Allen F. Johnson & Associates, LLC v. Port Security International, LLC

UNPUBLISHED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Affirmed by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.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