Minnesota State Court Dismisses Various State Law Claims on the Basis of the FAR’s Continuity of Services Clause

In what is believed to be a case of first impression, the law firm of [nap_names id=”FIRM-NAME-1″] LLP recently obtained the dismissal of a civil action alleging various claims brought pursuant to state law on the basis that said claims were precluded by the plaintiff’s own federal government contract. In a decision dated November 9, 2010, the Honorable Charles A. Porter, Jr., a District Court Judge of the State of Minnesota’s Fourth Judicial District (“the Court”), dismissed with prejudice the action captioned The Talus Group v. Topologe, LLC, et. al. in favor of defendants. Although plaintiff’s complaint was framed as a state law contract dispute, the Court recognized that federal government contract law was an intrinsic element of the action. Specifically, the Court held that the inclusion of Federal Acquisition Regulation (“FAR”) Clause 52.237-3 – “the Continuity of Services Clause” – within the plaintiff’s federal government contract, along with the promulgation of Executive Order 13495, precluded the action as a matter of law. In so ruling, the Court expressly noted that federal government contract law principles may not be disregarded in a civil action brought pursuant to state law.

The factual background of this case is not uncommon in the government contract arena. Here, the plaintiff is the predecessor contractor to the United States Fish & Wildlife Service (“USFWS”) Region 3 Office. The defendants are two individual employees and their private company-employer (and follow-on government contractor). In 2009, the USFWS chose not to renew the plaintiff’s government contract and instead awarded said contract to Topologe, LLC, which later became a defendant in the lawsuit. In conformance with its obligations under federal government contract law to ensure continuity of service and a stable work force for the federal government, principles ensconced in Executive Order 13495 and other federal law, Topologe offered employment to two of the plaintiff’s former employees. Both of these employees had worked for the plaintiff on its own USFWS contract and both later became defendants in the lawsuit. The gravamen of plaintiff’s complaint alleged state law claims including breach of the employment contracts that plaintiff had entered into with the individual employee defendants, violations by said employees of the covenants not to compete contained in said contracts, and tortious interference with said contracts by the successor government contractor, Topologe.

Pursuant to a Motion to Dismiss brought by [nap_names id=”FIRM-NAME-1″], defendants maintained that plaintiff’s civil action must be dismissed pursuant to Minnesota law by reason that said law precludes the enforcement of contracts that contravene federal law or policy. First, the plaintiff’s own government contract with the USFWS contained FAR 52.237-3, the Continuity of Services Clause. In the event that the follow-on USFWS government contract was not awarded to plaintiff, this Clause requires the plaintiff to release its employees to work with the follow-on government contractor. However, plaintiff’s employment contracts with the two individual defendants contained non-competition clauses. Because Minnesota law does not recognize contract clauses that directly conflict with law or public policy, and the non-competition clauses directly conflicted with the requirements set forth in the FAR clause, defendants argued that the non-competition clauses are unenforceable as a matter of law. Second, plaintiff’s claims conflicted with the public policy set forth in Executive Order 13495, which requires that follow-on contractors extend employment offers to employees terminated by the predecessor contractor. As a result of the conflict between EO 13495 and plaintiff’s claims for breach of contract and tortious interference, defendants also argued that these claims could not succeed as a matter of law. Concurring with the defendants, the Court ordered that all claims be dismissed with prejudice.

This case highlights the importance and preeminence of federal government contract law, even in the context of disputes framed as state law claims. As the Court’s opinion demonstrates, state courts must remain cognizant of the relationship between federal government contracts and conflicting state law claims. In addition, state courts must be receptive to the fact that federal law and policy may well trump state law claims. For more information about compliance with government contract regulations in general, or The Talus Group v. Ostrander, Franxman, and Topologe, LLC, Case No. 27 cv 10-5297 (Nov. 9, 2010)  case in particular, contact Kate H. Kennedy at [email protected] or (612) 236-0167.