Carabetta Enters., Inc. v. United States

Carabetta Enters., Inc. v. United States, 2007 WL 983837 (Apr. 4, 2007), 49 GOV’T CONTRACTOR ¶ 185

The Federal Circuit held that “[t]he sovereign acts doctrine does not protect the Government from liability for not performing contract obligations if the Government can provide adequate substitute performance but does not.” The court cited the Restatement (Second) of Contracts § 270 (1981) on the common law obligation of “a party whose performance is only partially impossible . . . to provide a reasonable substitute if it substantially meets contract requirements.”

Joseph Carabetta and associated companies (Carabetta) purchased low-income housing via mortgages insured by the Government under §§ 221(d)(3) and 236 of the National Housing Act, which authorized owners to pay off mortgages after twenty years. Congress subsequently passed the Emergency Low Income Housing Preservation Act of 1987 and the Low-Income Housing Preservation and Resident Homeownership Act of 1999, which required Department of Housing and Urban Development (HUD) approval for prepayments and “authorized HUD to guarantee private loans [“§ 241(f) loans”] in amounts up to 90 percent of the equity in the property, plus approved rehabilitation costs,” with certain conditions.

“HUD insured loans on eight Carabetta properties” under a “repayment agreement” that among other things “required HUD to insure loans on other eligible properties when Carabetta complied with HUD regulations.” Nevertheless, before the loans on the other properties were consummated, “Congress repealed the authorization for § 241(f) loans and authorized HUD to issue $75 million in interest-free ‘capital loans’ limited to 65 percent of the equity in property, plus repair costs.” HUD extended loans to Carabetta for some but not all of its other properties set forth in the repayment agreement.

Carabetta brought suit in the CoFC, alleging breach of the repayment agreement on HUD’s part. The CoFC held HUD in breach, finding that Carabetta had accepted its offer to substitute capital loans for § 241(f) loans and that HUD did not make loans on all of Carabetta’s properties involved. The Federal Circuit affirmed the CoFC under different reasoning. Although it allowed that under Winstar v. United States, 518 U.S. 839 (1996), the sovereignty “doctrine exempts the Government from the general rule that ‘a contracting party may not obtain discharge if its own act rendered performance impossible,’” it noted that the amended statute in question authorized HUD “to provide reasonable substitute performance by issuing capital loans.” Although direct loans were costlier to HUD than § 241(f) loans would have been, HUD “did not show that providing the direct loans was unreasonable substitute performance.”

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Phillips/May Corp. v. United States

Phillips/May Corp. v. United States, 2007 WL 1227696 (Fed. Cl. Apr. 19, 2007), 49 GOV’T CONTRACTOR ¶227

The CoFC ruled that a prior ASBCA decision barred “an action in the [CoFC] asserting claims based on the same transactional facts, although the specific claims asserted in the two forums differed. The ASBCA would have had jurisdiction over the [CoFC] claims had the plaintiff chosen to appeal them to the ASBCA.”

The appeals arose from a Navy contract “for the design and construction of a religious facility.” Phillips appealed deemed denial of its claim to the CoFC for “delay, mal-administration of the contract, overzealous inspection and impossibility.” Phillips had appealed deemed denial of nine small claims (of which the parties settled one) on a variety of other matters, for which it “sought compensation for delays or schedule extensions” to the ASBCA. Phillips contended that although it presented a claim for over-zealous inspection to the ASBCA, the ASBCA did not pass on it. Phillips did not present its claims for mal-administration or impossibility to the ASBCA and the ASBCA did not address them. The CoFC suspended proceedings so that the contracting officer (CO) might address the claims for delay, mal-administration, overzealous inspection, and impossibility. The CO denied all four claims; the Government sought summary judgment in that res judicata barred them “because they could have been raised in the ASBCA proceedings.”

The CoFC held that although the four claims were not litigated before the ASBCA, they were within the board’s jurisdiction and therefore Phillips could have raised them before the board. They “were based on the same set of transactional facts” as those Phillips litigated before the ASBCA and therefore res judicata barred the CoFC action.

In a note, the Government Contractor set forth two other cases in which the CoFC applied a narrower interpretation of the “same set of operative facts” test.

