Subcontractor granted preliminary injunction against termination

Where pre-discovery evidence showed that a government subcontractor would be irreparably harmed if the prime contractor terminated its contract for default, and it was likely to succeed on its contractual claim, the Fairfax Circuit Court granted a preliminary injunction.

The subcontractor alleged that the prime contractor did not follow the contract provisions for default and that its motive was to improperly assume the work for itself while leaving a black mark on the subcontractor’s chances to obtain future government contracts.

Judge Timothy J. McEvoy was convinced that the subcontractor was likely to succeed on the merits and “showed a likelihood of non-monetary damages in the form of intangible human capital losses and reputational harm absent injunctive relief.”

“Given the foregoing, the balance of equities favors [the plaintiff], and [the defendant] did not show that maintaining the status quo while the case is resolved would cause it meaningful harm,” the judge concluded Jan. 9 in Amentum Services Inc. v. Valiant Government Services LLC (VLW 026-8-001).

Attorneys for the parties did not respond to requests for comments.

The chair of Williams Mullen’s government contracts practice group, Tony
Anikeeff, spoke to Virginia Lawyers Weekly about these types of cases.

“Prime contractor disputes go to specialized courts, but subcontractor disputes are handled by regular courts, which may not be as used to dealing with the niche world of government contracts, although this judge did a really good job,” said Anikeeff, who has more than 30 years of government contracting experience, including many with the Justice Department.

DLITE-II

The Department of Defense Language Interpretation and Translation Enterprise II, or DLITE II, program is a contract vehicle through which the parties provide linguists to the United States Central Command for translation services.

Having employed approximately 200 to 300 linguists over the course of DLITE II,
Amentum Services had a 38% workshare in its role as the subcontractor with Valiant Government Services, the prime contractor.

Amentum’s linguists were coordinated by five key employees, including Deputy Project Manager Craig Marsh, or DPM Marsh. Valiant began to complain about DPM Marsh and asked that he be removed from his position but not terminated.

Although Valiant allegedly gave no specific reason for its complaints and offered no cure period, Amentum ultimately offered numerous resumes to replace DPM Marsh. Valiant rejected some of those resumes out of hand for little or no articulated reason, according to Amentum.

Valiant ultimately issued a termination for default notice, or T4D, alleging a failure by Amentum to replace Marsh in a timely manner, as well as other issues. Amentum had never received a T4D, despite having worked on nearly 1,000 contracts.

While Williams Mullen’s Anikeeff advises attorneys to make sure that judges understand these issues and how to address them, he told Virginia Lawyers Weekly
that “a subcontract is just a commercial contract.”

“A prime contractor usually includes the right to have the subcontractor remove an employee that it doesn’t like, and it can be a pretty draconian clause,” he explained. “But you typically have to state good reason before terminating for default, which is highly disfavored.”

In its complaint against Valiant, Amentum
alleged breach of the terms of a subcontract agreement related to DLITE II, tortious interference and breach of implied duties, and sought declaratory judgment. Amentum also requested temporary and preliminary injunctive relief, which the court expedited.

‘Black mark’

McEvoy found that the evidence showed “a multi-year development lifecycle that exists for such linguists, and that in some cases Amentum has carried a cadre of such individuals for up to 10 years.”

The evidence established that receiving a T4D could be very prejudicial for a government contractor generally because it must be disclosed to the government as part of all future bids for new work, according to the court.

Anikeeff said being terminated for default has greater impact for a prime contractor because the government will hold it responsible for a disruption of service, “but it’s certainly not something a subcontractor wants to have to disclose if asked for a future contract.”

McEvoy observed: “The evidence also showed that demobilizing Amentum’s workforce would result in tremendous burdens and the loss of at least some of the linguist ‘stable’ that Amentum has assembled over many years at significant cost and expense.”

Further, he wrote, it was reasonable to infer that Marsh’s termination was the “tip of a spear” employed to pretextually terminate Amentum and thereby put Valiant in a position to acquire, assume or appropriate some, most or all of Amentum’s linguist workforce for the balance of DLITE II.

“It would also place a proverbial ‘black mark’ on Amentum when and if a new, post-DLITE II contract vehicle is offered by the government,” McEvoy wrote.

“Among other things, Valiant never gave a concrete reason for wanting Marsh gone except for generalities about his attitude,” he noted. “Although it was alleged that he had earned the ire of government officials approximately ‘fifty’ times, there were no specific examples provided.”

Rather than show government complaints about Marsh or threats to terminate the contract for breach, the evidence showed that Valiant did not deem Marsh’s position to be essential.

McEvoy noted that, in fact, “Valiant’s sole witness acknowledged that a replacement for DPM Marsh has been selected and is ready but Valiant was waiting until after the injunction hearing to fill the position for reasons that were not explained.”

The judge also credited letters from active U.S. government personnel attesting to Marsh’s fitness, explaining that hearsay evidence may go to weight, but not preclusion in the limited context of preliminary injunction determinations.

Uniquely experienced workforce

Amentum showed that it would suffer irreparable harm, including the loss of a uniquely experienced workforce it’d developed at great expense and effort over many years, reputational damage and disruption to critical government operations, if the injunction was not granted.

“While Valiant argues that the availability of money damages shows that an injunction should not issue, the court notes that the availability of money damages and their adequacy are two different things,” McEvoy said. “Here, there is sufficient evidence that monetary relief, alone, will not be an adequate remedy.”

Amentum also demonstrated a likelihood of success on the merits of its breach of contract claim.

“In short, there is evidence which supports its claim that Valiant has not followed contractual requirements in the course of seeking to remove Amentum personnel from the DLITE II program and that its motive is to improperly assume the work for itself,” the judge wrote.

However, McEvoy was dubious that [Amentum’s other claims] would survive demurrer and hastened to add that “discovery and a full merits trial might well point to a different outcome entirely.”

Anikeeff said the early evidence set out a good plaintiff’s case and led him to believe that the case may never go to trial. “If the evidence after discovery is anything like the plaintiff alleged, the defendant has a really tough road to hoe,” he said.

“In these cases, judges often don’t think about the fact that the government is in the background, and the prime contractors don’t get the outcomes they want,” Anikeeff pointed out, adding that judges sometimes view a prime contractor’s leverage as inappropriate.

McEvoy was persuaded that the balance of equities here favored Amentum, and that Valiant failed to show that maintaining the status quo while this case was resolved would cause it meaningful harm.

After concluding that the public interest supported granting the injunction to ensure continuity of critical linguist services for the United States government in the Middle East, McEvoy temporarily enjoined Valiant from terminating Amentum’s subcontract during the litigation.