Friday, July 27, 2012
Your tax dollars at work. Here's the story from the Wall Street Journal:
Six years after the Pentagon fostered consolidation of its largest rocket makers, Boeing Co. now claims Air Force officials reneged on promises to reimburse the company for hundreds of millions of dollars in development expenses.
Accusing Defense Department officials of violating basic principles of "good faith, fair dealing and cooperation," Boeing is pursuing a federal lawsuit seeking reimbursement of more than $380 million the company spent on rocket development years before it formed a joint venture with Lockheed Martin Corp.
The Pentagon encouraged its two largest rocket contractors, each struggling to recoup major investments in next generation boosters, to create a joint venture, promising to reimburse certain Boeing expenditures that predated the venture. Then, the lawsuit alleges, amid eroding commercial orders and rising launch costs, the Pentagon retroactively decided those commitments weren't binding.
The scuffle highlights the challenges of trying to control escalating costs of launching U.S. defense and spy satellites amid anticipated leaner budgets. Some military satellite launches cost around $200 million, substantially more than the joint venture initially was projected to charge.
The suit, filed last month in the U.S. Court of Federal Claims in Washington, D.C., alleges that Pentagon brass and high-ranking Air Force program managers reneged on assurances that Boeing would be able to recoup investments made prior to 2006 on the Delta IV rocket, the U.S. military's most powerful launcher. Military contractors rarely suggest Pentagon officials tricked them.
The courtroom fight comes after years of quiet disputes and sometimes public clashes over the issue, including a 2008 Senate committee hearing that raised questions about Boeing's earlier financial practices.
By squaring off against its biggest military customer, Chicago-based Boeing is spotlighting arcane legal issues that entail significant financial and public-perception risks for both sides. The suit comes amid heightened Pentagon worries that current satellite and rocket budgets won't fit into slimmed-down Pentagon spending plans.
According to Boeing, Pentagon officials have contended those earlier agreements aren't legally binding. Boeing has said that if its arguments fail, it could result in a loss attributed to the venture and a payment of "up to $317 million" to the joint venture.
Spokesmen for the Air Force and the Justice Department declined comment on the litigation. A Boeing spokesman said "we negotiated in good faith," adding that the original reimbursement terms "are valid and we hope this gets resolved." But he declined to elaborate on specific points raised in the suit.
* * *
The suit alleges that Boeing initially agreed to modify its Air Force contracts and then opted to create the joint venture, which was championed by the Pentagon, based on commitments that it would be able to gradually recover expenditures it made between 1998 and 2006.
The joint venture is in the running to launch manned capsules for the National Aeronautics and Space Administration later in this decade.
The consolidation was considered essential because it allowed both financially struggling rocket systems to stay in production in order to provide the Pentagon assured access to space. The companies haven't disclosed their total losses on the two programs.
Boeing and Lockheed Martin together spent several billion dollars to develop the rockets starting in the mid-1990s, with the Pentagon contributing about $500 million in seed money to each program. But as costs soared and the outlook for commercial launches eroded by 2006, it became clear that they couldn't recoup all of those investments. A 50-50 joint venture was created to reduce overhead while keeping both rockets in production.
Boeing's earlier expenditures became a major topic of negotiation as early as 2005. In the suit, Boeing stresses that it "clearly and repeatedly conditioned its willingness" to follow the Pentagon's lead based on the government's pledges to reimburse the company's investments in hardware, personnel, program management and certain fixed costs.
In the court filing, Boeing said its "ability to recover its inventoried costs was a precondition" to continued participation in the rocket program.
But Boeing argues that after starting the reimbursement process, the Defense Department in 2008 reversed course and turned down all subsequent reimbursement requests.
The lawsuit, which also lists the joint venture as a plaintiff, suggests the change of heart was prompted by a Pentagon inspector general's review. An Air Force contracting officer ordered payments suspended in the fall of 2008, the day after the inspector general formally recommended such action.
If I am able to obtain a copy of the complaint, I will post it. I am interested to see the "arcane legal issues" that Boeing "spotlights." In the interim, some of the article comments over at the WSJ are actually worth reading.
UPDATE: Here's the complaint: Download BoeingPentagonComplaint.
[Meredith R. Miller]
Tuesday, June 26, 2012
Pursuant to the Indian Self-Determination and Education Assistance Act (ISDA), the Secretary of the Interior enters into contracts with Indian tribes. The tribes the provide services that would otherwise be provided by the Federal Government. ISDA requires that the Secretary (pictured) pay "contract support costs" incurred by tribes in connection with the contracts, subject to the availability of appropriations. However, between 1994 and 2001, Congress appropriated funds sufficient to cover only between 77% and 92% of the aggregate contract support costs. It instead paid portions of the contracts on a pro rata basis. The tribes sued for breach of contract prusuant to the Contract Disputes Act.
The issue decided June 18th by the U.S. Supreme Court in Salazar v. Ramah Navajo Chapter was whether the U.S. government must pay those contracts in full when Congress fails to appropriate sufficient funds. The District Court had granted summary judgment to the Government, but the 10th Circuit Court of Appeals reversed, because Congress had made sufficient funds "legally available." Judge Sotomayor, writing for the 5-3 majority, uphled the 10th Circuit.
