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Beacon Associates, Inc. v. Apprio, Inc.

United States District Court, District of Columbia

April 13, 2018

BEACON ASSOCIATES, Inc., Plaintiff,
v.
APPRIO, Inc., Defendant.

          MEMORANDUM OPINION

          TREVOR N. MCFADDEN UNITED STATES DISTRICT JUDGE

         Before the Court is an Application for a Preliminary Injunction filed by the Plaintiff Beacon Associates, Inc. Beacon alleges that the Defendant Apprio, Inc. solicited Beacon's employees in violation of a contract between the parties, and then terminated that contract without legal justification, destroying Beacon's ability to compete in a pending government contract competition. For the reasons that follow, I conclude that Beacon has met the high standards for imposition of a preliminary injunction, and will issue a corresponding order.

         I. Preliminary Findings of Fact[1]

         A. Background

         Beacon has been a subcontractor under Apprio's prime contract with the Federal Emergency Management Agency (FEMA) since 2014, “providing approximately [40 employees] to support the training [efforts] at FEMA's Center for Domestic Preparedness [FEMA Center] at Fort McClellan in Anniston, Alabama.” Compl. 1. From 2009 to 2014, Beacon held the prime contract for these services, but graduated from the qualifying program for “small disadvantaged businesses” before “FEMA re-competed the [contract] in late 2013 and early 2014.” Id. at ¶¶ 3-5. Beacon therefore teamed with Apprio to win the follow-on contract, “in exchange for a share of 49% of the work as a subcontractor.” Id. at ¶¶ 6-7. On January 16, 2018, FEMA issued a “sources sought” notice, a “Request for Information” (RFI), and a “draft Performance Work Statement, ” giving formal notice that competition for the follow-up FEMA Center contract was about to begin. Declaration of Carol Koffinke, Application for Preliminary Injunction Ex. 2 ¶ 39-41 (Koffinke Decl.); Koffinke Decl. Ex. 11. Because neither Apprio or Beacon will qualify as a prime contractor in the next round, id. at ¶ 47, each is searching for a new contracting partner. Id. at ¶¶ 43-47.

         B. The Fall 2017 Dispute

         For approximately the first three years of the subcontract, Beacon routinely paid for Other Direct Costs (ODCs), “such as conference expenses, bus transportation, overtime and incidental supplies and equipment.” Compl. ¶¶ 43, 75. These ODCs were submitted as invoices from third party vendors, who were often engaged by Apprio without Beacon's prior knowledge. Koffinke Decl. ¶ 22. To get reimbursed after paying an ODC invoice, “Beacon would in turn submit an invoice for the ODCs to Apprio plus 1% [General and Administrative costs], and then Apprio would in turn pass Beacon's invoice directly to FEMA for payment before paying Beacon's invoice.” Koffinke Decl. ¶ 22. Beacon allegedly paid an average of about $30, 000 to $35, 000 in ODCs per month, until “emergencies caused by Hurricanes Harvey, Maria[, ] and Irma” caused FEMA's ODC expenses to rise dramatically in late 2017. Compl. at ¶¶ 76-80. When Beacon began receiving larger invoices from a bus company named Cline Tours, some of which “were in excess of $200, 000, ” Beacon asked Apprio to pay some of the invoices. Koffinke Decl. ¶¶ 34-35. Apprio initially assented, and paid two of the Cline Tours invoices. Id. at ¶ 35; see also Id. at Ex. 7.