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McDonnell Douglas Corp. v. United States

McDonnell Douglas Corp. v. United States, 2007 WL 1362449 (Fed. Cl. May 3, 2007), 49 GOV’T CONTRACTOR ¶ 199

The CoFC upheld the contracting officer’s decision to terminate the contract for default as reasonable. This is the latest in a sixteen-year saga involving the Navy’s termination of a “full-scale engineering and development (FSED) contract to design, develop, manufacture and test eight A-12 carrier-based stealth aircraft.” Nevertheless, after two trials, it is the first time that the CoFC decided the question of whether McDonnell Douglas was actually in default. General Dynamics McDonnell Douglas and its parent Boeing Co. have appealed to the Federal Circuit, the third appeal to that court in the saga.

The litigation raises many questions, including application of the definition of default to a complex contract and the role of pretrial proceedings and alternative dispute resolution in at least narrowing the issues in such a case. The late Robert J. Gomez wrote Mediating Government Contract Claims: How Is It Different? 32 PUB. CONT. L.J. 63, 74-81, which discusses the case extensively. A sequel to his article could be most informative and useful for the public contracts community.

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Rockwell Int’l Corp. v. United States

Rockwell Int’l Corp. v. United States, 2007 WL 895257 (S. Ct. Mar. 27, 2007), 49 GOV’T CONTRACTOR ¶¶ 141, 154

The Supreme Court held that “[a] relator’s prediction of an environmental hazard does not equate to ‘direct and independent knowledge’ of that hazard . . . if the prediction is not factually correct . . . the relator cannot be considered an original source for the purposes of . . . the False Claims Act [FCA].” Relator James Stone, former lead principal engineer for Rockwell International at Rocky Flats, predicted that leakage of toxic wastes from “pondcrete” storage blocks would arise from piping flaws. In fact the leakage arose from “an inadequate cement-to-sludge ratio.”

After leaving Rockwell International, Mr. Stone learned from public news reports that the pondcrete blocks were leaking toxic wastes and reported the matter to the Federal Bureau of Investigation. After investigation, the FBI concluded that the blocks were leaking as a result of “an inadequate waste-concrete mixture.” Mr. Stone filed his qui tam suit in district court; the Government intervened and proved that the leakage arose from leaking pondcrete. The district court found that Mr. Stone “qualified as an original source because he had ‘direct and independent knowledge’” of the matter. The Tenth Circuit affirmed the district court, holding “that Stone established ‘direct and independent knowledge of the information on which the allegations [were] based’”; under the FCA this means “the information underlying or supporting the fraud allegations contained in the plaintiff’s qui tam complaint.” See United States ex rel. Stone v. Rockwell, 287 F.3d 787 (10th Cir. 2002), 43 GOV’T CONTRACTOR ¶ 10. The Supreme Court reversed the Tenth Circuit, “holding that the term ‘information’ in the FCA definition of ‘original source’ refers to ‘information on which the relator’s allegations are based rather than the information on which the publicly disclosed allegations that triggered the public-disclosure bar are based.’”

Justices Ginsburg and Stevens dissented, contending that “a plain reading of the FCA ‘makes it clear that it is the information underlying the publicly disclosed allegations, not the information underlying the allegations in the relator’s complaint . . . of which the relator must be an original source.’” The dissenters based their argument that Mr. Stone qualified as an original source on the fact that the FBI’s search warrant “relied on information Stone provided.”

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Small Business Recertification

Last year, Stephen Smyers wrote a piece for the PCLJ about a new small business recertification rule. The rule became effective June 30 and has/will have a major impact on government contractors (both large and small). It may be interesting to write a piece as a follow-up to Stephen's Note, discussing the implementation of the rule and its impact. I have a lot of information on this topic if you are interested.

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FCPA Legislation

Congressman Gene Green (D-TX) and Congressman Tim Ryan (D-OH) introduced a bill that would require persons and entities to certify that they have not violated foreign corrupt practices act (FCPA) before being awarded government contracts. This legislation would have a major impact on contractors given the recent rise in FCPA enforcement activity.

http://www.thecorporatecounsel.net/blog/archive/001561.html (third item, link to the bill)

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Another Sole Source Contract "Scandal"

This article is receiving a lot of attention on Washingtonpost.com. There are a lot of published articles discussing sole-source contracts, but you may find a new angle for your Note. FYI--the term is "sole-source" not "no-bid." I guess the former term doesn't sell as many newspapers...

http://www.washingtonpost.com/wp-dyn/content/article/2007/08/22/AR2007082200049_2.html?nav=trm

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Recent Case: Public Warehousing Co. K.S.C.

