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Ettinger v. Milvets Systems, 00-1526 (2002)

Court: Court of Appeals for the Fourth Circuit Number: 00-1526 Visitors: 67
Filed: Jun. 28, 2002
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT PHILLIP P. ETTINGER, Plaintiff-Appellant, v. MILVETS SYSTEMS TECHNOLOGY, INCORPORATED, No. 00-1526 Defendant-Appellee, and SUBURBAN BANK OF MARYLAND, Defendant. Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Claude M. Hilton, Chief District Judge. (CA-99-1267-A) Argued: June 5, 2001 Decided: June 28, 2002 Before WIDENER and WILLIAMS, Circuit Judges, and Robert R. BEEZER, Sen
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                         UNPUBLISHED

UNITED STATES COURT OF APPEALS
                 FOR THE FOURTH CIRCUIT


PHILLIP P. ETTINGER,                     
                  Plaintiff-Appellant,
                  v.
MILVETS SYSTEMS TECHNOLOGY,
INCORPORATED,                                    No. 00-1526
               Defendant-Appellee,
                 and
SUBURBAN BANK OF MARYLAND,
                      Defendant.
                                         
            Appeal from the United States District Court
         for the Eastern District of Virginia, at Alexandria.
               Claude M. Hilton, Chief District Judge.
                          (CA-99-1267-A)

                        Argued: June 5, 2001
                       Decided: June 28, 2002

      Before WIDENER and WILLIAMS, Circuit Judges, and
         Robert R. BEEZER, Senior Circuit Judge for the
       United States Court of Appeals for the Ninth Circuit,
                      sitting by designation.


Affirmed by unpublished per curiam opinion.


                             COUNSEL

ARGUED: John Simon Lopatto, III, Washington, D.C., for Appel-
lant. Robert Clarke Dunn, DUNN, CURCIO, KEATING &
BRACKEN, P.C., Alexandria, Virginia, for Appellee.
2             ETTINGER v. MILVETS SYSTEMS TECHNOLOGY
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).


                              OPINION

PER CURIAM:

   Phillip P. Ettinger appeals from the final judgment of the district
court in favor of defendant Milvets Systems Technology (Milvets) on
Ettinger’s claims for breach of contract arising from a business ven-
ture involving Ettinger and Milvets. Ettinger also seeks to appeal
from the judgment of the district court denying Ettinger’s pretrial
motion for summary judgment. We decline to review the district
court’s summary judgment order and we affirm the district court’s
judgment for Milvets on the merits of Ettinger’s breach of contract
claims.

                                   I.

   This action arises from the alleged breach of two contracts, called
the Teaming Agreements by the parties, signed by three principals:
Ettinger, Milvets and a third party, William Carney. The first joint
business venture created by a Teaming Agreement was formed to pro-
vide professional staffing services to the United States Department of
State by assisting with the recruitment of qualified individuals for the
Department of State’s short-term staffing needs. Milvets was the pri-
mary contractor with the government. Milvets is a contractor offering
information technology and computer database and like services. Car-
ney and Ettinger are former employees of the Resolution Trust Corpo-
ration, which is managed by the Federal Deposit Insurance
Corporation (FDIC).

   The joint venture between the three principals was formed, among
other objects, to recruit qualified short-term staff for the Department
of State, to create a computerized database from which government
human resources officers could select candidates, to hire selected can-
didates to work at the Department of State as employees of Milvets
or as independent contractors, and to manage the salary and benefits
              ETTINGER v. MILVETS SYSTEMS TECHNOLOGY                  3
of individuals hired through this arrangement. There is no dispute that
Milvets was obligated to acquire and develop the hardware and soft-
ware necessary to operate the computerized database and that both
Carney and Ettinger were obligated to seek out qualified candidates
and to market the program to Department of State human resources
officers.

   Milvets subsequently contracted with the FDIC to provide database
support and professional staffing services to facilitate the sale of
assets under FDIC control. A second and similar Teaming Agreement
for the FDIC contract provided that "Consultant" (Carney and
Ettinger) would help to find qualified individuals to service the con-
tract and generally facilitate Milvets’ interactions with the FDIC. The
parties dispute the extent to which the separate FDIC Teaming Agree-
ment, executed on February 6, 1998, involved Ettinger in the provi-
sion of these services or provided him a share in the revenues from
the contract.

