary payment rule does not apply where the payment was induced by fraud. See
Sheehy v. Williams, 299 Va. 274, 278 (2020).
10
Again, the mediation statute, Code § 8.01-581.26, does list fraud and duress as reasons
to invalidate a mediation. But no express waiver of sovereign immunity by the Commonwealth
appears in that statute.
- 16 -
expectations of the other party regarding the fruits of the contract. Restatement (Second) of
Contracts § 205 (1981).11
Thus, we find various cases dealing with whether a contracting party has performed existing
contract terms fairly or dishonestly. For example, in Charles E. Brauer Co. v. NationsBank of Va.,
N.A., 251 Va. 28 (1996), the Supreme Court of Virginia held that, where a defendant bank had a
right either to foreclose on encumbered inventory or to reduce its claim to a judgment, its decision
to reduce its claim to a judgment—which was an exercise of an explicit contractual right—was
appropriate even though it was harsh to the plaintiff. Id. at 35 (when “parties to a contract create
valid and binding rights, one party does not breach the . . . obligation of good faith by exercising
such rights”). See also Mahoney v. NationsBank of Va., N.A., 249 Va. 216, 219 (1995) (bank did
not violate covenant of good faith by refusing to release collateral where a developer failed to meet
the terms for the release).12
By contrast, in Virginia Vermiculite, a family contracted with a mining company for the sale
of mining rights in their land. 156 F.3d at 557. The company had discretion in how much mining
would occur. Id. at 538. However, the Fourth Circuit found the company’s decision to donate the
land to a trust to thwart a competitor—thereby foreclosing future mining—was a breach of the
covenant toward the family. Id. at 542. See also Enomoto v. Space Adventures, Ltd., 624 F. Supp.
2d 443, 450 (E.D. Va. 2009) (finding violation of covenant based on failure to tell client his medical
11
The Supreme Court has made clear that a breach of the implied covenant does not give
rise to an independent stand alone action or tort. The duty, instead, imposes an obligation of
good faith into the performance of a contract. Charles E. Brauer Co. v. NationsBank of Va.,
N.A., 251 Va. 28, 33 (1996).
12
The Supreme Court has observed that “when parties to a contract create valid and
binding rights, an implied covenant of good faith and fair dealing is inapplicable to those rights.”
Ward’s Equip., Inc. v. New Holland N. Am., Inc., 254 Va. 379, 385 (1997). In other words, a
claimant’s notion of “good faith” cannot write an express term out of the agreement even if it
proves to be harsh or detrimental.
- 17 -
condition would preclude his participation in space flights until after he had made multiple
non-refundable payments under the contract); Stoney Glen v. S. Bank and Tr. Co., 944 F. Supp. 2d
460 (E.D. Va. 2013) (analogizing Virginia Vermiculite to find the covenant could be breached when
a bank had discretion as to its contract performance but acted arbitrarily in exercising that
discretion).
These cases, and North Star relied upon by Montalla, show that if bad faith occurs in the
performance of a contract, the covenant can be triggered. However, Montalla has failed to provide
case law suggesting that the covenant operates in the context of a negotiation between sophisticated
entities. See Lynnwood Tech Holdings LLC v. NR Int. LLC, No. 2015-15954 (Fairfax County 2017)
(“The duty does not apply to the negotiation of a contract. Bad faith in negotiation of a contract is
not within the scope of the duty of food faith and fair dealing . . . .”); see also Wallace v. Nat’l Bank
of Com., 938 S.W.2d 684, 687 (Tenn. 1996) (“The common law duty of good faith in the
performance of a contract does not apply to the formation of a contract.”); Husman, Inc. v. Triton
Coal Co., 809 P.2d 796, 801-02 (Wyo. 1991) (declining to consider an excavating company’s
implied covenant claim against a mining company because the alleged bad faith was the company’s
misrepresentations about soil conditions during the contract’s negotiation—and stating the proper
claim was one for “fraud or negligent misrepresentation”); URS Group, Inc. v. Tetra Tech FW, Inc.,
181 P.3d 380, 391 (Col. App. 2008) (The covenant “does not deal with good faith in the formation
of a contract. Bad faith in negotiation [is] not within the scope” of Restatement (Second) of
Contracts § 205.).13
13
Montalla also attempts to unravel the mediation by claiming that the settlement was
actually intended as a “modification” of the underlying contracts and, thus, Montalla’s challenge
involves the duty of good faith and fair dealing with respect to a modified, ongoing contract.