Public Warehousing Co. K.S.C. v. Defense Supply Center Philadelphia, et al., Civil Action No. 07-0502 (JDB) (D.C.D.C. May 22, 2007): The district court held that the CoFC had exclusive jurisdiction over Public Warehousing Co. K.S.C.’s (KSC’s) suit claiming refusal on the part of Defense Supply Center Philadelphia (DSCP) “to provide other government procurement agencies with past performance evaluations and information on the DSCP contracts” and “inclusion of allegedly improper information in one recent evaluation” and seeking injunction against DSCP. The district court granted DSCP’s motion to dismiss and denied KSC’s motion for injunction.

KSC alleged violation of FAR subpart 42.15, which requires agencies to “prepare an evaluation of contractor performance at the time the work under the contract is completed” and to “share past performance information with other agencies to support future award decisions.” PWC contended that DSCP’s actions were arbitrary and capricious and therefore a violation of the Administrative Procedure Act (APA), 5 U.S.C. § 706. PWC further contended that DSCP’s actions constituted constructive debarment in violation of due process under the Fifth Amendment. Because of a pending Department of Justice investigation of alleged irregularities on the part of PWC, DSCP declined to “participate in past performance surveys for other agencies.”

The district court observed that Congress enacted the Administrative Disputes Resolution Act (ADRA), an amendment to the Tucker Act (28 U.S.C. § 1491) “responding to the previous overlapping jurisdiction of the district courts and the [CoFC] with respect to bid protest cases and other challenges to government contracts.” After a sunset period ADRA consolidated over such matters in the CoFC. Under 28 U.S.C. § 1491(b)(1), the claims ADRA encompasses are “object[ions] to . . . any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.” The district court noted that ADRA does not define “procurement”; nevertheless it cited CoFC case law to define it as encompassing “all stages of the process of acquiring property or services, beginning with the process for determining a need for property or services and ending with contract completion and closeout.” The district court proceeded to hold that this definition included the matters at issue in PWC. This decision is of interest regarding the relationship between ADRA and APA. For example, it appears arguable that Congress intended ADRA only to consolidate bid protest jurisdiction, as opposed to preempting APA jurisdiction over other procurement-related matters. There is a Section of Public Contract Law monograph (1997) on ADRA that may shed some light on ADRA’s relationship with APA. Another recent case involving preemption of APA remedies by those under ADRA is Suburban Mortgage Assocs., Inc. v. U.S. Dep’t of Housing and Urban Dev., 2007 WL 725715 (Fed. Cir. Mar. 12, 2007), 49 GOV’T CONTRACTOR ¶ 129. See Practitioner’s Comment by C. Stanley Dees and Thomas C. Papson. But for the Practitioner’s Comment I would have recommended this case as a note/article topic. For a fairly recent case involving the relationship between APA and the Contract Disputes Act (CDA), see Lockheed Martin Corp. v. DCAA, 397 F. Supp 2d 659 (D. MD 2005).

Herman Levy

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Recent Case: Maurice L. Bianchi

Maurice L. Bianchi v. United States, 2007 WL 274309 (Fed. Cir. Jan. 29, 2007), 49 GOV’T CONTRACTOR ¶ 64: The matter involved four claims: Bianchi I, II, III, and IV, which involved three contracts for military clothing; Bianchi assigned payments to the Bank of America (the bank). The assignment, which was under the Assignment of Claims Act, 31 U.S.C. § 3727 (the Act), contained the “no set-off” clause.

When Bianchi sought additional financing from the bank, the bank obliged but required an SBA loan guaranty and a third lien on all receivables. Afterwards the Government terminated two of the contracts for default; Bianchi defaulted on his bank loans. The SBA paid the bank on the guaranteed loans; the bank in exchange assigned its interest in the guaranteed loans to the SBA.