   Both Teaming Agreements contained a termination clause provid-
ing that the contracts would terminate upon "[l]ack of performance by
Team Member, which includes both Carney and Ettinger, or Milvets
of its obligations under this Agreement." Citing these termination pro-
visions, Milvets sent letters to Ettinger and Carney in December of
1998 terminating the two Teaming Agreements because of Ettinger
and Carney’s failure to perform under the agreements and especially
their failure to form a business entity. The letter terminating the FDIC
Teaming Agreement also cited, as grounds for termination, what it
called misrepresentations made by Ettinger about his previous
employment history with the FDIC, which, according to Milvets,
affected his eligibility to participate under the terms of Milvets’ con-
tract with the FDIC. Milvets’ contract with the FDIC mandated that
all Milvets’ agents satisfy FDIC’s eligibility requirements and repre-
sented that none of Milvets’ agents had been adverse to the position
of the FDIC in certain enumerated circumstances. After entering the
Teaming Agreements, Milvets learned that Ettinger departed from the
FDIC following a dispute over a statement he had made to his super-
visor and that he later settled a lawsuit against the FDIC for claims
arising out of that termination.
4              ETTINGER v. MILVETS SYSTEMS TECHNOLOGY
   Ettinger subsequently brought this diversity action alleging that
Milvets breached its obligations under the Teaming Agreements by
failing to share revenue earned from the agencies as was required by
the Teaming Agreements.1 Milvets filed with its answer a counter-
claim alleging that Ettinger breached his obligations under the con-
tract, forcing Milvets to incur damages completing those tasks
required by the government contracts that were Ettinger’s responsibil-
ity. Milvets later dismissed its counterclaims.

   The district court denied Ettinger’s motion for summary judgment
on February 11, 2000 and, after a bench trial which commenced Feb-
ruary 28, 2000, entered judgment in favor of Milvets. The district
court entered judgment for Milvets on the grounds that Ettinger was
not entitled to revenue sharing under Milvets’ obligation to Ettinger
under the contract, because "plaintiff has not shown that he performed
on the contract. In fact, the plaintiff’s evidence shows clearly that he
breached the contract." Specifically, the district court concluded that
Ettinger had failed to form a business entity with Carney to service
their end of the Teaming Agreements, that Ettinger had failed to pro-
vide "personnel program management" as required by the State
Department Teaming Agreement, and that Ettinger failed to deliver
items required by that Teaming Agreement including personnel
resumes and a database of potential employees.

                                    II.

   We first address Ettinger’s attempt to appeal from the pre-trial
judgment of the district court denying his motion for summary judg-
ment. The district court found that material issues of fact prevented
summary judgment in favor of Ettinger. The case then proceeded to
a bench trial on the merits after which the district court entered a final
judgment for Milvets. This court "will not review, under any standard,
the pretrial denial of a motion for summary judgment after a full trial
and final judgment on the merits." Chesapeake Paper Prods. Co. v.
    1
    Ettinger also sued Suburban Bank of Maryland because Milvets had
assigned an interest in the revenue earned on the government contracts
to the bank as security for a loan extended to Milvets. The district court
dismissed the counts against Suburban Bank of Maryland from the suit
for failure to state a claim, and none of the parties appeal that decision.
              ETTINGER v. MILVETS SYSTEMS TECHNOLOGY                  5
S&W Eng’g, 
51 F.3d 1229
, 1237 (4th Cir. 1995). Accordingly, we
decline to review the district court’s pretrial judgment on Ettinger’s
motion for summary judgment.

                                  III.

   Ettinger also appeals from the final judgment for Milvets entered
by the district court after a bench trial. The district court concluded
that Ettinger could not recover for Milvets’ alleged breach under the
contract because Ettinger had failed to establish his own performance
under the contract. We review a district court’s interpretation of con-
tractual provisions de novo. See Hendricks v. Cent. Reserve Life Ins.
Co., 
39 F.3d 507
, 512-13 (4th Cir. 1994). Where the district court
properly has considered extrinsic evidence to interpret ambiguous
provisions, however, our review is more deferential, and we review
only for clear error. See 
Hendricks, 39 F.3d at 512-13
.

   Each of the Teaming Agreements contained choice of law provi-
sions indicating that, where the federal common law with respect to
government contracts is inapplicable, the contract will be governed by
Maryland law. As a federal court exercising diversity jurisdiction, we
apply the choice of law rules of Virginia, the forum state in this case.
See Klaxon Co. v. Stentor Elec. Mfg. Co., 
313 U.S. 487
, 496-97
(1941). The law of Virginia favors contractual choice of law provi-
sions, giving them full effect except in unusual circumstances. See
Tate v. Hain, 
25 S.E.2d 321
, 324 (Va. 1943). Accordingly, we apply
the substantive law of Maryland to this contract dispute.