The circuit court correctly rebuffed any suggestion that this settlement agreement was meant to be
a modification. “When the terms in a contract are clear and unambiguous, the contact is construed
according to its plain meaning.” Orthopaedic & Spine Ctr. v. Muller Martini Mfg. Corp., 61
Va. App. 482, 490 (2013). “A modification of a contract must be shown by clear, unequivocal and
- 18 -
* * *
In short, the Commonwealth and its agencies are entitled to the protection of sovereign
immunity from Montalla’s effort to equitably void the settlement agreement. To the extent
Montalla might have pursued a claim of breach of the duty of good faith and fair dealing on the
underlying contracts, NXL settled and released these claims. Thus, appellant cannot proceed on
any claims for damages based on the original contracts. See McKinley Chiropractic, 294 Va. at
139 (assignee foreclosed from pursuing released claims).14 Montalla similarly has failed to state
claims that can void the mediation under the covenant of good faith and fair dealing—or under
Code § 8.01-581.26. The circuit court correctly dismissed all the possible theories of recovery
advanced in Count III.
II. The Circuit Court Correctly Rejected Montalla’s Economic Duress Claim and
Montalla’s Allegations Regarding Breach of the Underlying Contracts and
Unconstitutional Takings are Barred
Count IV of Montalla’s complaint addresses material breach of the underlying contracts
between appellant and VDOT. Count IV, Montalla argues, includes the following: “(i) the failure to
allow appellant to bill for reimbursable costs at established overhead rates agreed to in the contract,
(ii) the unilateral, punitive and improper reduction of the rates to 0%, and (iii) the failure to provide
Appellant with full reimbursement.”
Count V of Montalla’s complaint, the unconstitutional regulatory taking claim, is similarly
based on the breach of the underlying 2014 contracts—VDOT’s failure to pay amounts owed—
convincing evidence, direct or implied.” Id. at 493. In the record, there is nothing in the settlement
agreement and release to signify a contract modification. Indeed, the agreement says that it is a
“Settlement Agreement and Release.” Nowhere does the document purport to be a modification;
similarly, the document does not point to another contract which it purported to modify. Finally, it
is subject to the approval of the Governor of the Commonwealth, which a standard modification
would not require pursuant to Code § 2.2-514. Montalla’s claim that the settlement was intended as
a contract modification cannot revive the released claims.
14
Montalla’s economic duress argument is discussed in Section II, infra.
- 19 -
coupled with economic duress. Thus, Montalla argues, these “contract” claims cannot be barred by
VDOT’s plea in bar of sovereign immunity. Moreover, Montalla asserts that the circuit court’s
letter on September 14, 2021 did not specifically address Counts IV and V, or provide legal grounds
for dismissal other than stating they “‘must be dismissed’ based on VDOT’s Plea in Bar of
Sovereign Immunity.” Montalla argues that neither Count IV nor V were affected by the ruling on
VDOT’s plea in bar and should have survived.
Again, appellant’s predecessor in interest, NXL, expressly consented in the settlement
agreement to release VDOT from all pecuniary claims under or related to the original contracts and
the parties’ dispute over FAR reimbursement rates. According to the Commonwealth’s plea of
accord and satisfaction,
[o]n January 11, 2018, when the Settlement Agreement was
executed, NXL and the Commonwealth agreed to completely
resolve and settle their disputes and mutually release their claims
against one another in exchange for NXL’s payment of $4,000,000
to VDOT. This language, and the Settlement Agreement
generally, have remained in full force and effect. This executed
Settlement Agreement constituted an accord between NXL and
VDOT.
