Uwork.com, Inc. v. Paragon Technologies, Inc.

• Decision Date: 12 April 2013
• Docket Number: A12A2449.,Nos. A12A2448,s. A12A2448
• Citation: 321 Ga.App. 584,740 S.E.2d 887
• Parties: UWORK.COM, INC. et al. v. PARAGON TECHNOLOGIES, INC. Paragon Technologies, Inc. v. UWork.Com, Inc. et al.
• Court: Georgia Court of Appeals

321 Ga.App. 584

740 S.E.2d 887

UWORK.COM, INC. et al.

v.PARAGON TECHNOLOGIES, INC.

Paragon Technologies, Inc.

v.UWork.Com, Inc. et al.

Nos. A12A2448, A12A2449.

Court of Appeals of Georgia.

March 29, 2013.

Reconsideration Denied April 12, 2013.

Robbins, Ross, Alloy, Belinfante & Littlefield, Richard L. Robbins, Jason Alloy, Heather Huggins Sharp, Atlanta, for Appellants.

Nations, Toman & McKnight, Gary J. Toman, Michael Thomas Nations, Atlanta, for Appellee.

McMILLIAN, Judge.

Plaintiff Paragon Technologies, Inc. (“Paragon”) subcontracted with Defendant UWork.com, Inc. d/b/a Covendis Technologies (“Covendis”) to supply temporary IT consultants to the State of Georgia. These companion appeals arise out of a series of business disputes between Paragon and Covendis regarding background checks for the consultants, the payment of subcontractors hired by Paragon, and Paragon's billing rates. In Case No. A12A2448, Covendis appeals the trial court's order granting summary judgment to Paragon on Paragon's breach of contract claims and on Covendis' breach of contract and fraud counterclaims. Additionally, Covendis and its CEO, Raymond Tsao, appeal the trial court's denial of summary judgment to them on Paragon's breach of fiduciary duty claim. In Case No. A12A2449, Paragon appeals the trial court's order granting summary judgment to Covendis, its CEO, and one of its client care managers on Paragon's claims for fraud and negligent misrepresentation. For the reasons discussed below, we affirm in part and reverse in part in Case No. A12A2448, and affirm in Case No. A12A2449.

Summary judgment is appropriate if the pleadings and the undisputed evidence show that there exists no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. OCGA § 9–11–56(c). On appeal from the grant or denial of summary judgment, the appellate courts conduct a de novo review, construing all reasonable inferences in the light most favorable to the nonmoving party.

(Citations omitted.) Bank of North Ga. v. Windermere Dev., Inc., 316 Ga.App. 33, 34, 728 S.E.2d 714 (2012). Guided by these principles, we turn to the record in the present case.

Covendis' Vendor Management System. In 2007, Covendis entered into a contract, subject to renewal on an annual basis, to develop and implement a web-based tool for managing temporary IT staffing for the State of Georgia. The web-based tool developed by Covendis, the “Vendor Management System” (“VMS”), listed state agencies that were in need of independent contractors to perform IT work. All companies or persons that wanted to perform IT work for those state agencies were required to enter into “supplier agreements” with Covendis to procure work through the VMS.

Once a company entered into a supplier agreement with Covendis, it gained access to the VMS, where Covendis would post the specifications and requirements for the IT positions that the state agencies sought to fill. If a supplier wished to provide IT staff for a posted position, it would submit a proposal through the VMS containing the necessary pricing information. If the state agency accepted the proposal and the supplier staffed the position, the supplier thereafter would enter the VMS and submit its time and expenses for services rendered. Covendis then would invoice the State for the services provided by the supplier, the State would pay Covendis the amount owed in the invoice, and Covendis would remit payment to the supplier within a specified time frame.

The Supplier Agreement between Covendis and Paragon. Beginning in 2007, Paragon entered into a supplier agreement with Covendis on an annual basis to provide temporary IT staff to the State through the VMS (the “Supplier Agreement”). In addition to supplying IT staff through its own employees, Paragon entered into agreements with a number of subcontractors to supply IT staff to the State. Under the Supplier Agreement, Paragon was required to provide Covendis with background verification reports on IT workers supplied to the State and to submit the names of its proposed subcontractors for Covendis' review and approval.