Just seven years ago, in Cherokee Nation of Oklahoma v. Leivitt, 543 U.S. 631, the Court faced a similar situation and ruled that the Government was not excused from its contractual obligations where Congress has appropriated sufficient funds to pay the tribes but the Indian Health Service, but the agency had decided to allocate the money elsewhere. Here, Congress appropriated sufficient money to Bureau of Indian Affairs (BIA) but that agency had not allocated sufficient funds to pay the contracts at issue here. The Majority also relied on Ferris v. United States, which provides that the Government is responsible to a contractor for the full amount due under a contract even if the agency exhausts is appropriation in the service of other permissible ends.
Chief Justice Roberts, joined by Justices Ginsburg, Breyer and Alito, dissented, noting that the Government's obligation to pay was made expressly contingent on the availability of appropriations and that payments under the contracts were not to exceed a set amount, which will be exceeded as a result of the Majority's ruling, nor can the Secretary be required to reduce funding for aother programs in order to make funds available under the contracts. For the dissenting Justices, ISDA creates a triply whammy that the Majority ignores. It provides that the Government's obligations are (1) subject to the availability of appropriations; (2) not to exceed a set amount; and (3) limited because the Secretary is relieved from any oblgiation to make funds available to one contractor by reducing payments to others.
The Majority responds by noting that this confuses appropriations by Congress, which were adequate to cover all the conracts at issue, and the allocation of those funds by the BIA.
Monday, June 25, 2012
As reported here by the San Jose Mercury News, a Santa Clara County jury has awarded Silicon Valley developer Carl Berg $6.08 million in a breach of contract dispute against the City of San Jose for its failure to enact a timely planning process that would allow up to 5,200 homes to be built in the Evergreen area.
Berg’s suit alleged that city officials let him and other Evergreen property owners to believe for four years that rezoning of their industrial property to residential property would be approved. As a result, the owners agreed to pay the city $8.8 million to conduct a community planning process as part of their development applications. However, in 2006, when Chuck Reed ran for mayor, Reed argued that the council should not approve the rezoning. Reed wanted to preserve the land for potential industrial uses that would generate jobs and taxes for the city. Ultimately, Reed won this argument, and in 2007 San Jose rejected the Evergreen zoning. As reported by mercurynews.com, Berg commented that “there are inherent risks in getting development agreements processed by municipal agencies.” According to Berg “the City of San Jose took the unique approach of creating a contract with us, asking for money up front, in exchange for expediting our applications.” However, according to Berg, the City never even created a process for review of Berg's application, and on that basis the jury found that the City breached its agreement with Berg and thus should refund money paid by him and the other Evergreen property owners
Mayor Reed likened the verdict to buying a car, driving it for a while, then asking to return it for a full refund. Here, the City says it is being asked to return money for many services it already rendered through the Planning Department and consultants. The City plans an appeal.
[JT and Christina Phillips]
Monday, June 4, 2012
Council 31 of the American Federation of State, County and Municipal Employees, AFL-CIO (the Union) represents 40,000 employees in the state of Illinois. It agreed to certain cost-saving measures, including deferred wage increases, in order to help Illinois address significant budget pressures. When Illinois did not emerge from its financial woes, it instituted a wage freeze, repudiating the earlier deal.
The Union brought suit, citing inter alia the Contracts Clause, and seeking an injunction forcing the state to pay the wage increases as they came due. Illinois brought a motion to dismiss, which the District Court granted. In Council 31 v. Quinn, the Seventh Circuit affirmed.
The case is procedurally complex, especially since the parties proceeded with arbitration, in which the Union prevailed in part, and that ruling is subject to an on-going appeal in the state courts. Meanwhile, the 7th Circuit addressed only constitutional claims brought pursuant to the Contracts Cluase and the Equal Protection Clause against Illinois Governor Quinn and from the State's Department of Central Management Services Director Malcolm Weems, both in their offiical capacities.
Although the Union characterized its claims as seeking only injunctive and declaratory relief, the true aim was to get the state to make expenditures from its treasury. As such, not withstanding Ex parte Young, the Eleventh Amendment barred the Union's Contracts Clause claims against the defendants.
Even if there were no Eleventh Amendment bar to the suit, the Court also found that the Union could not state a claim under the Contracts Clause because it alleged only an ordinary breach of contract, which is insufficient to constitute an "impairment" of contractual relations for the purposes of the Contracts Clause. The reasons why this is so have to do with the state's defenses to the Union's claims in the arbitration proceedings and the state court appeals thereof. The basic argument is that appropriate legislative appropriations were a condition precedent to its duties to pay the wage increases. If that argument succeeds, there was no contractual impairment. If it fails, there is no need for a federal court injunction because the Union will have prevailed.
The Court dismissed the Union's Equal Protection claim because the challenged state rules withstand rational basis scrutiny.
Tuesday, May 29, 2012
Here is the first guest post by guest blogger Danielle Rodabaugh
It's no secret that the economy plays a huge role when it comes to competition in the construction industry. When the economy is down, competition goes up, and small contracting firms typically have trouble competing with larger ones. When construction professionals are unprepared to pay for the surety bonds required for large projects, the opportunity for small firms to gain access to business becomes even more limited.
