Brach v. Conflict Kinetics Corp.

CAMERON BRACH, Plaintiff, v. CONFLICT KINETICS CORPORATION et al., Defendants.

CONFLICT KINETICS CORPORATION, Counterclaim Plaintiff, v. CAMERON BRACH et al., Counterclaim Defendants.

Case No. 1:16-cv-978

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Alexandria Division

July 31, 2017

MEMORANDUM OPINION

This dispute arises from plaintiff's brief stint with defendant, a defense contractor, during which plaintiff claims he discovered that defendant had improperly and prematurely billed the federal government for services. Plaintiff asserts that he reported his findings to his superiors and was fired as a result. Plaintiff also alleges that defendant wrongfully denied plaintiff overtime pay and employment benefits. In response, defendant filed counterclaims, contending that plaintiff illegally accessed and tampered with defendant's computers, and that plaintiff committed constructive fraud when urging defendant to hire plaintiff's unqualified friend. Following motions to dismiss and full discovery, the parties moved for summary judgment.

I.

Plaintiff, Cameron Brach ("Brach"), is a Virginia resident and military veteran who now works as an operations director. He was at all relevant times the sole owner of counterclaim defendant, Independent Recruiting Consultants, LLC ("IRC"), a Virginia company offering staffing services to government contractors. From September 29, 2014 to August 9, 2015 Brach worked with defendant, Conflict Kinetics Corporation ("CKC"), a Virginia corporation that sells electronic firearms training devices and services to the United States military.

On December 11, 2015, Brach filed an Complaint of Reprisal against CKC with the Inspector General of the Department of Defense. On June 30, 2016, the Inspector General informed Brach that the department had closed its investigation into Brach's claims. Thereafter, on July 28, 2016, Brach filed a complaint in this district, alleging four counts against CKC and two CKC officers, namely (I) retaliation in violation of the False Claims Act ("FCA"), 31 U.S.C. § 3730(h), (II) reprisal in violation of the Defense Contractor Whistleblower Protection Act ("DCWPA"), 10 U.S.C § 2409, (III) wrongful denial of employment benefits in violation of the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1132(a), and (IV) wrongful denial of overtime pay in violation of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 207(a)(1). Upon receiving the complaint, CKC's president sent Brach several text messages that, in Brach's view, constituted retaliation for Brach's administrative and federal complaints and were designed to discourage Brach from pursuing his claims. Brach thus filed the First Amended Complaint, amending his retaliation claims in Counts I and II to include allegations regarding the text messages. Shortly thereafter, plaintiff filed a Second Amended Complaint ("SAC"), adding two new retaliation counts stemming from the text messages. In this respect, the SAC alleged (V) retaliation in violation of the FLSA, 29 U.S.C. § 215, and (VI)retaliation in violation of ERISA, 29 U.S.C. § 1140. Defendant successfully moved to dismiss several counts in the SAC.¹

Of the claims raised in the SAC, four remain:

• Count I: FCA retaliation, arising from Brach's termination, his administrative and federal complaints, and the text messages sent by CKC's president, see 31 U.S.C. § 3730(h);

• Count II: DCWPA reprisal, also arising from Brach's termination, his complaints, and the text messages, see 10 U.S.C § 2409;

• Count IV: FLSA denial of overtime pay, see 29 U.S.C. § 207(a)(1); and

• Count V: FLSA retaliation, arising from the CKC president's allegedly threatening text messages.

In turn, CKC's counterclaim alleges that Brach accessed and tampered with defendant's computers in violation of federal and Virginia law, and that plaintiff committed constructive fraud. Specifically, the three counterclaims are:

• Counterclaim Count I: violation of the Computer Fraud and Abuses Act, 18 U.S.C. § 1030 (against Brach).

• Counterclaim Count II: violation of the Virginia Computer Crimes Act, Va. Code § 18.2-152.1 et seq. (against Brach); and

• Counterclaim Count III: constructive fraud (against Brach and IRC).²

At issue here are the parties' motions for summary judgment. Specifically, Brach and IRC filed a motion for summary judgment on all of CKC's counterclaims, and CKC and its president filed a motion for summary judgment on all of Brach's claims and filed a cross motion on its constructive fraud counterclaim. As the parties' motions have been briefed and argued orally, they are ripe for resolution.³

II.

