E-Alert Case Updates

Employer That Alleged Contractor Had Performed Minimally under the Contract Did Not Fail to State a Claim

Thomas J. Pernice, et al. v. Eric Bovim, et al.
(April 22, 2016) United States District Court for the District of Columbia
by Matthew J. McCloskey, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2015cv0541-29

In a recent opinion, the United States District Court for the District of Columbia held that an employer had stated a claim against a terminated independent contractor for breach of contract even though the employer alleged that the contractor had performed minimally under the contract. Furthermore, the Court was not persuaded that termination of the contract was the employer’s exclusive remedy.

In December 2012, McBee Strategic Consulting, LLC acquired the assets and liabilities of Gibraltar Associates LLC, a public-relations firm that had been formed by Plaintiff, Thomas J. Pernice, and Eric Bovim. After the acquisition, McBee hired Bovim, as an employee, and Plaintiff, as an independent contractor, through his holding company, Modena Holding Corp. In pertinent part, McBee’s contract with Plaintiff provided that McBee would pay Modena a monthly retainer for eighteen (18) months in exchange for Modena’s services in furtherance of McBee’s business. On July 6, 2013, however, McBee terminated the contract after McBee concluded that Modena had failed to perform satisfactorily with respect to: (1) transitioning former clients; (2) assisting with business development; and (3) cross-selling services between business units to existing clients.

As a result of McBee’s termination of the contract, Plaintiff and Modena sued McBee, its owner, and Bovim for breach of contract, fraud, civil conspiracy, and unjust enrichment. McBee moved to dismiss all but the breach of contract claim, and the Court granted McBee’s motion. Subsequently, McBee filed a counterclaim alleging that Modena had breached the contract in failing to perform its duties under the contract. Modena moved to dismiss the counterclaim.

Judge James E. Boasberg, writing for the Court, denied Modena’s motion. The Court addressed first whether McBee’s counterclaim should be dismissed as a result of McBee’s allegation that Modena “engaged in ‘minimal client pitches’ and ‘minimal activity.’” In Modena’s opinion, McBee’s allegations amounted to an admission that Modena complied with the contract, albeit minimally. The Court rejected this contention, concluding that McBee’s true allegation was that Modena’s minimal performance was not sufficient to constitute performance under the contract.

In any event, the Court was persuaded that McBee had alleged sufficiently that Modena breached the contract. Apart from a minimal requirement that Modena originate at least two (2) sales pitches per quarter, what constituted sufficient performance under the contract was set forth only in broad strokes. Due to the lack of clear performance standards, any resolution of McBee’s claim would necessarily involve ascertaining the intent and understanding of the parties at the time they entered into the contract. Such evidence had not been adduced at this stage of the case, but McBee had nevertheless adequately set forth facts on which a factfinder could conclude that Modena did not perform pursuant to the contract.

The Court also rejected Modena’s argument that McBee had failed to please with sufficient specificity the grounds upon which it claimed Modena breached the contract. In this regard, the Court noted that “[t]o survive a motion to dismiss a contract claim, the plaintiff must simply ‘describe the terms of the alleged contract and the nature of the defendant’s breach.’” (Quoting Francis v. Rehman, 110 A.3d 615, 620 (D.C. 2015)). As long as the complaint gives the defendant fair notice of the nature of the alleged breach, it should not be dismissed. Here, McBee specifically alleged that it sent Modena a failure-to-perform notice identifying areas of deficient performance, and that it terminated the contract as a result of Modena’s deficiencies in performance one (1) month after it sent that notice to Modena. These allegations were manifestly sufficient to survive a motion to dismiss.

Finally, the Court rejected Modena’s argument that McBee’s sole remedy under the contract was to terminate the contract pursuant to the termination-for-cause provision contained therein. For a remedy set forth in a contract to be exclusive, it must be apparent on the face of the contract that the parties intended the provided remedy to be exclusive. Here, not only did the termination-for-cause provision not state that it was the exclusive remedy, the contract also contained a separate “Remedies” section which gave the parties several other potential remedies, including “any other rights and remedies at law.” Consequently, the Court concluded that termination was not McBee’s exclusive remedy, and it denied Modena’s motion to dismiss.