Before I go much further, I'd like to review the use of surety bonds in the construction industry, as the surety market remains relatively mysterious to those who work outside of it. As explained in more detail here, the financial guarantees provided by contractor bonding keep project owners from losing their investments.
Each surety bond that's issued functions as a legally binding contract among three entities. The obligee is the project owner that requires the bond as a way to ensure project completion. When it comes to contract surety, the obligee is typically a government agency that's funding a project. The principal is the contractor or contracting firm that purchases the bond as a way to guarantee future work performance on a project. The surety is the insurance company that underwrites the bond with a financial guarantee that the principal will do the job appropriately.
Government agencies require construction professionals to purchase surety bonds for a number of reasons that vary depending on the nature of a project. For example, bid bonds keep contractors from increasing their project bids after being awarded a contract. Payment bonds ensure that contractors pay for all subcontractors and materials used on a project. Performance bonds ensure that contractors complete projects according to contract. When contractors break these terms, project owners can make claims on the bonds to gain reparation.
The federally enforced Miller Act requires contractors in every state to file payment and performance bonds on any publicly funded project that costs $100,000 or more. However, state, county, city and even subdivisions might require contractors to provide additional contract bonds, such as license bonds or bid bonds, before they can be approved to work on certain projects. Or, sometimes local regulations require payment and performance bonds on publicly funded projects that cost much less than $100,000. Contractors should always verify that they're in compliance with all local bonding regulations before they begin planning their work on a project.
Although the purpose of contractor bonding is to limit the amount of financial loss project owners might have to incur on projects-gone-wrong, the associated costs can limit the projects that smaller contracting firms have access to.
Surety bonds do not function as do traditional insurance policies. When insurance companies underwrite surety bond contracts, they do so under the assumption that claims will never be made against the bonds. As such, underwriters closely scrutinize every principal before agreeing to issue a contract bond.
Furthermore, the premiums construction professionals have to pay to get bonded might come as a surprise to those who know little about contractor bonding. Contractors often get tripped up with how much surety bonds will cost and how they'll pay for them — especially when it comes to independent contractors who operate small firms. Surety bond premiums are calculated as a percentage of the bond amount. The higher the required bond amount, the higher the premium. Thus, purchasing bonds for large projects obviously costs contractors more than purchasing bonds for small projects.
The percentage rate used to calculate the premium depends on a number of factors, including the contractor's credit score, years of professional experience and record of past work performance. The stronger these variables are, the lower the surety bond rate. The weaker these variables are, the higher the surety bond rate.
As such, small firms often find it hard to compete for large projects because they struggle to either qualify for the required bonds or pay the hefty premiums. When contractors are unable to secure contractor bonding as required by law, they are not permitted to work on projects. This, consequently, typically limits large public projects to large contracting firms that can both qualify for and afford to purchase large bonds. Fortunately, when small contracting firms fail to qualify for the commercial bonding market, the Small Business Administration does offer a special bonding program to help them secure the necessary bonding.
Smaller contractors can improve their situation by reading up on the surety bond regulations that are applicable to their area. Those who understand the surety process and how various factors affect their bond premiums should find themselves better prepared to apply for the bonds they need.
[Posted by JT on behalf of Danielle Rodabaugh]
Tuesday, May 8, 2012
According to this report from the local pages of the Washington Post, a non-profit organization, Bancroft Global Development (BGD), ordered 18,000 pairs of combat boots (actual model not pictured) from Atlantic Diving Supply (ADS) as part of a $1.4 milion contract that included other items. ADS claims that BGD paid for only half the order and has sued BGD seeking over $1 million,
BGD has counter-sued, seekign $1.1 million and claiming that the boots provided were not really combat boots but costume boots that did not satisfy military requirements. Two years after delivery, the boots are said to be sitting in storage in Uganda. BGD was working with a Ugandan partner organization, which had won a State Department contract to provide military supplies for the Somali Transitional Federal Government.
The case potentially raises interesting UCC questions, since the goods were allegedly "rejected" but not returned. The case also raises potential issues of misunderstanding reminiscent of Frigaliment. BGD apparently wanted the cheapest boots it could buy, but the boots that it got, although called "combat boots" are, according to one industry expert quoted in the Washington Post, suitable only for youth groups and marching bands. One wonders what sort of youth groups require combat boots . . . .
Tuesday, March 13, 2012
As reported in the Miami Herald, the Florida legislature attempted to close a budget gap through Senate Bill 2100, which cut state and local workers’ salaries by three percent, eliminated cost of living adjustments, and shifted savings into the general revenue fund to offset the state’s contribution to the workers’ retirement account. State worker and their unions challenged the law.
Last week, on cross-motions for summary judgment in Williams v. Scott, Circuit Court Judge Jackie Fulford ruled against the Florida legislature. Judge Fulford found that the three percent salary cut is an unconstitutional taking of private property without full compensation. Permitting the cut would condone a breach by the state of the workers’ contracts in violation of the workers’ collective bargaining rights. To rule otherwise, Judge Fulford noted, “would mean that a contract with our state government has no meaning, and that the citizens of our state can place no trust in the work of our Legislature.” Judge Fulford ordered the money returned with interest.
