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T & H Services, LLC v. Choctaw Defense Services, Inc.

United States District Court, D. Alaska

June 17, 2019

T & H Services, LLC, Plaintiff,
v.
Choctaw Defense Services, Inc., Defendant.

          ORDER AND OPINION [RE: MOTION AT DOC. 17]

          JOHN W. SEDWICK SENIOR JUDGE, UNITED STATES DISTRICT COURT.

         I. MOTION PRESENTED

         At docket 17 Defendant Choctaw Defense Services, Inc. (Defendant or CDS) filed a Motion to Dismiss Complaint Pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b). The motion was filed with redactions. An unredacted, sealed motion was filed at docket 21. The confidential contracts at the heart of the parties' dispute were filed under seal at dockets 21-1 and 21-2. Plaintiff T&H Services, LLC (Plaintiff or T&H) filed its unsealed response at docket 25. CDS filed an unsealed reply at docket 26.

         II. BACKGROUND

         At some point prior to January 6, 2016, the United States Coast Guard (USCG) issued a request for proposals for the provision of Base Operation Support Services (BOSS) at the base in Kodiak, Alaska (the RFP). The RFP was published as a small business set aside opportunity under the Small Business Administration's Section 8(a) Program. CDS qualified under Section 8(a) to bid on the RFP, but sought to team with KIRA, Inc. (KIRA), which had more experience in BOSS contracting work but was not itself a Section 8(a) contractor and, therefore, could not directly submit a bid for the Kodiak BOSS contract.

         On January 6, 2016, CDS entered into a Teaming Agreement with KIRA whereby KIRA agreed "to work together [with CDS, as CDS's subcontractor] to prepare and submit a proposal to the [USCG] in response to the RFP."[1] The proposal required CDS to estimate the staff it would hire to perform the work required under the BOSS contract. KIRA consequently had to estimate the staff it would use to fulfill its portion of the work that it would be doing as a subcontractor and estimate how much that staffing would cost. In order to make such estimations, KIRA discussed with CDS the use of a specific software system referred to in the complaint as "MAXIMO." KIRA had used MAXIMO in fulfillment of other BOSS contracts to operate "handheld computers that track the equipment status/physical assets" on a base.[2] KIRA used MAXIMO because it "substantially increases productivity, reducing man hours and expenses, and allows a company to decrease its staffing and cost of performance."[3] According to the complaint, CDS promised KIRA that it would purchase MAXIMO software and incorporate the use of MAXIMO in its proposal to the USCG, and KIRA then began providing its staffing numbers and costs to CDS based on the understanding that CDS would purchase and use MAXIMO.

         Plaintiff alleges that KIRA representatives had multiple conversations and exchanged multiple emails with various CDS representatives about how its pricing was based on the use of MAXIMO. It alleges that CDS asked KIRA to develop a "price model" that included the "implementation costs" of MAXIMO.[4] It alleges that the final submission to USCG included KIRA's staffing numbers and pricing that were based on MAXIMO, as well as the costs of implementing MAXIMO. It alleges that when preparing for an oral presentation related to the bid the parties discussed the implementation of MAXIMO, and then during the presentation CDS representatives "briefed the [USCG] on how KIRA used MAXIMO" and how it would be used in implementing the Kodiak BOSS contract.[5]

         Prior to CDS's submission of its proposal to the USCG, Tlingit Haida Tribal Business Corporation (THTBC) purchased KIRA. T&H is a subsidiary of THTBC and is an eligible 8(a) contractor. While THTBC could have bid on the RFP through T&H, it decided to continue to work with CDS under the Teaming Agreement by having T&H take KIRA's place.

         In November of 2016, CDS was awarded the Kodiak BOSS contract. As contemplated by the Teaming Agreement, CDS executed a subcontract with T&H wherein T&H agreed to perform its portion of the services outlined in the BOSS contract for a fixed monthly price (the Subcontract).[6] T&H alleges that it would not have entered into the Subcontract without CDS's promise to pay for and use MAXIMO on the project. It alleges that the use of MAXIMO was the foundation for its staffing numbers and profit calculations.

         Ultimately, CDS did not implement the MAXIMO system. T&H alleges that because of CDS's "failure to utilize the MAXIMO cost controls T&H's employees incurred unanticipated overtime causing T&H to incur extra costs beyond those utilized in the bid inputs . . . ."[7] It alleges that as of May 2018 these extra overtime costs totaled $500, 000 and that every month it continues to incur these unanticipated costs. T&H also alleges that CDS had promised T&H an onsite management position to oversee the performance of tasks for which T&H would be responsible but failed to provide T&H such a position. It alleges that its lack of management on site has contributed to staffing inefficiencies. CDS refuses to pay T&H for anything beyond the monthly fixed price in the Subcontract.

         As a result of failed discussions on the matter, T&H filed this lawsuit, alleging one count of fraud in the inducement and one count of breach of contract. CDS now moves to dismiss both counts based on Rule 12(b)(6), arguing the T&H complaint fails to state a claim based on the terms of the Subcontract. It moves to dismiss the fraud in the inducement claim for the added reason that T&H failed to set forth the necessary details required under Rule 9(b).

