Convergent Mobile, Inc. v. JTH Tax, Inc.

Background

Convergent Mobile and JTH Tax entered a Master License Agreement effective December 1, 2017. The agreement required Convergent to provide several services for three years in exchange for a monthly payment of $125,400. It allowed either party to terminate for cause after written notice of a material breach and a 30-day opportunity to cure.

JTH sent Convergent a May 1, 2018 notice listing alleged performance problems. Convergent responded on May 31, 2018, stating that it had fixed the problems or that the items were not required by the agreement. The court found that JTH’s silence and continued payments for another year accepted that response. JTH later sent a June 19, 2019 notice raising many of the same issues, but Convergent disputed the allegations. JTH did not pay invoices for June, July, or August 2019. Convergent later stopped providing services and sued for amounts due under the agreement.

JTH asserted counterclaims for contract breaches before and after termination, breach of the implied duty of good faith and fair dealing, and declaratory relief. JTH also alleged that Convergent failed to return certain customer information after termination.

Court’s findings

The court held that JTH breached the agreement by failing to pay while not complying with the agreement’s termination clause. The court also held, alternatively, that JTH breached the implied covenant of good faith and fair dealing by failing to communicate further about its alleged performance concerns after Convergent responded to the May 2018 notice.

The court found that the evidence did not establish that Convergent materially breached the agreement. It concluded that several alleged deficiencies had been addressed, were not specifically required by the agreement, or were not yet due. The court also found that the agreement did not clearly prohibit Convergent from using subcontractors. Because Convergent’s promissory-estoppel claim was pleaded as an alternative to its contract claim, the court did not decide it.

Damages and fees

The court awarded Convergent $376,200 for the unpaid June through August 2019 invoices. For the remaining 15 months of the agreement, it awarded $225,000, finding that Convergent had a duty to mitigate its losses and had not shown a higher amount with sufficient supporting evidence. The total award was therefore $601,200.

The court also awarded prejudgment interest and costs. It applied the agreement’s one-percent-per-month rate to the June, July, and August 2019 invoices and a 10-percent-per-year rate to the remaining amounts due from September 2019 through November 2020.

The court concluded that the agreement’s attorney-fee language appeared in an indemnification provision addressing third-party claims and did not authorize attorney’s fees for a prevailing party in this contract dispute. The court therefore concluded that attorney’s fees were unavailable to the parties.

JTH introduced no evidence establishing the amount of damages for its counterclaims. The court concluded that JTH’s affirmative claims failed as a matter of law for that reason, without resolving whether Convergent had withheld information that should have been returned.

Disposition

The court ordered that judgment be entered in favor of Convergent Mobile for $601,200 plus prejudgment interest and costs. Convergent was directed to file a proposed judgment, approved as to form by JTH, within five business days. The order terminated Docket Number 65.