Judge Fulford first distinguished this case from a 1981 Florida Supreme Court (pictured) case, Fl. Sheriffs Ass’n. v. Dept. of Admin., 408 So. 2d 1033 (Fl. 1981), in which the court found no impairment of contract when a special risk credit was reduced from 3% to 2%. While that case implicated only individual elements of future accruals within the state retirement plan, this case involves a complete change of that system from a noncontributory to a contributory plan. In this case, Judge Fulford found an impairment of contractual rights and found that the impairment is substantial. State impairment of contractual rights is nonetheless permissible if the state can demonstrate a compelling interest. But Judge Fulford found that the state was unable to make such a showing. A significant budget shortfall is not enough.
Judge Fulford also found that Senate Bill 2100 would effect an unconstitutional taking under the Florida state constitution. Bill 2100 also violates collective bargaining rights protected under Florida’s constitution, according to Judge Fulford.
According to the Miami Herald, this ruling leaves a $1 billion hole in the state budget for the 2011-12 budget year, another $1 billion hole for the 2012-13 budget year, and also delivers a $600 million blow to the Florida Retirement System. Governor Rick Scott vowed to swiftly appeal the “simply wrong” decision so that it has no effect on the current budget. Scott called Judge Fulford’s ruling “another example of a court substituting its own policy preferences for those of the legislature.” For what it's worth, Judge Fulford was appointed by Governor Scott’s Republican predecessor as Governor of Florida.
[JT & Christina Phillips]
Tuesday, March 6, 2012
Shortly after the New Year, the Supreme Court of the United States decided Minneci v. Pollard, regarding whether a plaintiff could bring a Bivens action (that is a claim for damages arising directly under the U.S. Constitution) against employees of a privately operated federal prison. In short, can government contractors be considered state actors for Bivens purposes?
Richard Lee Pollard filed his claim pro se in a California district court alleging that prison personnel employed by the Wackenhut Correctional Corporation, a private company operating a federal prison, deprived him of proper medical care. Pollard asserted that the prison violated his Eighth Amendment right to freedom from cruel and unusual punishment by failing to provide adequate medical care and subjected him to humiliating treatment after he fell, sustaining possible fractures to both elbows. The District Court dismissed Pollard’s complaint, concluding that there could be no Bivens action arising from the Eighth Amendment against a privately managed prison’s personnel. The Ninth Circuit reversed. We went out on a limb last June when the Court granted review and predicted that (echoing Lyle Denniston of SCOTUSblog) that the Supremes would reverse the Ninth Circuit.
In an 8 to 1 decision, the Court refused to apply Bivens on these fact, because state tort law provides an adequate alternative and thus deters prison official from engaging in tortious misconduct. The majority relied on Wilkie v. Robbins, 551 U.S. 537 (2007) In Wilkie, the Court developed a two-step process for determining whether to recognize a Bivens remedy: whether (1) there is an “alternative, existing process for the protection of constitutionally protected interests;” and (2) “any special factors [counsel] hesitation before authorizing a new kind of federal legislation.” Responding to Pollard’s argument that any available state tort law remedy is inadequate when compared to the federal remedy, the Court stated that state law remedies and federal remedies do not have to be congruent.
In his concurrence joined by Justice Thomas, Justice Scalia characterized Bivens as “a relic of the heady days in which [the] Court assumed common-law powers to create constitutional powers by implication.” The concurring Justices would limit Bivens to the narrow factual circumstances in which the Court has previously recognized its applicability.
Justice Ginsberg dissented, noting that private officials operating prisons on license from the federal government are agents of the federal government, and thus ought to be subject to Bivens actions. Whether or not a prisoner has a cause of action for certain conduct should not turn on whether the prison guards are government employees or government contractors, as state remedies may well be in adequate in any case.
[JT & Justin Berggren]
Tuesday, January 24, 2012
On January 6th, the U.S. Supreme Court granted the petition for certiorari in Salazar v. Ramah Navajo Chapter. SCOTUSblog provides a summary of the issues here and provides links to key documents in the case here. The Petition for Certiorari, filed by Ken Salazar, Secreatry of the Interior (pictured), articulates the issue in the case as follows:
Whether the government is required to pay all of the contract support costs incurred by a tribal contractor under the Indian Self-Determination and Education As- sistance Act, 25 U.S.C. 450 et seq., where Congress has imposed an express statutory cap on the appropriations available to pay such costs and the Secretary cannot pay all such costs for all tribal contractors without exceeding the statutory cap.
SCOTUSblog's Lyle Denniston provides the following summary of the issues:
The Indian case, a petition by the federal Interior Department, involves a 1975 federal law that Congress passed to give Indian tribes a greater role in running government programs for the benefit of tribal members. The law, the Indian Self-Determination and Education Assistance Act, allows Indian tribes to contract with the Interior Department to take over operation of a federal program or service, with Interior to put up the money that the government would have spent itself on that activity. In 1988, Congress also provided that Interior must also provide funds to pay the administrative costs that the tribe incurs in operating the program, such as audit or reporting duties, and general overhead.