         III. STANDARD OF REVIEW

         Rule 12(b)(6) tests the legal sufficiency of a plaintiff's claims. In reviewing such a motion, “[a]ll allegations of material fact in the complaint are taken as true and construed in the light most favorable to the nonmoving party.”[8] To be assumed true, the allegations “may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.”[9] Dismissal for failure to state a claim can be based on either “the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.”[10] “Conclusory allegations of law . . . are insufficient to defeat a motion to dismiss.”[11]

         To avoid dismissal, a plaintiff must plead facts sufficient to “‘state a claim to relief that is plausible on its face.'”[12] “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[13] “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.”[14] “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'”[15] “In sum, for a complaint to survive a motion to dismiss, the non-conclusory ‘factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.”[16] “In all cases, evaluating a complaint's plausibility is a ‘context-specific' endeavor that requires courts to ‘draw on ... judicial experience and common sense.'”[17]

         In deciding whether to dismiss a claim under Federal Rule of Civil Procedure 12(b)(6), the Court is generally limited to reviewing only the complaint, but documents whose contents are incorporated into and integral to the complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss.[18] Leave to amend must be granted "[u]nless it is absolutely clear that no amendment can cure the defects."[19]

         Under Rule 9(b), a party alleging fraud or mistake "must state with particularity the circumstances constituting fraud or mistake."[20] To be particular the complaint must state "the who, what, when, where, and how" of the misconduct."[21] This includes setting forth "what is false or misleading about a statement, and why it is false."[22] These specifics are required "to give the defendants notice of the particular misconduct which is alleged to constitute the fraud charged so they can defend against the charge and not just deny that they have done anything wrong."[23] The requirement for specifics also "protects against false or unsubstantiated charges."[24]

         If a complaint or claim within a complaint fails to meet the requirements of Rule 9(b), dismissal is appropriate.[25] Dismissals under Rule 9(b) are functionally equivalent to dismissals under Rule 12(b)(6) and therefore leave to amend should be granted unless it is clear that the complaint cannot be cured by including additional facts.[26]

         IV. DISCUSSION

         A. Breach of Contract

         In its complaint T&H alleges that "[CDS] has failed to implement MAXIMO and to provide T&H with a management position as promised by Defendant in the bid formulation process, thereby breaching its contract with T&H."[27] CDS asserts that T&H has not pled any plausible breach of contract and cannot do so. It asserts that the Subcontract does not impose any obligation on CDS to implement MAXIMO nor does it require CDS to allow T&H an onsite management position.

         T&H argues that the use of MAXIMO is expressly included in and incorporated into the Subcontract. It relies on the fact that the Subcontract incorporates a Performance Work Statement and that the Performance Work Statement requires the use of MAXIMO. The Performance Work Statement states as follows:

The Government will provide, via Coast Guard computer network, access to a CMMS. The Contractor will be responsible for utilizing this program to, at a minimum, track work order and preventative maintenance completion, and personnel man-hour expenditures . . . The Government's current CMMS is IBM Maximo. The Government reserves the right to update or change software.[28]

         The court agrees with CDS that "[s]uch language cannot reasonably be read to obligate CDS to implement MAXIMO in the course of fulfilling the BOSS contract."[29] The provision refers to the software as belonging to and used by the Government and gives the Government the option to change software. There are no allegations that the Government's "IBM Maximo" software is the same as the MAXIMO software T&H expected CDS to use, and there are no allegations asserting that the Government's software dictated what software CDS used.

         T&H also asserts in its response that the Subcontract's scope of work states that all services must be performed to the "specifications, standards, and requirements set forth in the Prime Contract."[30] T&H does not cite any specific provision in the underlying BOSS contract that dictates the use of MAXIMO, and the complaint does not set forth any allegation about the specifications, standards, and requirements of the underlying contract.

         More persuasively, however, T&H argues that the use of MAXIMO was a part of the parties' contract because it underlies the staffing plan it submitted and that was included in the Subcontract as Attachment B, which in turn was the basis for the fixed price that CDS was obligated to pay T&H. While the staffing plan in Attachment B does not expressly incorporate an obligation on the part of CDS to use MAXIMO, it creates, along with the other allegations in the complaint, a plausible claim that the use of MAXIMO was an additional term consistent with and supplementing the parties' agreement.

         CDS counters that no additional terms could plausibly be a part of the parties' agreement based on the Subcontract's integration clause. An integration clause, however, is not conclusive proof of complete integration, only partial integration.[31]Unlike a completely integrated contract-where the contract is the complete and exclusive statement of the parties' agreement and thus unable to be supplemented by any additional terms within the scope of the contract-a partially integrated contract can be supplemented with consistent terms.[32] That is to say, unless a contract is completely integrated, evidence of a consistent additional term is admissible to supplement the written agreement.

         Whether a contract is in fact completely or partially integrated depends on the intent of the parties and "can be proved by any relevant evidence."[33] An integration clause certainly "strengthens the presumption that a written contract is the final repository of the agreement."[34] Even if a contract is determined to be a completely integrated one, a prior agreement may nonetheless be enforced as an independent obligation if the alleged prior agreement is not within the scope of the integrated written agreement.[35] If a contract is determined to be only partially integrated-that is, not a complete recitation of the entire bargain-the question is whether the additional term sought to be enforced is consistent or inconsistent with the explicit terms of the written contract. Such a determination "requires interpretation of the writing in the light of all the circumstances, including ...


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