         But the parties eventually became frustrated about the issue. Apprio's president, Darryl Britt, sent an email to Beacon's president, Carol Koffinke on November 7, 2017, expressing “concern[] that Beacon has not made the payments for the ODC's for FEMA's surge.” Koffinke Decl. Ex. 8 at 2. In part because “Beacon has been able to make payments to date, with the exception of the recent invoices that Apprio paid upon Beacon's request, ” Mr. Britt stated that “[i]t was not [Apprio's] intention to take over full payment of ODC's, ” and Apprio did “not consider the payments terms to Beacon to be onerous, nor abnormal.” Id. In response, Ms. Koffinke said that Apprio had “[a]pparently . . . received a [modification] to support the hurricane effort that I am guessing was somewhere between $1.5M and $2M of ODC's, ” without ever informing Beacon or modifying the Apprio-Beacon subcontract accordingly. Id. at 1. Ms. Koffinke said that “[h]ad the communication and contract administration been handled correctly . . . we could have worked something out.” Id. She emphasized that Beacon had “no contractual obligation to pay for the ODC's on this [modification], ” and told Mr. Britt that “our contract for this Option Year had zero dollars funded for ODC's.” Id. Ms. Koffinke avers that “Apprio never responded, ” and that “[a]fter November, Beacon paid other ODC invoices in line with past practice . . . without any further comment from Apprio.” Koffinke Decl. ¶ 38.

         C. Relevant Contractual Provisions

         Under the prime contract between Apprio and FEMA, ODCs were to be “Incrementally Funded, ” and ODCs had $650, 000 budgeted in each option year of the potential four-year contract. Koffinke Decl. Ex. 1 at B-4. Under the subcontract between Apprio and Beacon, Koffinke Decl. Ex. 2 (Subcontract), Beacon was “not authorized to perform Services, make expenditures or incur obligations which exceed the costs as set forth in Appendix B, plus travel and other direct costs that are pre-approved by Apprio and funded through a separate modification.” Subcontract § 5.2. Under Appendix B to the subcontract, Beacon was obligated to “satisfy ODC requirements as identified by Work Orders which are authorized by the customer.” Subcontract App. B at § 2.2. Section 2 also said that “other direct costs . . . shall be funded through purchase orders, pursuant to Section 5.2 of this Agreement.” Id. at § 2. Modification 9 to the contract between Apprio and Beacon, which covered Option Year 3 (from March 15, 2017 to March 14, 2018), stated that “ODCs are not included in the [budgeted] amounts and will be reimbursed at cost plus 1% additional for General & Administrative costs.” Koffinke Decl. Ex. 3 at 2. In September 2017, FEMA twice modified its prime contract with Apprio, adding $231, 257.50 and then $1, 780, 000.00 for ODCs. Koffinke Decl. Exs. 5-6. This totaled slightly over 2 million dollars in ODC funding in the prime contract for Option Year 3 alone, whereas the amount had previously been only $650, 000.

         The subcontract also prohibited solicitation of the parties' employees:

During the term of this agreement and thereafter for a period of one (1) year, both the Subcontractor and Contractor shall not directly, for its own account or for the account of any other individual, corporation, partnership, association or firm, induce or attempt to induce any employee of the other party to leave his or her employment with the applicable party. This does not include individuals responding to media advertised employment opportunities or any individual who makes an unsolicited direct contact with a Party regarding employment.

Subcontract App. A, ¶ 5.

         D. Apprio Offers Retention Bonuses and Contingent Offer Letters to Beacon's Staff

         About two weeks after FEMA released the contract competition notices, Mr. Britt sent an email to Carol Koffinke dated January 30, 2018, informing her that in “planning for the recompete of [FEMA Center] and now that the RFI is on the street, ” Mr. Bitt had offered “retention bonuses” to the “entire contract team.” Koffinke Decl. Ex. 11. According to Ms. Koffinke, these bonuses were in the amount of $500. Koffinke Decl. ¶ 47. Mr. Britt's email said: “I want to make sure you are informed as some have already signed the paperwork I provided to them.” Koffinke Decl. Ex. 11. Mr. Britt explained: “I heard through the grapevine that Beacon was not pursuing the contract, hence I figured it was of little consequence.” Id. Apprio admits that it provided what it describes as “contingent offer letters” to “Beacon's staff on the [FEMA Center] Project.” Opp. 20.