That separate funding provision, however, is made contingent upon Congress providing the necessary appropriations to pay for it. And, in 1999, Congress provided that there would be caps on the amount of contract support costs that Interior would cover for a tribe. Congress has imposed such caps for each of the past 15 years.
The issue in the newly granted case, Salazar v. Ramah Navajo Chapter (11-551), is whether the government must pay everything that it has promised in such a contract with a tribe, including support costs, without regard to whether that goes beyond a cap imposed by Congress — provided that the government can find the money elsewhere in the government. The Interior Department’s petition urged the Court to take the case and rule that Interior cannot be required to pay tribes beyond what the cap allows because that intrudes upon Congress’s constitutional authority to decide when and how to spend federal money.
In the programs at issue specifically in the case, the Ramah Navajo Chapter, the Oglala Sioux Tribe, and the Pueblo of Zuni had a contract with Interior to operate for tribal members a series of federal programs: for law enforcement, court operation, education assistance, land management, probate assistance, natural resource services, employment aid, child welfare assistance, operation of emergency youth centers, and juvenile detention services. The tribes sued over unpaid direct contract support costs for the fiscal years 1994 through 2001, in which congressional caps were in place.
We look forward to following this case. If anybody out there among our readers is knowledgeable about the case and would like to guest post, please get in touch, as none of us on the blog is an expert in this area.
Tuesday, January 10, 2012
After a jury trial, ATA Airlines (ATA) won a nearly $66 million verdict against Federal Express Corporation (FedEx). FedEx appealed that ruling to the 7th Circuit, and ATA filed a cross-appeal on its promissory estoppel claim in the event that FedEx should succeed on its appeal. The appeal was decided by Chief Judge Easterbrook, along with Judges Posner (picutured) and Wood. Judge Posner's opinion for the court can be found here.
The facts of the case are pretty complicated. FedEx is a team leader in the Civil Reserve Air Fleet program. That means that in the event of a national emergency, it and its junior team members, which icludes ATA, have agreed to make a certain number of aircraft for use by the Department of Defense. In return to this pledge, team members are assigned points that permit them to bid to provide non-emergency services to the government. It turns out, the little guys are more interested in these opportunities than are large carriers like FedEx, and they are willing to pay for the points, which are transferable within a team. The FedEx team earned $600 million a year providing non-emergency services to the government.
The agreements that created the team are also complicated. The contract at issue here was not really a contract at all but more of an agreement in principle about how the parties would divide up the non-emergency service contracts for the years 2007-2009. Because the parties could not know in advance what the government’s non-emergency needs would be, it could not know which of the air carriers would have the ability to meet those needs. Nonetheless, the parties agreed in principle to a 50/50 division of the work between ATA and another small carrier, Omni. But the following year, some of ATA’s work was siphoned off to Northwest Airlines, and then following Delta’s acquisition of Northwest, ATA was replaced on the team with Delta. In 2008, upon receiving notice that it would be replaced by Delta in 2009, ATA withdrew from the team and filed for bankruptcy, lacking sufficient non-government business to keep itself aloft.
The district court treated this agreement as an enforceable contract, but the 7th Circuit disagreed. Even if a court could somehow fill in terms relating to the various contingencies regarding the government’s needs and how those needs would be met, Judge Posner noted, the agreement had no price term relating to FedEx’s compensation for serving as team leader. That price had varied from 4.5% to 7%, and there was no set of facts or trade usage available which could provide a basis for a court-supplied price term.
In the alternative, ATA argued that it relied on FedEx’s promise to give it 50% of the non-emergency business and was thus entitled to $28 million in reliance damages incurred in purchasing aircraft need to provide non-emergency services to the government. The district court had found this claim to be preempted under the Airline Deregulation Act. The 7th Circuit disagreed, but rejected ATA’s promissory estoppel claim on the merits, since it was not reasonable for ATA to rely on a conditional promise and FedEx could not have expected such reliance based on its non-promise.
“So,” Judge Posner, concludes on page 13 of the opinion, “ATA loses.” There follows another 15 pages about expert testimony and regression analyses which, happily, are not our concern. In sum though, Judge Posner was not impressed with ATA's expert. His conclusion:
Morriss’s regression had as many bloody wounds as Julius Caesar when he was stabbed 23 times by the Roman Senators led by Brutus.
The district judge does not escape without a bloody wound or two:
We have gone on at such length about the deficiencies of the regression analysis in order to remind district judges that, painful as it may be, it is their responsibility to screen expert testimony, however technical; we have suggested aids to the discharge of that responsibility. The responsibility is especially great in a jury trial, since jurors on average have an even lower comfort level with technical evidence than judges. The examination and cross- examination of Morriss were perfunctory and must have struck most, maybe all, of the jurors as gibberish.