                                  A.

   Ettinger first argues that Milvets’ revenue sharing obligation under
the Teaming Agreements was iron clad and was not conditioned on
his own performance under the contract. We have construed Mary-
land law to the contrary, however, concluding that "[p]erformance of
the contract by parties suing on it is a condition precedent to recov-
ery." Hubler Rentals Inc. v. Roadway Express, Inc., 
637 F.2d 257
,
260 (4th Cir. 257) (citing Wischhusen v. Spirits Co., 
163 A. 685
(1933)). "[U]nder Maryland law, a party suing on the contract must
first prove his own performance, or an excuse for nonperformance, in
6              ETTINGER v. MILVETS SYSTEMS TECHNOLOGY
order to recover for any breach by the opposing party." Hubler Rent-
als, 637 F.2d at 260-261
.

                                    B.

   In the alternative, Ettinger argues that the district court erred by
concluding that he failed to perform substantial and material obliga-
tions under the Teaming Agreements in three respects. A district
court’s finding of nonperformance is a question of fact, Boston Iron
& Metal Co. v. United States, 
55 F.2d 126
, 127-28 (4th Cir. 1932),
which we review for clear error.

   First, the district court ruled that Ettinger breached both the FDIC
and State Department Teaming Agreements because "[t]he agreement
called for the formation of a business entity by the two members of
the team, and that was never done." Both Teaming Agreements were
nominally between Milvets and "Consultant, a to be established busi-
ness entity" whose principals were to be Carney and Ettinger.2
Ettinger concedes that no business entity was formed, but argues that
formation of the business entity was not a material or substantial obli-
gation under the contract. The district court concluded that formation
of the business entity was a material element of the contract. Not only
was no business entity formed, Ettinger and Carney split up and went
their different ways.

   Testimony before the district court indicated that the formation of
a cooperative business entity was an important part of the Teaming
Agreement and that the failure to form such an entity was detrimental
to Milvets contracts with the government. B.J. Daniels, the president
of Milvets, testified that the Teaming Agreement envisioned a busi-
ness entity to be formed by Ettinger and Carney that would be capable
of operating personnel management facilities required under the con-
tract. But, he testified a breakdown in relations between Carney and
Ettinger made it impossible for them to work together. They refused,
for example, to meet with him together.
    2
   The district court decided early in the trial that Ettinger had standing
to bring his suit because, although the contract was nominally between
Milvets and "Consultant," both Ettinger and Carney signed the contract
as "Principals."
               ETTINGER v. MILVETS SYSTEMS TECHNOLOGY                   7
   The business relationship between Carney and Ettinger turned
adversarial over a disagreement about compensation due Ettinger
under the FDIC Teaming Agreement. Ettinger later sued Carney for
a share of revenue received by Carney from Milvets under the FDIC
Teaming Agreement. As noted, the relationship between Carney and
Ettinger deteriorated to the point that they could no longer work
together. On this record, we do not believe that the district court
clearly erred by concluding that Ettinger’s failure to form a business
entity with Carney was a material breach of the Teaming Agreements.
Ettinger argues that Milvets waived any objection to his failure to
form a business entity with Carney by choosing to work with each of
them individually. The termination letters sent to Carney and Ettinger
by Milvets invited them to renegotiate their participation in the
Department of State contract as independent consultants. Carney
accepted this offer but Ettinger declined. There is no dispute that,
although Ettinger continued some participation in the State Depart-
ment contract after Milvets terminated the Teaming Agreements in
December of 1998, Milvets in December 1998 took affirmative steps
to prevent Ettinger from negotiating independent compensation rates.
The district court did not err by concluding that Milvets had not
waived Ettinger’s breach of the Teaming Agreements by accepting
his performance after the breach.

   Second, the district court decided that "plaintiff breached this
agreement in the failure to establish a ‘personnel program manage-
ment.’" An appendix to the Department of State Teaming Agreement
between Milvets and Ettinger entitled "Statement of Work" required
"Team Member" to provide "[a]ll personnel program management,
including assisting Customer design its program requirements, the
operational systems, recruitment protocol, assignment analysis." The
district court noted that "[t]he only thing the plaintiff has testified to
is that he hired a number of applicants, sent them on, they were ulti-
mately hired. . . . That, according to all of the testimony in the case,
was not establishing a personnel program management system."

