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No breach of duty of loyalty despite employer competition

Virginia Lawyers Weekly//October 11, 2021

No breach of duty of loyalty despite employer competition

Virginia Lawyers Weekly//October 11, 2021//

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Where three employees formed a company and competed with their current employer for a contract from another company, they did not breach a duty of loyalty owed to their employer because they were preparing for work that would begin after their employment was set to end.


In August 2016, the U.S. Army Medical Material Development Activity awarded a prime contract to Adnet Inc. Adnet hired Rohit Soni, Laura Barr and Jason Laird to fill three of the four full-time equivalent personnel positions needed to meet the Army’s requirements under the Adnet contract. On Oct. 23, 2018, while employed by Adnet, Soni and Barr incorporated RoLaJa LLC.

By early 2020, the Army had decided to transition the work to General Dynamics Information Technology Inc., or GDIT. On Aug. 6, 2020, GDIT issued to Adnet, RoLaJa and C2i a “competitive RFP for the MPDAPT Services.” GDIT then notified RoLaJa of its selection for the subcontract.

Adnet has asserted three counts against defendants: (1) breach of duty of loyalty; tortious interference with a business relationship and conspiracy. Both sides have filed motions for summary judgment.

Duty of loyalty

Adnet argues that there were three breaches of defendants’ fiduciary duty of loyalty: (1) when defendants “caused GDIT to compete the subcontract work”; (2) when Laird contacted GDIT to express RoLaJa’s interest in securing MPDAPT work from GDIT and (3) when RoLaJa actually competed against Adnet in responding to GDIT’s competitive RFP. The court finds that none of these alleged acts or series of acts violated the duty of loyalty under Virginia law.

Virginia courts have distinguished arrangements for future employment or competition, which are allowable from active solicitation of an employer’s current clients, which are not. Active solicitation alone is not enough, however; the solicitation must also be directed at current clients of the employer.

Here, the defendants were preparing for work after their employment with Adnet was scheduled to end. The defendants worked with Adnet on the Army contract, which had a set termination date of Aug. 31, 2020. There is no evidence in the record that Adnet told the defendants that they would have a job with Adnet after Aug. 31, 2020.

Plaintiff argues that defendants initiated the competitive bidding process, thereby extinguishing the all-but-certain likelihood that Adnet would have secured GDIT’s subcontract without competition. It is unnecessary to resolve this issue, however, because even if defendants had caused the competition, they were justified in doing so to seek future employment after their contracts were set to end. Defendants had the right to discuss future employment (or subcontracting) with GDIT, especially in light of the fact that GDIT had no preexisting relationship with Adnet.

Adnet argues that but for the actions of the defendants, Adnet would have received the contract. But there is simply insufficient evidence that defendants caused GDIT to compete the contract. The record clearly reflects that GDIT made no promises to Adnet and that concerns with Adnet’s pricing prompted GDIT to compete the bid. Adnet has submitted no evidence to contradict this testimony. The potential subcontract between GDIT and Adnet, therefore, was not a tangible expectancy, but rather just a hope. Even if Adnet could demonstrate that defendants were engaged in active solicitation, rather than preparation for future employment or competition, Adnet has not shown that the active solicitation was aimed at a current client, as GDIT had no existing relationship with Adnet.

Tortious interference

Adnet has failed to establish the existence of a valid contractual relationship or business expectancy with GDIT. There was no course of dealing or business history between Adnet and GDIT that would have established the basis to determine whether there was a probability of a future award. Adnet performed work for the Army as a prime. That work was scheduled to end as of Aug. 31, 2020, and GDIT had been awarded the prime contract thereafter. The Army did not promise any subcontracting work to Adnet and did not know how GDIT would award the work. Additionally, Adnet’s failure to establish its breach of loyalty claim, its only argument for the use of improper methods, also means Adnet is unable to establish tortious interference.

Business conspiracy

Having failed to establish a breach of the duty of loyalty with respect to Count One or the use of improper methods with respect to Count Two, Adnet cannot meet its burden under Count Three to show that defendants’ actions were taken with legal malice and without lawful justification.

Plaintiff’s motion for summary judgment denied. Defendants’ motion for summary judgment granted.

Adnet Inc. v. Soni, Case No. 1-21-cv-00130, Sept. 17, 2021. EDVA at Alexandria (Nachmanoff). VLW 021-3-458. 17 pp.

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