Beware the Feast Day of Trophimus of Arles
Tuesday, January 3, 2012
Ninth Circuit Upholds Immunity for Telecommunications Companies that Assisted in Warrantless Wiretapping
In re National Security Agency Telecommunications Records Litigation is a big case. How big? The caption alone takes up over twenty pages in the 9th Circuit's most recent opinion. The basic facts are fairly familiar. During he Bush administration, the National Security Agency (NSA) created a program called the "Terrorist Surveillance Program," which plaintiffs, supported by journalistic accounts, allege permitted warrantless wiretaps of their communications. Plaintiffs further allege that the telecommunications companies assisted the government in undertaking such warrantless surveillance of U.S. citizens who happened also to be their customers.
Congress stepped in to assist these good corporate citizens which had after all just done their part to aid their country and the NSA. In 2008, it amended the Federal Intelligence Surveillance Act (FISA) to grant effective immunity to the telecommunications companies against suits such as the ones consolidated in this case. At issue in this appeal was only Plaintiffs' challenge to the constitutionality of that grant of immunity.
The Ninth Circuit upheld the constitutionality of the amendment to FISA. Plaintiffs' claims against the government can proceed -- at least until they are dismissed on national security or state secrets grounds further down the road.
Thursday, December 22, 2011
The DC Contract Appeals Board is hiring law clerks for the Spring 2012 semester. They are interested in 2Ls, 3Ls, and LL.M.s with a strong interest in government contracts law, and litigation.
The CAB has an extremely busy docket, providing you with an excellent opportunity to gain experience working on bid protest and contract claims. Moreover, each student will work directly for a judge, serving as the judge's law clerk.
Requested Application Materials:
Applicants should provide a one-page cover letter, resume, recent legal writing sample (8 pages maximum that has been written within the last 3 years), and three professional references (including email addresses and telephone numbers).
Applications may be mailed or emailed as follows:
D.C. Contract Appeals Board
441 4th Street, NW., Suite 350N
Washington, D.C. 20001
[JT w/ HT to Jessica Tillipman and the Government Procurement Law Program at the George Washington University Law School]
Tuesday, December 20, 2011
Some clues as to how the Greeks have spent all their money are available now from the Congressional Research Service.
A few other random thoughts on the data:
- African governments clearly are not doing all they could to help the U.S. economy through purchases of U.S. weaponry
- Hooray for Canada's unexpected militarism
- And while we're at it, good on ya Australia!
- Eastern Europe (other than Poland), don't look now but there's still a big Russian bear behind you. Can we interest you in some supersonic jets?
Thanks to Steven Aftergood of the Federation of American Scientists' Secrecy News blog for providing the link!
Monday, December 5, 2011
The Department of Health and Human Services (HHS) provides training courses for its employees through HHS University (HHSU). In May 2007, HHS put out a request for quotations (RFQ) to provide grant management courses covering eight topics at HHSU. The Gonzales-McCaulley Investment Group, Inc. (GMIG). GMIG submitted a cover letter ad quote. It referenced "course book" binder that had apparently already been submitted to HHS.
The training program manager at HHS sent an e-mail to GMIG attaching "confirmation of selection to provide training in Grants Management to HHS University" and suggesting further contacts to discuss date for training sessions. Throughout June 2007, the parties exchanged communications setting up dates for the trainings. At that point, Kimberly Hill, HHSU's Manager of the Center for Administrative and Systems Training reviewed GMIG's submissions and compared them with the website of Management Concepts, the organization that had previously been providing services to HHSU, finding them virtually identical. On that basis, Ms. Hill concluded that GMIG had engaged in plagiarism, and she informed GMIG that HHSU would not be using its services. CMIG filed a pretest to the Government Accountability Office (GAO), arguing that GMIG never had an opportunity to defend itself against the charge of plagiarism. When HHS subsequently cancelled the original Request for Quotations (RFQ), the GAO dismissed the protest as "academic."
GMIG persisted, claiming that the decision to rescind the RFQ was pretextual. The GAO recommended that upon reinstating the RFQ, HHSU should give due consideration to all of the responding vendors. HHS instead decided to do all future HHSU training in-house. GMIG sued seeking $900,000 in general and consequential damages, and the suit, originally filed in California, was transferred to the Court of Federal Claims. After some procedural complexities, the Court of Federal Claims heard HHS's motion to dismiss or for summary judgment on the ground that there could be no breach of contract because there had never been a valid acceptance.
In a November 14, 2011 opinion and order, the Court of Federal Claims granted summary judgment to HHS. The court reviewed the elements of a breach of contract and concluded as follows:
“To prove the existence of a contract with the government, a plaintiff must prove four basic elements: (1) mutuality of intent to contract; (2) offer and acceptance; (3) consideration; and (4) a government representative having actual authority to bind the United States.” Hometown Fin., Inc. v. United States, 409 F.3d 1360, 1364 (Fed. Cir. 2005). Here, at a minimum, there was no offer and acceptance.
Since the federal rules do not consider a quotation to be an offer, the issuance by the government of an order in response to a quotation cannot establish a contract. But if GMIG's quotation was not the offer, perhaps the order was the offer, which was accepted through the exchange of e-mails. Unfortunately for GMIG, according to the court, the resulting e-mails merely discussed tentative dates and never amounted to an agreement. In the post-Iqbal and Twombly atmosphere, GMIG's inability to point to a "particular order and acceptance in its pleadings" is fatal to its claim.