The March Agreement. From 2007 through October 2009, the business relationship between Covendis and Paragon was predictable and stable. But beginning in October 2009, Covendis became concerned that Paragon was providing it with false background verification reports about its IT staff. After conducting an investigation and concluding that Paragon was submitting false background verifications, Covendis sent notice to Paragon in February 2010 that it was terminating the Supplier Agreement. After receiving the notice, Paragon contacted Covendis and entered into negotiations over the issue of termination. During the negotiations, Paragon continued to supply IT staff to the State.

On March 1, 2010, the parties settled their dispute over the background verifications (the “March Agreement”). The parties agreed that the provisions of the Supplier Agreement would “continue in full force and effect,” except to the extent that they conflicted with the March Agreement. Under the March Agreement, Paragon was permitted to continue serving as a supplier under the Supplier Agreement on a probationary basis for six months. If Paragon did not materially breach the Supplier Agreement during the probationary period, its reinstatement as a supplier would become permanent through the remaining term of the Supplier Agreement.

Pursuant to the March Agreement, Paragon agreed to pay $25,000 to Covendis, to submit new background verifications for specified workers, and to pay an increased administrative fee to the State of Georgia Department of Administrative Services. Paragon also agreed to limit the total “markup” it could charge the State by implementing a “28% margin cap” on its own employees and a “35% margin cap” on workers provided by its subcontractors, effective April 1, 2010.¹ The March Agreement gave Paragon until March 31, 2010 “to renegotiate and finalize all rates to follow the bill rate guidelines set.” In return, Covendis agreed to the probationary reinstatement of Paragon as a supplier and also agreed to release any claims against Paragon relating to the background verifications.

The Subcontractor Pay Dispute. In addition to the parties' dispute over the background verifications, a dispute arose over Paragon's payment of its subcontractors. Around February 2010, two of Paragon's subcontractors began complaining to Covendis that they were not receiving payment from Paragon for IT work performed for the State. Paragon contends that it was slow in making payments to its subcontractors during this period because Covendis had been slow in remitting payment to Paragon. According to Paragon, however, Covendis misrepresented to the subcontractors that Paragon was the source of the failure to pay because Paragon had already been paid by Covendis. Paragon also contends that Covendis falsely told the subcontractors that Paragon was no longer an approved supplier with the State.

Covendis denies making any misrepresentations to Paragon's subcontractors and presents a different version of events. Covendis contends that under the Supplier Agreement, Paragon was required to pay its subcontractors whenever it received a payment from Covendis, even if the payment only partially satisfied a Paragon invoice. According to Covendis, when the subcontractors began complaining about nonpayment on certain invoices, Covendis searched its records and discovered that it had already made payments to Paragon on those invoices.

In April 2010, the two subcontractors ended their contractual relationship with Paragon and entered into their own supplier agreements with Covendis. That same month, Paragon began withholding payments to several of its subcontractors on the ground that they had materially breached their subcontractor agreements by, among other things, attempting to contract directly with Covendis rather than through Paragon.²

The Margin Cap Dispute. A dispute also arose between the parties regarding the margin caps imposed by the March Agreement and how to interpret them. On March 8, 2010, Paragon submitted a signed wage and rate statement that verified the 2009 pay rates that were in effect as of March 1, 2010. Tsao stated that this rate schedule was to be adjusted in accordance with the margin caps in the March Agreement to create the new billing rates.

Two days later, on Thursday, April 22, 2010, an e-mail exchange began between the parties addressing some of these outstanding issues. Paragon's claim for breach of fiduciary duty originates from these e-mails. Madhu Iyer, the CEO of Paragon, sent the first e-mail to Tsao expressing Paragon's “disappoint[ment]” that Covendis had entered into independent agreements with two of its subcontractors. Late that evening, Tsao replied that Covendis had no choice but to enter into such interim contracts in order to ensure continuity of business for its client because Paragon had not provided Covendis with copies of the re-negotiated subcontractor agreements in compliance with the March Agreement. Tsao requested copies of such agreements. He followed up with a second e-mail less than one hour later, which provided:

Per the terms of our March 1st [A]greement, Paragon was to have provided Covendis with the new rates that were to be effected April 1st per the terms of the agreement. To date, we have not yet received them.

Thank you for sending them, and we shall adjust the rates in the system effective April 1st, which will be reflected in the next invoice.

(Emphasis supplied.) Paragon asserts that Tsao's statement that Covendis would make the adjustments in the system was an undertaking of a special agency on Paragon's behalf. Iyer replied the following Monday, April 26, 2010, that Paragon had received the request for the subcontractor agreements and “the new bill rate/pay rates.” She stated that Covendis “should...