The following pertinent undisputed material facts are derived from plaintiff's statement of undisputed facts ("PS"), defendant's statement of undisputed facts ("DS"), a "Joint Statement of Uncontested Facts" ("JS"), and the exhibits each party submitted. The voluminous summary judgment record has been carefully examined for purposes of identifying the undisputed material facts. Indeed, the parties felled a small forest of trees in their efforts to support or oppose the pending summary judgment motions. Any germane factual disputes are also identified below.⁴

A. Parties

• Plaintiff Brach, a Virginia resident, was at all relevant times here the sole member of counterclaim defendant IRC, a Virginia company Brach organized in 2013.

• During 2014 and 2015, IRC provided staffing services for government contractors, including persons holding security clearances.

• Defendant/counterclaim plaintiff CKC is a Virginia corporation headquartered in Sterling, Virginia.

• CKC provides training services and equipment to the federal government, including a cost-effective, computer-assisted shooting simulator using weapon-mounted lasers and target sensors in lieu of live ammunition.

• Brian Stanley ("Stanley") is the President of CKC.

• Alison Rubin ("Rubin") is the Executive Vice President of Business Development of CKC.

• Kathy Henderson ("Henderson") was at relevant times CKC's Controller.

B. Facts Relating to the Parties' Business Relationship

• On September 25, 2014, Brach signed an offer letter for a position as a program coordinator with CKC.

• That offer letter specifically stated that CKC was "pleased to offer [Brach] a position as an Independent Contractor in Sterling Va." Doc. 101-11.

• The offer letter attached a list of Brach's job duties, which included (1) accounting and budgeting support; (2) logistics, including developing procedures for contract deliverables, handling equipment tracking, ordering and movement, personnel analysis, and workflow documentation, and (3) delivering to clients demonstrations, equipment and training, and program coordination.

• On September 29, 2014, Brach met with Henderson at CKC's offices to formalize the parties' relationship. Before this meeting Henderson was unaware of IRC and had prepared a contract for Brach assuming that Brach would enter an agreement in his individual capacity.

• The parties' contract, entitled the Independent Contractor Services Agreement (the "Agreement"), reflects that CKC agreed to pay $3,653 bi-weekly as compensation for services rendered.

• The Agreement reflects that IRC, not Brach, was the "Contractor" identified in the Agreement, and that Brach signed the Agreement on the signature line designated for the "Principal Agent" of the "Contractor." Furthermore, on page 10 of the Agreement, Brach made handwritten additions, noting that the "Company" identified as the "Contractor" in the Agreement was "IRC, LLC." See Doc. 101-13; 105-6.⁵

• By setting up the business relationship with CKC through IRC, Brach knew that he could avail himself of tax advantages and the protection of limited liability.

• From September 29, 2014 to August 9, 2015, Brach performed services for CKC.

• Throughout that period, Brach executed and delivered to CKC an IRS Form W-9 for IRC and thereafter caused IRC to issue invoices to CKC for services rendered.

• CKC paid IRC for these invoices, and IRC deposited these payments in a bank account that IRC maintained. CKC issued IRS Forms 1099 to IRC, but not to Brach, for 2014 and 2015.

C. Facts Regarding CKC's Billing Errors

• In 2014 and early 2015, Henderson was responsible for preparing and issuing bills for CKC's services pursuant to a contract with the Naval Expeditionary Combat Command. That contract, ACC-APG-NATICK Contract No. W911QY14P0278 (the "NATICK contract"), obligated CKC to supply electronic firearms training products and services at several Navy facilities.

• CKC performed its contractual obligations on a firm fixed-price basis; that is, the NATICK contract contemplated that CKC would charge specified amounts upon the completion of itemized elements of performance known as "Contract Line Item Numbers."

• Pursuant to CKC's invoicing procedures, Rubin would first advise Henderson that CKC had completed specified Contract Line Item Numbers and was entitled to bill for them. Next, Henderson would create an invoice for the products and services performed. CKC would then transmit the invoice to another CKC employee, Sandi Beinke ("Beinke"), who would upload the invoice electronically through the Defense Department's Wide Area Work Flow system for government review, approval, and payment.

• In April 2015, Henderson became concerned that billing errors might occur, given the increasing complexity of the invoicing process for the NATICK contract.

• That same month, at an evening meeting at the CKC offices involving Stanley, Rubin, and Brach, CKC decided to conduct an audit of all NATICK contract invoices.⁶

• On May 6, 2015, Henderson briefly resigned from CKC.

• The next day, May 7, 2015, Brach, Rubin, and Beinke discussed delegating Henderson's former responsibilities, including the task of reviewing NATICK contract invoices.

• Beinke forwarded the invoices to Brach, who, in turn, sent copies to Rubin.

• Brach and Rubin agreed that they would independently review the NATICK contract invoices and

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