Tuesday, November 29, 2011
On Novmeber 10, 2011, the Fourth Circuit issued its unpublished per curiam opinion in Paul Morrell, Inc. v. Kellogg, Brown & Root Services in which it affirmed a nearly $20 million fraudulent inducement judgment against Kellogg Brown & Root (KBR) and related entities. The judgment included prejudgment interest and $4 million in punitive damages.
The suit arose out of a contract dispute and settlement between KBR and Paul Morrell, which was doing business as The Event Source (TES) and was a sub-contractor on a contract in which KBR and TES provided dining services for US troops in Iraq. A government audit revealed that KBR was charging the government for more meals that were actually served and so the government decided to withhold nearly 20% of its payments to KBR. KBR passed this loss on to its subcontractors. For reasons that are unclear but were based on fraudulent misreprentations that KBR made to TES, TES agreed to payments of $24 million for its services under the contract when it was in fact entitled to $36 million.
The district court determined that KBR made material false statements in order to induce TES to accept a settlement payment that was approximately $12.4 million less than what KBR had previously acknowledged it owed TES. Applying Texas law in this diversity case, the Court of Appeals had to determine whether TES's reliance on KBR's fraudulent misrepresentations was reasonable. That issue raises a mixed question of fact and law, but in this case, the trial court's ruling turned on factual determinations that could only be not clearly erroneous.
The Fourth Circuit also rejected KBR's additional challenges to the District Court's judgment.
Tuesday, November 22, 2011
There are lots of interesting facts in The Marquardt Co. v. United States for those of us who are not experts in government contracts. The United States agreed to pay The Marquardt Company (TMC) nearly $1.5 million to settle the United States' obligations under 23 contracts with TMC. The agreement included (what to me at least seems) a very strange provision that, while the parties recognized that the Government did not at the time of the agreement have the funds available to pay the $1.5 million, it would use its "best efforts" to get the necessary funds in an expeditious manner. When the Government did not pay up, TMC sued to collect, but the Government moved to dismiss arguing that TMC "must be able to prove that it would have received more money but for the alleged breach of the Government’s best-efforts obligation” and that it could not do so.
The Court ruled that the government misunderstood the relevant burdens of proof in the circumstances. The proper burden on plaintiff here is that "it must show facts, by 'citing to particular parts of materials in the record,' RCFC 56(c)(1)(A), that tend to show that but-for the government’s breach, plaintiff could have been paid additional funds.” The Court therefore concluded as follows:
Making all reasonable inferences from the evidence proffered by TMC, the court concludes that, had the government sought funding from outside the buying commands, as was suggested by its own employees, . . . additional funds could have been made available to pay TMC. Plaintiff has therefore alleged sufficient specific facts to show that “defendant’s action materially increased the risk of the injury that occurred,” Corbin on Contracts § 55.7 n.10, and that but-for the government’s breach of its best efforts obligation, it could have secured additional funds. There is a genuine issue for trial, Celotex, 477 U.S. at 324, and accordingly, summary judgment for defendant is not appropriate at this time.
But what constitutes "best efforts"?
The Government claimed that it had to seek funds from the military agencies with which TMC had contracted, but the language of the agreement contained no such limitation on what constituted "best efforts." TMC contended that the Government was obligated to seek funds from other sources, including the Defense Finance and Accounting Service and the Pentagon. The Court determined that further development of the record was necessary as disputed issues of material fact prevented the Court from determining precisely what constituted "best efforts" in the circumstances.
In a careful and richly detailed exercise in contract interpretation, which we will not attempt to summarize here, the Court also concluded that the Government improperly withheld about $160,000 that had been taken into account when the parties agreed to the $1.5 million settlement.
Thursday, November 10, 2011
As announced in this GW Press Release and this White House (OMB) Press Release, parts of which are pasted below, Daniel Gordon (pictured) has been named Associate Dean for Government Procurement Law Studies :
From George Washington Univesrity:
GW Law is pleased to announce the appointment of Daniel I. Gordon, Administrator for Federal Procurement Policy in the Office of Management and Budget, as its new Associate Dean for Government Procurement Law Studies. He will assume the newly created position on January 1, 2012.
“Dan Gordon has long been one of the worldwide leaders in this important field, and he is that rare person who can translate his experience and knowledge into learning and action,” said Paul Schiff Berman, Dean and Robert Kramer Research Professor of Law. “Our students will greatly benefit from his ‘insider’ perspective and his practical know-how. I am confident that the creation of this position signals to Washington and the world that now more than ever, GW Law is the premier place to study government procurement law and policy.”
Mr. Gordon says he is looking forward to his new position, and shares Dean Berman’s enthusiasm for the groundbreaking role.
“While GW Law has a long history of excellence in the area of government contracts, adding the position of associate dean should provide opportunities for building on that history to take the Law School even further,” said Mr. Gordon. “Ultimately, we will want to find new ways to reach students, including potentially nontraditional frameworks, and new ways to explore connections between government contracts law and other disciplines, such as corporate, public international, and anti-trust law.”