Montalla does not contest the existence of the mediated settlement and release, but asserts that
economic duress can operate to overturn a settlement agreement. The circuit court, in dismissing
Montalla’s claims, necessarily rejected this additional attack on the release. We find that Counts
IV and V were properly dismissed.15
Settlements have long been favored under Virginia law. See Chesapeake & Ohio Ry. Co.
v. Mosby, 93 Va. 93, 100 (1896) (“The law favors the compromise and settlement of disputed
15
Sovereign immunity is a defense against suit, not an exemption from particular legal
doctrines. Where the Commonwealth, itself, has raised an accord and satisfaction plea in bar,
Montalla may challenge the plea by arguing the agreement was the product of economic duress.
In this case, for the reasons that follow, we find that Montalla has failed to make out a viable
claim for economic duress.
- 20 -
claims. It is to the interest of all that there should be an end of litigation; and a settlement
deliberately sought, as this was by the plaintiff, ought not to be set aside except upon the most
satisfactory evidence.”); Cary v. Harris, 120 Va. 252, 257 (1917) (“Compromise agreements are
favored.”). By contrast, as this Court has noted:
In Virginia, duress is not readily accepted as an excuse. Seward v.
American Hardware Co., 161 Va. 610, 639 (1933). The party
alleging fraud is required to prove it by clear and convincing
evidence, Cary v. Harris, 120 Va. 252, 255 (1917), and duress is a
species of fraud to which this rule applies. Ford v. Engleman, 118
Va. 89, 96 (1915).
Norfolk Div. of Social Services v. Unknown Father, 2 Va. App. 420, 434 (1986).
The gist of a duress claim is that the victim had no free will in the disputed agreement.
See Ford, 118 Va. at 95 (“[A] contract entered into under duress can be avoided . . . because
there is no real consent.”). Even if all of Montalla’s pleadings are taken as true, this settlement
was reached by sophisticated parties, represented by counsel, at a formal mediation which
occurred many months after the dispute initially arose. See Freedlander, Inc. The Mortgage
People v. NCNB National Bank of North Carolina, 706 F. Supp. 1211, 1217 (E.D. Va. 1988)
(immediacy is a hallmark of duress). These circumstances suggest a business decision to resolve
a financial hardship rather than a coercion so forceful as to render NXL’s consent involuntary or
nonexistent. Id. Nonetheless, to properly analyze a “business decision,” a fact-finder generally
would not read intent and consent in a vacuum.16
However, to establish a duress claim under Virginia law, the party asserting coercion
must promptly repudiate the agreement. See Gloth v. Gloth, 154 Va. 511, 552 (1930) (“[I]t was
16
Even taking the facts in light most favorable to Montalla as we must at this stage of
pleading, a claim for duress is still properly demurrable if the claim for economic duress is
otherwise insufficient. See Gloth v. Gloth, 154 Va. 511, 552-54 (1930) (holding a duress claim
was properly demurred despite accepting the allegation that “the will of the appellant was
overcome by the threats of the appellee” when the appellant did not timely repudiate the
contract).
- 21 -
incumbent upon the appellant to have proceeded promptly upon the removal of the duress, if
such existed, to repudiate the contract.”); see also Link Associates v. Jefferson Standard, 233 Va.
479, 484 (1982) (A party intending to repudiate a contract based on fraud “must act within a
reasonable time and with great punctuality upon learning of the wrong.”). Here, at no point did
NXL repudiate or disavow the accord. Rather than repudiating the settlement, NXL ultimately
bargained to pay the negotiated sum early—and at a discount. Under Gloth, this failure of
repudiation defeats a claim of duress. 154 Va. at 552.
Montalla’s claims in Counts IV and V ultimately result in a reprise of attempts to rescind
the settlement agreement and then collect on the released claims. Montalla simply fails to provide
a basis upon which any recovery on the underlying contract claims can remain viable in light of
sovereign immunity and the release and settlement entered between NXL and VDOT.
III. The Circuit Court has the Discretion to Change its Mind, and the Circuit Court
Did Not Abuse its Discretion in Denying Montalla’s Motion to Reconsider
We review a circuit court’s judgment sustaining a demurrer de novo. Coutlakis v. CSX
Transp., Inc., 293 Va. 212, 216 (2017) (quoting Abi-Najm v. Concord Condo., LLC, 280 Va. 350,
356-57 (2010)). When reviewing such a judgment, we “accept as true all factual allegations
expressly pleaded in the complaint and interpret those allegations in the light most favorable to the
plaintiff.” Coward v. Wellmont Health Sys., 295 Va. 351, 358 (2018). Furthermore, we draw any
reasonable inferences arising from the express factual allegations of the complaint in the plaintiff’s
favor. Id.; Coutlakis, 293 Va. at 216.