  The district court considered extrinsic evidence and testimony to
determine the tasks implicated by Ettinger’s obligation under the
State Department Teaming Agreement to provide all "personnel pro-
gram management." Daniels testified to the obligations involved with
personnel program management, describing them to be "overall
8             ETTINGER v. MILVETS SYSTEMS TECHNOLOGY
administrative management of the contract itself. Including salaries,
benefits, payroll, security clearance preparation, contacting the indi-
viduals pertaining to their salary negotiations or their labor category."
Daniels testified that Team Member, Ettinger, was to handle all of
those personnel management functions, as if Milvets had outsourced
those obligations. Daniels also testified that Ettinger failed to perform
and that Milvets had to assume those administrative responsibilities
in order to save the contract with the Department of State.

   The district court also heard testimony about a memorandum iden-
tifying the tasks involved with personnel program management that
was completed by an employee of Milvets on April 27, 1998. The
memorandum contains markings in Ettinger’s handwriting, made at a
meeting between Daniels and Ettinger, indicating, according to Dan-
iels’ testimony, which of the personnel program management tasks
Ettinger conceded were his responsibility under the Teaming Agree-
ment.3 Ettinger conceded responsibility only for processing applica-
tions, conducting interviews, arranging interviews, validating
passports and visas, and arranging travel advances. Daniels testified
that the limited responsibility accepted by Ettinger, as indicated by his
markings on the memorandum, did not reflect the understanding of
the parties in the Teaming Agreement as to the nature of "personnel
program management." Furthermore, Daniels testified that Ettinger
failed to perform even those tasks which he conceded were his obliga-
tion under the Teaming Agreement.

   Carney testified for Milvets and also indicated that he and Ettinger
did not perform personnel program management as required by the
State Department Teaming Agreement and that Milvets was forced to
assume those responsibilities. In light of the evidence provided, the
district court’s conclusions that Ettinger’s personnel program man-
agement obligations under the State Department Teaming Agreement
extended to those tasks identified by Daniels at trial and that Ettinger
did not perform those obligations are not clearly erroneous.
    3
   The "personnel program management" as used in the Statement of
Work addendum to the State Department Teaming Agreement is suffi-
ciently ambiguous to warrant consideration of parol evidence on that
issue.
               ETTINGER v. MILVETS SYSTEMS TECHNOLOGY                   9
   Third, the district court found that Ettinger failed to deliver items
required by the contract. The appendix to the Department of State
contract lists "Deliverables to be provided by Team Member" includ-
ing "Database candidates." Furthermore, Milvets’ primary contract
with the Department of State obligated it to provide "a meaningful
database of individuals available for duty, accessible through soft-
ware" that meets certain specifications. Thus, in addition to identify-
ing candidates for the government agencies’ immediate hiring needs,
Ettinger was obligated to identify individuals which make up a com-
puterized database of candidates from which Department of State
managers could select to satisfy their future hiring needs.

    The district court held with respect to Ettinger’s obligation to iden-
tify candidates for the computerized database: "[t]hat was never done.
There is no evidence from the plaintiff that [the database] was ever
established." Ettinger testified that all but 15 of the resumes he pro-
vided to Milvets for entry into the database were individuals who
were hired under the contract for work at the Department of State,
rather than prospective candidates for future hiring needs. Carney tes-
tified that Ettinger had a stack of resumes in his home and that he
never delivered all of them to Milvets. Ettinger admitted that he had
candidate resumes in his possession. Daniels testified that Ettinger
never delivered those resumes, despite repeated requests from Dan-
iels. Daniels also testified that Milvets had to identify candidates for
the database because of Ettinger’s failure to perform. Milvets efforts
in this regard included attending job fairs and retirement seminars for
Department of State employees, placing advertisements in the Wash-
ington Post and circulating fliers.

   Ettinger notes that the State Department Teaming Agreement con-
tains an appendix that defines resumes gathered by Carney and
Ettinger as proprietary and reserves to them the "exclusive right to
utilize this information, except as authorized elsewhere in this agree-
ment." Because the deliverables requirement of the Teaming Agree-
ment requires Ettinger to identify candidates for the computerized
database, the proprietorial information appendix does not excuse him
from doing so. Accordingly, we find that the district court’s conclu-
sion that Ettinger breached his obligations under the State Department
Teaming Agreement by failing to perform is not clearly erroneous.
10            ETTINGER v. MILVETS SYSTEMS TECHNOLOGY
                                 C.

