Construction Law Insights

Advanced Training Grp. Worldwide, Inc. v. ProActive Techs. Inc., 2020 U.S. Dist. LEXIS 68221 (E.D. Va. Apr. 17, 2020)

ProActive Technologies, Inc. (“ProActive”) provides services in the military simulation and training system marketplace. Advanced Training Group Worldwide, Inc. (“ATG”) provides advanced tactical training services for the military, but had never bid on or performed a federal government contract. On November 21, 2011, ProActive contacted ATG about exploring mutual business opportunities. On June 8, 2012, ProActive send ATG a draft Memorandum of Understanding (“Draft MOU”) regarding the formation of a joint venture between ATG and ProActive called Raptor Training Services, LLC (“RTS” or “JV”) to bid and perform the Special Operations Forces RAPTOR III IDIQ contract with the United States Army (the “RAPTOR Contract”). The Draft MOU set

membership interest and voting rights in the JV at 67% to ProActive and 33% to ATG with a 6-member board composed of 3 ProActive members and 3 ATG members. The Draft MOU did not reflect profit percentage. On July 27, 2012, ProActive and ATG executed the Memorandum of Understanding (“MOU”). On August 9, 2012, ProActive and ATG formed RTS. Although the MOU contemplated the execution of a JV operating agreement upon award of the RAPTOR Contract to RTS, the parties never executed a formal written operating agreement for the JV.

On February 13, 2014, the U.S. Government awarded the RAPTOR Contract to RTS and RTS accepted the contract award. The RAPTOR Contract incorporated FAR § 52.219-14, which required at least 50% of the cost of contract performance incurred for personnel be expended for employees of, here, RTS (the “50% Rule”). On December 11, 2015, because RTS could not meet the 50% Rule, ProActive suggested bringing in another small business into the JV in a non-voting capacity to bring RTS into compliance with the 50% Rule. In March 2016, ProActive and ATG began negotiations to enter into a formal JV operating agreement that would add subcontractors to the JV as Class B Members. ProActive claimed these negotiations were to remedy the 50% Rule problem and ATG claimed these negotiations were attempts by ProActive to increase its profit share in RTS. The parties were unable to reach a formal JV operating agreement. On November 8, 2016, ProActive sent ATG a letter titled “Terminating of ATG for material breach of Memorandum of Understanding.” On November 22, 2016, ProActive notified the government that it had the authority to remove ATG from the JV based on ProActive’s 67% membership interest and voting rights in RTS.

ATG entered into Master Subcontract Agreements (“MSA”) with Oak Grove Technologies, LLC (“Oak Grove”) on January 13, 2015, F3EA, Inc. (“F3EA”) on March 20, 2015, and Xtenfer Consulting, Inc. (“Xtenfer”) on December 1, 2015. Neither Oak Grove nor F3EA believed the MSA prevented them from performing work as a subcontractor for RTS or ProActive. Although offered by ATG, both F3EA and Xtenfer declined to become an affiliate of ATG.

ProActive moved for summary judgment on ATG’s tortious interference claims, which alleged that ProActive interfered with ATG’s contracts with Oak Grove, F3EA, and Xtenfer (collective, the “3rd Parties”) by encouraging those entities to become Class B Members of the JV. Because the 3rd Parties never breached or terminated their contracts with ATG and ProActive did not use improper means or methods to interfere with ATG’s business expectancy, the Court granted ProActive’s motion for summary judgment on ATG’s tortious interference claims. In Virginia tortious interference with contract and tortious interference with business expectancy are intentional torts predicated on the common law duty to refrain from interfering with another’s contractual and business relationships. The elements of such claims include: (1) the existence of a valid contractual relationship or business expectancy; (2) knowledge of the relationship or business expectancy on the part of the interferer; (3) intentional interference or causing a breach or termination of the relationship or expectancy; and (4) resultant damage to the party whose relationship or expectancy has been disrupted. Additionally, for tortious interference with a business expectancy, the plaintiff must show that the defendant used improper means or methods to interfere with the business expectancy. Here, ProActive did not induce the 3rd Parties to breach or terminate ATG’s contracts with them. The 3rd Parties did not improperly interfere with any of ATG’s contractual relationships, including ATG’s relationship with ProActive in the JV. ATG and ProActive were discussing adding the 3rd Parties as Class B Members, the 3rd Parties declined ATG’s offer to become its affiliate, and the 3rd Parties did become Class B Members of RTS. These business decisions are not improper interference with ATG’s contractual relationships with ProActive and the JV.

The court denied defendant’s motion for summary judgment on ATG’s breach of contract claim.

PLDR Law Scott Kowalski 1 PLDR Law Mark Burgin 1

Thomas Wolf 002 Kenneth Stout 002 Jason Goldsmith 002


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