Appellant points out a series of purportedly wrongful acts by VDOT which created financial
distress including the fact that NXL was told VDOT would consider terminating all contracts with
the company if it did not comply with the 0% rate, and later changing the rate to 75%, which was
still far below what was agreed upon in the initial contract. Furthermore, appellant states that the
- 22 -
wrongful acts continued when VDOT engaged in activity such as advocating in favor of ACO’s
incorrect interpretation of FAR during the mediation.
Appellant is understandably upset by the treatment to which it alleges NXL was subjected.
Appellant also notes that the circuit court initially agreed with its economic duress claim. The court,
however, promptly reversed itself the day after its initial oral ruling. Montalla challenges this
reversal.17 However, a court maintains the prerogative to reconsider a ruling it has made until it
loses jurisdiction over the case. See Hechler Chevrolet, Inc. v. General Motors Corp., 230 Va. 396,
403 (1985) (highlighting the trial court’s broad discretion in reconsidering its own ruling); see also
Rule 4:15; Rule 1:1. For the reasons set forth above, we believe the circuit court correctly resolved
the issue. That is not to say we approve of the Commonwealth’s handling of the FAR dispute.
Nonetheless, based on the plea in bar of sovereign immunity and NXL’s settlement and release of
the underlying contract claims, Montalla remains without relief. In short, the circuit court was
empowered to reconsider its initial ruling—and, in our judgment, correctly resolved it.
Along the same lines, Montalla challenges the circuit court’s refusal to entertain its motion
to reconsider. “Motions . . . to reconsider a prior ruling involve matters wholly in the discretion of
the trial court.” Thomas v. Commonwealth, 62 Va. App. 104, 109 (2013). Thus, “[w]e review a
trial court’s denial of a motion to reconsider for an abuse of discretion.” Winston v. Commonwealth,
268 Va. 564, 620 (2004). “When we say that a circuit court has discretion, we mean that ‘the
[circuit] court has a range of choice, and that its decision will not be disturbed as long as it stays
within that range and is not influenced by any mistake of law.’” Galiotos v. Galiotos, 300 Va. 1, 10
(2021) (alteration in original) (quoting Landrum v. Chippenham and Johnston-Willis Hosps., Inc.,
17
With respect to the circuit court’s initial oral ruling, the Commonwealth contends that
Montalla seeks an advisory opinion regarding the merits of an order that was never entered.
Advisory opinions represent an unnecessary exercise of judicial power, “one in which the Virginia
judiciary traditionally declines to participate.” Va. Dept. of State Police v. Elliott, 48 Va. App. 551,
553 (2006).
- 23 -
282 Va. 346, 352 (2011)). “[O]nly when reasonable jurists could not differ can we say an abuse of
discretion has occurred.” Id. at 11 (quoting Sauder v. Ferguson, 289 Va. 449, 459 (2015)).
Appellant points out that during oral argument, the circuit court initially agreed with
appellant’s position on “economic duress” and did not later give a full explanation of why it
dismissed Counts IV or V. Due to this lack of explanation, appellant argues that the court erred by
failing to grant appellant’s motion for reconsideration. Here, however, it is clear on the record that
the circuit court considered appellant’s briefings and argument relating to economic duress in
conjunction with the hearing conducted on the issue. In fact, as Montalla acknowledges, the circuit
court was initially swayed by the economic duress claim.
Notably, there is no suggestion that appellant sought to present new evidence at any
rehearing. See N. Va. Real Estate, Inc. v. Martins, 283 Va. 86, 118-19 (2012) (holding a trial court
did not err in denying a motion to reconsider where the moving party had “not raised any issues not
already considered in th[e] matter”); see also Amos v. Commonwealth, 61 Va. App. 730, 741 (2013)
(en banc) (“[L]itigants [have] no right to present oral argument on a motion to reconsider. Instead,
such arguments are presented at the discretion of the trial court.”). Essentially, appellant contends
that the trial court did not give a satisfactory explanation for choosing to dismiss Counts IV and V.