   Finally, Ettinger argues that even if he breached the Teaming
Agreements, Milvets breached first because it failed timely to pay the
consulting fees and revenue sharing required by the Teaming Agree-
ments. Under Maryland law, the burden of showing justification or
excuse rests on the party who first breached a contract and thereafter
seeks to defend his actions. Fromm Sales Co. v. Troy Sunshade Co.,
159 A.2d 860
, 863 (Md. 1960). The failure to make payments
required by an agreement constitutes a material breach. Fromm Sales
Co. v. Troy Sunshade 
Co., 159 A.2d at 863
. Thus, the argument goes,
if Milvets materially breached the Teaming Agreements by failing to
pay Ettinger before Ettinger breached his own obligations under the
Teaming Agreement, then Ettinger’s breach is excused and he may
recover for any part performance he rendered under the Teaming
Agreement.

   Ettinger made this argument before the district court. Ettinger
argued that Milvets never made payments under the FDIC Teaming
Agreement and that the payments made under the State Department
Teaming Agreement were too little and too late. Nonetheless, the dis-
trict court found that Ettinger breached under the Teaming Agreement
and awarded judgment for Milvets, indicating that Ettinger’s breach
had not been excused. The evidence before the district court justified
this conclusion.

   Milvets was obligated to pay a monthly consultancy fee and reve-
nue sharing to "Team Member" under the FDIC Teaming Agreement.
Milvets sent several payments totaling $41,053 to Carney under the
names of both Carney and Ettinger. Carney did not distribute those
payments to Ettinger. Ettinger sued Carney and an arbitrator ordered
Carney to send all future payments under the FDIC Teaming Agree-
ment to Ettinger until such time as Ettinger had been paid as much
under the Teaming Agreement as had Carney. The arbitrator specified
that, if Ettinger did not receive as much as Carney had received under
this arrangement, he would have no cause of action against Carney for
the difference. Milvets terminated the FDIC Teaming Agreement in
December of 1998 and sent no more payments to "Consultant" as con-
sultancy fees or revenue sharing under that agreement, although it did
continue to compensate Carney under a separate consulting arrange-
               ETTINGER v. MILVETS SYSTEMS TECHNOLOGY                  11
ment. The district court did not err by concluding that payments made
to Carney in the name of both Ettinger and Carney discharged Mil-
vets’ payment obligation to both until the termination of the Teaming
Agreement in December of 1998.

   Milvets also made payments under the State Department Teaming
Agreement. It is undisputed that Milvets paid $44,450.19 to Ettinger
between December of 1997 and March of 1999. Ettinger argues that
Milvets breached first because the payments it made pursuant to the
State Department Teaming Agreement were not timely. The State
Department Teaming agreement required consultancy fees to be made
on the first day of every month and revenue sharing payments to be
made on the same day that Milvets received payment from the gov-
ernment. Milvets made four consultancy payments of $4,000 each to
Ettinger in December of 1997, and in February, May and July of
1998. Milvets did not receive its first payment from the Department
of State until August of 1998. Distribution of revenue sharing to
Ettinger was further delayed by processing at Suburban Bank of
Maryland where Milvets had taken a loan secured by the revenue
from the Department of State contract to finance payroll until the gov-
ernment completed its billing cycle for the contract. On these facts,
the district court’s conclusion that any delay by Milvets in making
required payments did not constitute a material breach was not clearly
erroneous.

   Ettinger also argues that, in addition to being late, the payments he
received were not adequate. In light of our conclusion above, how-
ever, that the district court did not err in finding Ettinger to be in
breach of the contract, the alleged inadequacy in payments made by
Milvets are relevant only if they preceded Ettinger’s own breach
under the contract. There is no dispute that Ettinger received four pay-
ments of $4,000 each, representing his guaranteed consultancy fees
under the State Department Teaming Agreement and we have con-
cluded that any delay in those payments did not constitute a material
breach. As stated, Milvets did not receive revenue from the Depart-
ment of State until August of 1998. We find no evidence indicating
that the district court’s conclusion that Ettinger’s breaches, his failure
to form a business entity with Carney, failure to deliver database can-
didates as required by the State Department Teaming Agreement, and
failure to establish personnel program management, preceded any
12              ETTINGER v. MILVETS SYSTEMS TECHNOLOGY
material failure on the part of Milvets to make revenue sharing pay-
ments starting in August of 1998. Thus, Ettinger’s breaches of the
Teaming Agreements are not excused and he cannot recover against
Milvets under the Teaming Agreements.

     Accordingly, the judgment of the district court is

                                                          AFFIRMED.

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