Smart, Inc. v. Virgin Islands Hous. Auth., Virgin Islands Hous. Opportunities Corp.
| Decision Date | 22 May 2004 |
| Docket Number | No. CIV.2003–63.,CIV.2003–63. |
| Citation | 45 V.I. 632 |
| Parties | SMART, INC., Plaintiff, v. VIRGIN ISLANDS HOUSING AUTHORITY, Virgin Islands Housing Opportunities Corporation, Virgin Islands Housing Revitalization Corporation, and Ray Fonseca, Defendants, |
| Court | U.S. District Court — Virgin Islands |
OPINION TEXT STARTS HERE
Carol A. Rich, St. Thomas, VI, for the plaintiffs.
Rhonda Hospedales, St. Croix, VI, Charles H. Carpenter, Pepper Hamilton LLP, Washington, DC, for the defendants.
The defendants have filed a motion to dismiss, alleging that the plaintiff's complaint fails to state a claim upon which relief can be granted. I agree that the plaintiff has failed to state a claim against the Virgin Islands Housing Opportunities Corporation or the Virgin Islands Housing Revitalization Corporation and will dismiss them from this matter. The plaintiff, however, has sufficiently alleged claims for breach of contract, defamation, and injurious falsehood regarding the Virgin Islands Housing Authority [“VIHA”] and Ray Fonseca. Accordingly, I will deny the motion to dismiss as it relates to VIHA and Fonseca.
I. FACTUAL BACKGROUNDA. The Development Contract
On May 23, 2001, VIHA issued a request for proposals, seeking consulting services in connection with development and implementation of mixed finance projects to be undertaken pursuant to regulations promulgated by the United States Department of Housing and Urban Development [“HUD”]. (Am.Compl., Ex. 1.) Smart, Inc., a real estate developer, submitted a response to the request for proposals, and VIHA notified Smart on September 13, 2001 that it had been selected to provide the consulting services. (Am.Compl., Ex. 4.) VIHA and Smart thereafter entered into a contract [“development contract”] under which Smart was to serve as the development consultant and co-developer for the Hoffman/Nullyberg Replacement Housing Development on St. Thomas [“Hoffman/Nullyberg development”] and the Louis E. Brown Villas Housing Community on St. Croix [“Brown development”]. (Am. Compl., Ex. 6 at § 1.3; hereinafter Development Contract at ___.)
According to the terms of the development contract, Smart was to be paid a fixed fee, based on the total cost of the development projects. (Development Contract at § 6.1.) Sixty-five percent of this fee was payable monthly, with the remainder to be paid in four equal payments corresponding to four development milestones. ( Id. at § 6.2.2.) The first milestone provided for in the development contract was the bond closing for the Brown development, which had a December 31, 2001 submission deadline. ( Id. at § 2.1.2 & Ex. G.) Under Article 2.1.2, however, failure to meet this or any other deadline besides the final completion deadline did not automatically constitute a default.1
The development contract also provided a detailed process for communication and cooperation between the parties, including quarterly reporting, and regular revisions to schedules and milestones based upon events as they unfolded. Additionally, the development contract in Article 8 gave VIHA the right to terminate the contract for convenience. If VIHA elected to terminate for convenience, Article 8.2 required that VIHA pay reasonable costs to Smart within thirty business days of receipt of a claim by Smart specifying such costs.
B. The Support Agreement and 2002 Youthbuild Grant
In addition to the development contract, Smart and VIHA signed a separate contract titled Agreement for Business and Project Management Operational Support Services [“support agreement”]. (Am.Compl., Ex. 7.) Under the terms of the support agreement, Smart was obligated to provide operational support services to VIHA on a task order basis as the need for specific services arose over a three year period. ( Id., Ex. 7 at Art. II.) In return, VIHA was to pay monthly for each task Smart performed, according to agreed-upon payment schedules accompanying each task order and within thirty days of Smart's submission of an appropriate invoice. ( Id., Ex. 7 at Art II, VI.)
Article VIII of the support agreement provided VIHA the right to terminate for default if Smart materially failed to perform any of its duties or obligations, but required VIHA to give Smart fourteen days advance notice before exercising this right. The termination for default did not become effective if Smart began curative action within fourteen days of VIHA's notice. Article VIII also allowed VIHA to terminate for convenience upon thirty-day advance notice. Upon termination of the support agreement for convenience, Smart was entitled to payment for the work performed up to the date of termination plus other reasonable costs. ( Id., Ex. 7 at Art. VIII.)