Bianchi appealed a series of claims to the ASBCA. The parties settled the appeals; under the settlement Bianchi was entitled to $617,500 plus interest and there would be no prejudice to either Bianchi’s claims for Value Engineering Change Proposal Claims (VECPs) or his claims under the Equal Access to Justice Act (EAJA). The Government then erroneously paid Bianchi $1.1 million ($617,500 plus interest). The bank later sued the Government to recover the $1.1 million; the Government sought recovery of the $1.1 million from Bianchi. The Federal Circuit ruled that the bank might recover that amount as Bianchi’s assignee; nevertheless the Government might not recover its payment from Bianchi. The Federal Circuit also held that the SBA’s security interests were subordinate to those of the bank; under the Act and “no set-off” clause the Government could not set off Bianchi’s debt to the SBA. Bank of Am. Nat’l Trust & Sav. Assoc. v. United States, 23 F. 3d 380 (Fed. Cir. 1994) (Bianchi I). Prior to the bank’s suit, the ASBCA awarded Bianchi about $476,000 in EAJA fees. The Ninth Circuit held that the Government was not entitled to set off the erroneous payment against the amount due for EAJA fees. Bianchi v. Perry, 140 F. 3d 1294 (9th Cir. 1998) (Bianchi II).

Bianchi claimed for VECP royalties before the ASBCA, which awarded him $59,000 plus interest. Bianchi then sought a writ of mandamus in district court for payment; the Government interpleaded the bank and prevailed. On appeal the Ninth Circuit held that the district court lacked jurisdiction in that the suit amounted to a breach of contract action over $10,000, which should have been filed in the Court of Federal Claims (CoFC). Bianchi v. Walker, 163 F. 3d 564 (9th Cir. 1998) (Bianchi III). The ASBCA subsequently awarded Bianchi royalties on a second contract; the Government paid them to the bank.
Bianchi sued in the CoFC for the VECP royalties on both contracts. The CoFC dismissed for lack of subject matter jurisdiction on grounds of (a) improper attempt to enforce an ASBCA award in the CoFC, (b) time-barred first VECP claim, and (c) Government entitlement to summary judgment in any event. On appeal the Federal Circuit (1) reversed the CoFC on jurisdiction, (2) affirmed that the first VECP claim was time-barred, and (3) affirmed that the Government was entitled to summary judgment on the second VECP claim. On (3), Bianchi argued that res judicata as to Bianchi I and II required that he prevail. The Federal Circuit held that those decisions concerned subject matter different from that in Bianchi IV; therefore res judicata was inapplicable.

This case is significant as to the intricacies of the Assignment of Claims Act, jurisdiction of the district courts and the CoFC, and applicability of res judicata.

Herman Levy

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Recent Case: BP America Production Co.

BP America Production Co. v. Burton, 127 S. Ct. (Dec. 11, 2006), 49 GOV’T
CONTRACTOR 9: The Supreme Court (Justice Samuel Alito Jr.) held unanimously that the six-year statute of limitations generally applicable to government claims for money damages (28 U.S.C. § 2415(a)) applies to judicial proceedings only, not to administrative proceedings.

In 1997, the Mineral Management Service (MMS), Department of the Interior, ordered Amoco (BP’s predecessor) to pay additional royalties on gas leases from the Government for the period January 1989-December 1996. In 1996 MMS advised Amoco that the royalties should “be calculated using the value of gas after it is treated to meet the quality requirements for the nation’s main pipelines” rather than “the value of the gas produced at the well.” In 1996, Congress enacted the Federal Oil and Gas Royalty Simplification and Fairness Act (the Act), applicable to gas production on or after September 1, 1996; this contained a seven-year statute of limitations, applicable both to judicial and administrative proceedings. Amoco appealed the MMS order, disputing MMS’s interpretation of royalty calculation and contending that the six-year limitation in 28 U.S.C. § 2415(a) barred payment in part.

The D.C. Circuit affirmed the district court opinion, agreeing with MMS’s interpretation, creating a conflict with the Tenth Circuit. The Supreme Court affirmed the decision of the D.C. Circuit, citing “the plain meaning of the statutory text.” The Court relied on “the statute’s ‘key terms,’” “action” and “complaint,” which it said “are ordinarily used in connection with judicial, not administrative, proceedings.” Among other things, the Court noted that applying 28 U.S.C. § 2514(a) to administrative as well as judicial proceedings in some instances would conflict with the Act’s seven year statute of limitations.

This ruling is significant in cases in which the Government moves to collect amounts due from contractors and others administratively.

Herman Levy

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