Posts in "Contract Drafting & Negotiation"
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Contract Defeats Virginia’s Defense of Sovereign Immunity
A recent decision from the Supreme Court of Virginia established an important precedent for contractors doing business with the Commonwealth. The doctrine of sovereign immunity generally prevents parties from being able to sue the government when it is acting within the scope of its governmental authority, unless the government consents to suit. However, in Montalla, LLC v. Commonwealth, 303 Va. 150, 900 S.E.2d 290 (2024), the Court ruled that the Commonwealth cannot invoke sovereign immunity as a defense when the government enters into a valid contract through an authorized agent. This ruling affirms that when the Commonwealth enters into a legally binding contract, it must uphold its contractual obligations and allow contractors to pursue legal remedies, even without the government’s consent.
The dispute arose after a government contractor named NXL sought reimbursement for overhead costs under its contract with the Virginia Department of Transportation (“VDOT”). VDOT denied payment based on its interpretation of certain Federal Acquisition Regulations (“FAR”) provisions. NXL ultimately entered into an unfavorable settlement with VDOT based, in part, on this interpretation of the FAR. However, during settlement negotiations, VDOT received guidance from the Federal Highway Administration (“FHWA”) on the correct interpretation of the relevant FAR provisions. The FHWA’s interpretation confirmed that NXL was entitled to reimbursement. VDOT intended to adopt FHWA’s interpretation but withheld this information from NXL during settlement negotiations.
Thereafter, Montalla, LLC acquired NXL’s contracts with VDOT. Montalla, LLC discovered that VDOT withheld this information and sued VDOT seeking equitable rescission of NXL’s settlement agreement and recovery of contract damages. The trial court and Court of Appeals dismissed the case based on VDOT’s asserted defense of sovereign immunity. The Supreme Court of Virginia reversed. Although the Supreme Court noted that the doctrine of sovereign immunity is “alive and well” in Virginia, it ultimately found that the defense does not extend to actions based on valid contracts entered into by authorized agents of the government.
This decision strengthens protections for contractors and confirms that the Commonwealth of Virginia must uphold its contractual obligations. Moving forward, contractors should be cognizant of their ability to enforce their contractual rights against the Commonwealth.
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Can a Text Message Form a Binding Contract? In at Least One Court, the Answer is Yes.
As more business is conducted via text messaging, new legal problems will continue to arise. Recently, a court addressed whether a letter of intent was binding based on an exchange of e-mails and text messages between real estate brokers. In St. John’s Holdings, LLC v. Two Electronics, LLC, No. 16 MISC 000090 RBF the court examined whether the parties merely engaged in negotiations regarding the purchase of certain property, or whether their text messaging gave rise to a binding and enforceable contract for the purchase and sale of the real estate.
Because this was a sale of real estate, the issue at hand was whether the text messaging was sufficient to satisfy the Statute of Frauds. To resolve this issue, the court looked at whether (a) a text message can be a writing under the Statute of Frauds, (b) whether the alleged writing contains sufficiently complete terms and an intention to be bound by those terms, (c) whether the text message is signed, and (d) whether there is an offer and acceptance.
The factual timeline in St. John’s Holdings, LLC involved a number of drafts of the letter of intent sent from the Buyer to the Seller. None of these drafts were signed by the Buyer. Eventually, the Seller’s agent sent the Buyer’s agent a text asking the Buyer to sign the letter of intent and provide a deposit. The Seller’s agent included his name at the end of this text message. The Buyer signed the letter and provided the deposit, and then texted to the Seller’s agent: “Tim, I have the signed LOI and check it is 424[pm] where can I meet you?” Thereafter, the Seller’s agent met the Buyer’s agent and accepted the signed letter and deposit. After this exchange, the Buyer’s agent sent a text message requesting a copy of the letter executed by the Seller, but was informed via text message, “[Seller] was out of town today. He will get back to us tomorrow.” The Buyer was later informed that the Seller had accepted a separate offer from a third-party, and did not close on the deal with the Buyer.
The court found that the text messages, read in the context of the negotiations and exchanges between the parties, contained sufficient terms to create a binding contract between Buyer and Seller. The court found sufficient support that multiple writings relating to the subject matter of the agreement may be read together as long as they contain all of the material terms of the agreement and are eventually authenticated by signature. Therefore, the text messages, together with the previous negotiations and draft letters exchanged, satisfied the writing element of the Statute of Frauds. The ultimate factor for the court was that “[t]he way in which the parties handled the transaction was sufficient for them to appreciate that the text message would memorialize the contractual offer and acceptance.” Therefore, the court embraced a contextual approach to effectuate the intent of the parties.
Once determining that the text messaging constituted a writing, the court liberally construes the “signature” element and inferred from the Seller’s agent adding his name to the end of the text message that it was intended to create a binding signature. The court found that “the use of his signature at the end of the February 2nd text message is evidence of his intent to have the writing be legally binding.” Therefore, the court found that the text message from the Seller’s agent, asking the Buyer to sign the letter of intent and provide a deposit, was a binding contract.
While this case concerns the purchase of real property, and therefore involves the Statute of Frauds, it does provide instruction for construction projects in the 21st century. As more and more communication is conducted informally via text messaging, parties need to be aware that text messages can and will have legal ramifications. A text message may not be as informal as one thinks, at least in the eyes of the law. Further, this case shows the importance of preserving documentation. While e-mail is routinely stored and backed-up, text messages are more prone to deletion or being lost. It is important to remember that steps must be taken to preserve text messages, as a claim could survive or fail based on text messaging documentation. Law firms should instruct clients on the need to preserve all relevant documentation, including text messaging. Issues can arise if team members are discussing change orders or potential claims via text messaging, which may also raise notice issues.
Ultimately, cases such as this remind us that the law must continually adapt to modern technologies and business practices, and that parties must be aware of how modern communication methods will be interpreted by courts.
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Attention Contractors – New Defense to Joint Liability Available
By now, most contractors are cognizant of the impact of Virginia Code § 11-4.6. Enacted in 2020, this statute allows general contractors to be liable if their subcontractors fail to properly pay their employees. In 2021, the General Assembly modified this statute and general contractors need to be aware of this revision.
The modified statute provides that a general contractor may provide a “certification” as evidence that they did not know, and had no reason to know, that their subcontractors were not paying their employees properly. The general contractor must obtain this certification, in writing, from their subcontractor, and the certification must be signed by the subcontractor under oath. The certification must also state that the subcontractor and its sub-subs, paid all of their employees all wages due for the work performed on the project. Construction companies should review this newly modified statute and update their subcontracts and lien waivers accordingly.