Pursuant to this support agreement, Smart wrote a proposal for a HUD 2002 Youthbuild grant on VIHA's behalf. VIHA was subsequently awarded a 2002 Youthbuild grant, thus allowing VIHA to support a Youthbuild program designed to provide construction training to at-risk youth. After initially managing the Youthbuild program for the first several months of its existence, on August 2, 2002, VIHA elected to have Smart assume management responsibilities and thereafter Smart managed the program. ( Id., Ex. 35.)
C. Termination of the Development Contract and the Operational Support Agreement
Smart claims that after it was notified on September 13, 2001 that it had been selected to provide consulting services, it immediately began working to meet the first performance milestone. This milestone was the bond closing for the Brown development which had a December 31, 2001 submission deadline according to the development contract. (Development Contract at § 2.1.1 & Ex. G.) Smart alleges that VIHA's failure to complete certain contract documents and form legal entities necessary for the bond closing jeopardized Smart's ability to meet this initial deadline. (Am. Compl. at 15–17.) Further missteps allegedly occurred during October and November of 2001 and the first milestone was missed, forcing the parties to revise schedules for the project. ( Id. at 17; Def.'s Br. in Supp. of Mot. to Dismiss at 4.) Smart claims that it nevertheless continued to work diligently and maintained a working relationship with VIHA, although VIHA allegedly continued to fail to provide information, finalize agreements, and approve plans and designs. (Am. Compl. at 18–21.)
The relationship between the parties deteriorated following the October 18, 2002 appointment of Ray Fonseca as executive director of VIHA.2 Smart alleges that throughout October, November, and December of 2002, VIHA failed to live up to many of its obligations under the development contract. For example, Smart alleges that Fonseca refused to meet or speak with any Smart representative, delayed execution of completed tax exempt certificates, and refused to respond to Smart's recommendation that VIHA proceed with a grant application. (Pl.'s Opp'n at 6.) VIHA also allegedly refused to pay Smart's September, October, and November invoices as required under the development contract. (Am. Compl. at 27 & Exs. 30–32.) Throughout November and December of 2002, VIHA also allegedly breached its obligation under the support agreement to pay the October, November, and December invoices for Smart's management of the Youthbuild program. ( Id. at 33, 41 & Exs. 45–47.)
The strained relationship between Fonseca and Smart was made public when, on December 23, 2002, Fonseca appeared at a hearing before the Committee on Housing, Parks, and Recreation of the Virgin Islands Legislature. Fonseca testified at the hearing that VIHA was reviewing the contract, and that “it's going to be a big, a big, big fight” because he was not satisfied with the progress on the Hoffman/Nullyberg and Brown developments. ( Id. at Part II, pp 8–9.) Fonseca also testified that he had not paid Smart “one red cent” since being named VIHA's executive director. ( Id. at Part II, p. 8.)
On January 2, 2003, Fonseca signed a letter terminating Smart's management of the Youthbuild program. (Am. Compl. at 34, Ex. 48.) In that letter, which was hand-delivered to Smart the same day, Fonseca criticized Smart for poorly managing a press conference for the Youthbuild program and claimed Smart had breached the support agreement. The letter did not provide Smart with fourteen days advance notice and the opportunity to cure as required under the support agreement for a termination for fault, nor did it provide thirty days advance notice as required under the support agreement for a termination for convenience. ( Id., Ex. 7 at Art. III.)
On January 7, 2003, Fonseca signed and had delivered to Smart a second letter, stating that VIHA had decided to terminate the development contract for convenience. (Am.Compl., Ex. 50.) The letter did not specify the reasons for VIHA's exercise of the contract's termination for convenience provision. It simply stated that the contract was terminated for convenience and instructed Smart to provide an accounting of the total costs of the work it had performed, less payments VIHA had already made. ( Id.) Smart has never provided VIHA with such an accounting.
On February 19, 2003, VIHA issued a press release announcing the termination of the development contract and claiming Smart had missed several milestones and that the contract was a “bad deal” for the VIHA. (Am.Compl., Ex. 51.) In connection with issuance of the press release, reporters from the local media interviewed Fonseca. The following day, the Virgin Islands Daily News and the St. Croix Avis quoted Fonseca as saying he decided to terminate the contract after Smart missed deadlines. ( Id., Exs. 52, 53.) Similarly, on February 19, 2002, the St. Croix Source, a local on-line newspaper, quoted Fonseca as saying that Smart had missed major milestones and that the contract could not be completed anytime close to the original completion date. ( Id., Ex. 54.)
Finally, on March 10,...
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