ANALYSIS OF JUNE 7, 2018 SUPREME COURT OPINIONS
(Posted June 7, 2018) The Supreme Court of Virginia today hands down two published opinions in cases argued in the February and April sessions.
The Code of Virginia includes a laudable provision to look out for certain public employees who become disabled as a result of their work. The enactment is the Line of Duty Death and Disability Act, and extends health-insurance benefits to workers who become disabled due to their work. That act is the focus of Jones v. Comptroller.
Jones is a retired firefighter on the Peninsula. When his employer, the City of Hampton, offered certain tenured employees a financial incentive to retire early, he accepted the offer and stepped down in the summer of 2010. The following spring, a doctor diagnosed him with throat cancer.
The dispositive question in this appeal is whether the act’s insurance benefits apply retroactively, when a retiree is first diagnosed after his separation date. A circuit court held that it did not, because the act provides these benefits only when an individual becomes disabled “so as to prevent the further performance of duty.” A retiree doesn’t perform any “further” duty, so the court denied insurance benefits.
In a short opinion written by Justice Goodwyn, the justices unanimously affirm that ruling. The court turns to dictionary definitions of further and performance to find that the statute unambiguously excludes insurance benefits to persons who become disabled after retirement.
The court points also to a parallel statute that contains a “look-back” provision, whereby retirees are eligible for benefits where a diagnosis occurs within five years after separation. This statute doesn’t contain that provision, and the court presumes that the omission was intentional.
With teaming agreements becoming more common in the field of government contracts, today’s opinion in CGI Federal Inc. v. FCi Federal, Inc. takes on added significance. It involves a contract with the State Department to provide visa-processing services. CGI is a large company and had the ability to provide the services; but the feds wanted a small business for this, so CGI was ineligible to bid.
FCi, in contrast, is a small company, so it fit the mold of an acceptable bidder. But it wasn’t able to perform the required work alone. If you sense the opportunity for a productive marriage here, you’re onto something. The two companies got their heads together and came up with a plan for the smaller company to submit a general-contract bid, with the larger company as a subcontractor. They fashioned and executed a teaming agreement to permit joint work on the bidding and performance processes.
Trouble arose – as it must, or else there will be no appeals, and appellate lawyers and their families will go hungry – in the language of the teaming agreement. Here’s the key provision, as paraphrased by Justice McClanahan today: “If the [bid] proposal resulted in a contract award to FCi, the teaming agreement provided a framework for the parties to negotiate a [performance] subcontract.”
Uh-oh. This isn’t a performance agreement; it’s an agreement to agree. Actually, it’s less than that: it’s an agreement to negotiate for an agreement. We saw two years ago, in Navar, Inc. v. Fed. Bus. Council, that nobody’s going to collect damages based on an agreement to negotiate a contract in the future.
I’ll cut to the chase here: Nobody collects on this language, either. After the feds awarded FCi a contract that wasn’t as favorable to CGI as the latter had expected, the big company sued for breach of contract, fraudulent inducement, and unjust enrichment. A friendly jury awarded $12 million in damages, but the mean old trial judge took it all away, and today the justices affirm without a dissenting voice.
The court’s analysis is simple and straightforward, once you accept the Navar premise. The big company tried to collect damages for breach of the performance agreement. That is, it sought to recover what it expected to receive if the parties had negotiated an agreement after the award of the government contract. But since there was no such subsequent contract, there’s nothing on which a court can base such an award. Courts can’t draft contracts for parties, and an award of damages would have required that.
On the fraudulent-inducement count, today’s opinion announces what looks to me like a first-impression ruling: “we conclude that lost profits are not recoverable for a fraudulent inducement claim when they are premised on the unenforceable provisions of a contract.” The big company pointed to the jury’s finding that the little company had committed fraudulent inducement, and argued that a party can’t escape tort liability by relying on the terms of a fraudulent contract. Here’s Justice McClanahan’s rejoinder:
[T]his principle is inapplicable to CGI’s claim. CGI’s recovery of lost profits is not limited by the terms of the amended teaming agreement, but by the parties’ failure to include terms in the amended teaming agreement by which lost profits could be reasonably measured. Stated simply, CGI cannot recover profits based on a bargain for a subcontract it never struck.
Finally, the justices affirm the dismissal of the unjust-enrichment count. The terms of the teaming agreement itself barred this claim. And by suing for damages instead of seeking rescission of the teaming agreement, FCi was bound by its terms.