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Court Enforces Settlement Agreement on Construction Project Dispute

Construction Development Services, Inc. v. Modern Environments, Inc., No. 160240, 2016 WL 7319548, at *1 (Va. Dec. 15, 2016)

In this case, subcontractor Modern Environments, Inc. (“Modern”) was hired to design and install furnishings by general contractor Construction Development Services, Inc. (“CDSI”) for a renovation to a three-story building at the Norfolk Naval Base (“Project”). The Project was divided into two phases. The parties could not agree to the changes as to phase two of the Project and CDSI hired another subcontractor, New Day Office Products and Furnishing, Inc. (“New Day”), to complete phase two of the Project using the design Modern created.

Modern filed two separate lawsuits. The first lawsuit was in Circuit Court of Virginia Beach in May 2010 against CDSI for breach of contract (“State Case”). The second lawsuit was in the U.S. District Court for the Eastern District of Virginia in February 2011 against CDSI and New Day for copyright infringement (“Federal Case”). Modern’s claim for copyright infringement stemmed from its allegations that as owner of the design, CDSI and New Day’s use of its plans in completing the Project violated copyright laws.

During the Federal Case, Modern identified in its Interrogatories the damages that it incurred as a result of the defendants’ violation of the copyright registration. The parties in the Federal Case settled in January 2012 with the execution of a “Settlement Agreement and Release” (“Settlement Agreement”) that states in pertinent part that Modern released CDSI “of and from all claims for damages asserted in the [Federal Case].” Because of this Settlement Agreement, CDSI filed special pleas of release, accord and satisfaction, and res judicata in the State Case. The Circuit Court held a bench trial in December 2013, and issued a letter opinion in September 2015 finding that neither the Settlement Agreement, nor res judicata, barred Modern’s claims and found that CDSI breached the contract between the parties and awarded total damages to Modern.  

CDSI appealed to the Virginia Supreme Court. The Court interpreted the plain language of the Settlement Agreement and found that the damages asserted in the Federal Case were the same asserted in the State Case, since Modern identified the same amount of financial damages. Therefore, according to the language of the Settlement Agreement as to the scope of Modern’s release regarding CDSI was “all claims for damages asserted in the [Federal Case],” the Court found that Modern was barred from pursuing the damages it claimed in the State Case pursuant to the release. The Court reversed the judgment of the Circuit Court and entered a final judgment for CDSI.

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