         D. Apprio Terminates the Subcontract with Beacon

         Less than a month later, on February 27, 2018, Apprio terminated its subcontract with Beacon. Koffinke Decl. Ex. 14. The termination notice required Beacon's employees to stop work immediately, and stated that “Beacon [had] committed material breaches” by failing to pay two American Coach bus line invoices. Id. Beacon claims that it did not receive these invoices until the termination. Second Declaration of Carol Koffinke ¶¶ 1-3, Pl.'s Reply, ECF No. 12-1 (Second Koffinke Decl.). The notice also relied on “the material breaches described in the November Letter, ” id., referring to a letter dated November 24, 2017, and attached to the termination notice. See Koffinke Decl. Ex. 16. The November Letter-drafted by Apprio's attorney and addressed to Ms. Koffinke-claimed to be in response to her exchange with Mr. Britt regarding whether Beacon was required to pay for ODCs. Id. The letter argued that Beacon was contractually obligated to pay ODCs if “authorized by the customer, ” and that the issue of whether “Beacon's contract for the current option year of the Subcontract . . . [had] any funding for ODCs[] is irrelevant.” Id. Given Apprio's payment of some ODC invoices from Cline Tours, the letter stated that “Beacon is currently in default, ” and that “Apprio affirmatively reserves its rights to seek any remedy.” Id. at 2. Beacon asserts that it never received the November Letter until it was attached to the termination notice.[2]

         After the termination notice on February 27, 2018, Beacon's 40 FEMA Center employees began working for Apprio the very next day, on February 28, 2018. Apprio claims that on the afternoon of February 27th, following the termination, “Beacon employees began en masse to apply for job openings on Apprio's website. Consequently, Apprio hired such Beacon employees to continue to staff and fulfill Apprio's obligations.” Declaration of Darryl Britt ¶ 16, Def.'s Opp., ECF No. 10-2 (Britt Decl.). The termination occurred approximately two weeks before March 14, 2018, when FEMA formally exercised “the fourth and final option in the prime contract, extending Apprio's [prime] contract until March 14, 2019.” Under past practice, (and, Beacon alleges, the subcontract's plain language[3]), Apprio would have extended Beacon's contract for that year as well unless the termination occurred. Koffinke Decl. ¶ 54.

         II. Legal Standards

         Under Winter v. Natural Resources Defense Council, Inc., “[a] preliminary injunction is an extraordinary remedy never awarded as of right, ” but as an exercise of discretion by “courts of equity.” 555 U.S. 7, 24 (2008). “A plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.” Id. at 20; see also Gordon v. Holder, 721 F.3d 638, 644 (D.C. Cir. 2013) (quoting Winter as the standard). These four factors are not considered in isolation from one another, and no one factor is necessarily dispositive as to whether preliminary injunctive relief is warranted. Rather, the factors “interrelate on a sliding scale and must be balanced against each other.” Morgan Stanley DW Inc. v. Rothe, 150 F.Supp.2d 67, 72 (D.D.C. 2001) (Morgan Stanley). Finally, “because preliminary injunctions are extraordinary forms of judicial relief, courts should grant them sparingly, ” and “any injunction that the court issues must be carefully circumscribed and tailored to remedy the harm shown.” Id. at 73 (citation omitted). Per the terms of the parties' subcontract, I will apply Delaware law in determining their contractual rights and responsibilities. Subcontract App. A § 29.

         III. Analysis

         Beacon alleges that Apprio breached the subcontract in two ways: soliciting Beacon's employees, and terminating the contract without legal justification. Beacon seeks a preliminary injunction that would “immediately: (1) reinstate and restore the parties' subcontract through March 14, 2019; and (2) enjoin Apprio from employing or attempting to employ Beacon's employees in violation of Appendix A, Section 5 of the subcontract.” Application 25. I conclude that Beacon “makes a strong showing on all four factors that [a] court ...


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