While the ruling was not long on explanation, the circuit court reached the correct determination
that appellant’s efforts to void the settlement agreement or collect damages on the settled 2014
contracts are foreclosed by sovereign immunity and the existence of a binding release. Where
appellant had a full opportunity to present its arguments, the circuit court did not abuse its discretion
in denying the motion to reconsider. Martins, 283 Va. at 118-19.|
- 24 -
IV. The Circuit Court Did Not Abuse its Discretion in Denying Leave to Amend
“On appeal, review of the trial court’s decision to grant or deny a motion to amend is limited
to the question whether the trial [court] abused its discretion.” Lucas v. Woody, 287 Va. 354, 363
(2014) (citation omitted).
Rule 1:8 states that “[l]eave to amend shall be liberally granted in furtherance of the ends of
justice.” Furthermore, amendments are permitted after a ruling on a plea in bar. Appellant argues
that in this case, leave to amend was appropriate to clarify and expand upon the scope of Count III,
“which would have more clearly demonstrated to the court that the claim is clearly based in contract
. . . and thus, not subject to sovereign immunity.” Appellant also states that appellees would not
have been harmed by the amendment.
In Roop v. Whitt, 289 Va. 274 (2015), the record showed that Roop made an oral motion for
leave to amend his amended complaint; however, there were no disclosures or description regarding
how the amendment would alter the pleading which the circuit court had ruled upon. Therefore, the
Court in Roop could not review the circuit court’s decision to deny the motion. Id. at 280-81. In the
present case, the same principles apply. Montalla gave no indication it planned to assert new
arguments to overcome its sovereign immunity hurdle.18
Appellant never specified what factual allegations it would have made to show it is entitled
to pursue claims for breach of contract, particularly where the settlement agreement remained in
place and the underlying claims were released. See Hechler Chevrolet, 230 Va. at 403 (“The trial
court, however, retains discretion to deny a motion for leave to amend when it is apparent that such
an amendment would accomplish nothing more than provide opportunity for reargument of the
18
Indeed, Rule 1:8, itself, states: “[u]nless otherwise provided by order of the court in a
particular case, any written motion for leave to file an amended pleading must be accompanied
by a properly executed proposed amended pleading, in a form suitable for filing.” That did not
happen here.
- 25 -
question already decided.”). Accordingly, the circuit court did not abuse its discretion in denying
leave to amend the complaint under these circumstances. The court retained the discretion to
decline to simply readjudicate the complex issues it had previously decided. See id.CONCLUSION
There is a well-worn adage that “bad facts” can lead to unsettling outcomes. The outcome
in this case, under the facts pled, is not a triumph of equitable principles. However, the dispute was
properly resolved below by the circuit court. Montalla’s Count I to “null and void” the settlement
agreement, essentially via rescission, could not survive VDOT’s sovereign immunity defense.
Count II’s claim that the Commonwealth waived sovereign immunity as to mediations under Code
§ 8.01-581.26 is defeated by the absence of any explicit waiver of the doctrine in the statute.
Montalla’s covenant of good faith and fair dealing claims fell because the underlying contracts were
settled and released. Similarly, the good faith claims as to negotiation tactics in the mediation do
not state a claim under Restatement (Second) of Contracts § 205. The final counts alleging breach
of the underlying contracts and an “improper taking” fall prey to the same accord and satisfaction
defenses as the underlying contracts where NXL fully settled and released these claims. The
economic duress attack on the settlement agreement similarly fails because that mediated settlement
was not repudiated by NXL.
Montalla is understandably chagrined that the circuit court reversed its initial, oral ruling
that a portion of its claim survived the Commonwealth’s defenses. The circuit court, however, had
discretion to reconsider the matter. Similarly, it did not abuse its discretion in declining to entertain
Montalla’s motion to reconsider. Nor did it abuse its discretion in denying Montalla’s request for
leave to amend its pleading. We affirm the ruling of the circuit court.
Affirmed.
- 26 -