Mr. Gordon added that his recent career experience will shape his approach to knowledge-sharing and program development at GW Law.
“Procurement policy is intertwined with procurement law, but seeing things from the policy side has enriched my understanding of the importance and the impact of procurement law,” said Mr. Gordon.
Mr. Gordon was confirmed as the Administrator for Federal Procurement Policy in November 2009. In that role, he developed and implemented acquisition policies supporting more than $500 billion of annual federal spending. Previously, he spent 17 years at the Government Accountability Office in various roles including managing associate general counsel in the Procurement Law Division, deputy general counsel and acting general counsel.
Today, Dan Gordon, the Administrator for Federal Procurement Policy, announced that later this year he will be leaving the post to serve as Associate Dean for Government Contracts Law at the George Washington University Law School.
President Obama appointed Dan Gordon as the Administrator for Federal Procurement Policy in 2009 in order to turn around the explosive contracting growth of the last decade and re-instill accountability, drive fiscal responsibility, strengthen the acquisition workforce, cut out waste and rebalance the relationship between the federal government and the contractors that support our agencies. In Dan, he selected someone with decades of experience working with the federal procurement system, in private practice and at the U.S. Government Accountability Office. When Dan began at the White House, he brought with him a commitment to openness and integrity, combined with a strong sense of what we needed to do to improve the federal acquisition system, after too many years of neglect.
[JT h/t Steven Schooner]
Thursday, October 13, 2011
Last week, the Federal Circuit affirmed the Court of Federal Claims dismissal of a $50 million law suit brought against various leading politicians and the U.S. government. The case is Bussie v. United States. Plaintiff alleged that he had not been compensated for psychic services he performed in assisting the government in its pursuit of "high value targets" including the "masterminds" behind 9/11. The suit named President Obama, former President George W. Bush and Fox News analyst Sarah Palin, among others as defendants. The Federal Circuit affirmed the Court of Federal Claims' finding that it had no jurisdiction under the Tucker Act to hear claims against individuals.
As plaintiff was proceeding pro se, the Federal Circuit construed his complaint generously as seeking damages from the United States. However, the court found that the Court of Federal Claims had correctly concluded that plaintiff had not alleged facts sufficient to sustain a claim for an implied-in-fact contract.
The Federal Circuit opinion is very short. Further details can be found in the Court of Federal Claims opinion here.
The complaint raises interesting possibilities. Has the government in fact been hiring psychics to try to track down terror suspects? Is that so implausible? After all, didn't Nancy Reagan consult an astrologer in order to make certain the heavens were aligned properly with President Reagan's schedule? If the government has not been hiring psychics, why not? They are likely at least as effective as waterboarding.
Tuesday, October 11, 2011
"Disappeared Contractors": David Isenberg on Steven Schooner on Contractor Deaths in Iraq & Afghanistan
David Isenberg, author of Shadow Force: Private Secuity Contractors in Iraq has a provocative new piece on HuffPo in which he argues that private military and security contractors (PMSCs) are like the "disappeared" victims of dictatorial rule. This is not of course literally true, in that the bodies of PMSCs who are killed abroad are returned so that families can mourn and bury their dead. However, Isenberg finds the analogy fitting because we do not recognize or track the extent to the which PMSCs are bearing the burden on the on-going War on Terror.
He relies on the scholarship and testimony of Geroge Washington University Law School Professor friend-of-the-blog Steven L. Schooner. Professor Schooner has written about this topic in an article co-authored with GWU law student Collin D. Swan, called "Dead Contractors: The Unexamined Effect of Surrogates on the Public's Casualty Sensitivity," about which we have previously blogged here.
The Isenberg piece provides extensive quotations from Professor Schooner's testimony before the congressionally mandated Commission on Wartime Contracting. The gist of the exerpted portions is that we now have more PMSC casualties than military casualties in Iraq and that trend is spreading to Afghanistan as well. These deaths are not reported in the way military deaths are. PMSC deaths thus impose a lower cost in terms of public tolerance for continued war than do military deaths. Professor Schooner also notes, without allocating blame, that the government does more to protect members of the military than it does for PMSCs.
Monday, October 10, 2011
On September 28, 2011, District Judge Paul Gardephe issued his opinion and order denying defendants' motion for partial summary judgment in Spaulding v. Monsanto Company. Plaintiffs alleged that Monsanto engaged in negligent waste disposal practices at its plant in Nitro, West Virginia between 1949 and 1970. The waste at issue were biproducts from the manufacture of a key component in Agent Orange.
In its motion, Monsanto attempted to rely on the govenrment contrator defense, since for part of the time that it was manufacturing the product in question, it was doing so, at least in part, for government use. The standard for determining the applicability of the defense comes form Boyle v. United Techs. Corp. 487 U.S. 500, 512 (1988), in which the court explained as follows:
Liability for design defects in military equipment cannot be imposed, pursuant to state law, when (1) the United States approved reasonably precise specifications; (2) the equipment conformed to those specifications; and (3) the supplier warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States.
In this case, the Court concluded that Monsanto had not satisfied the requirements for the defense because the record did "not demonstrate . . . that U.S. Government representatives made an 'express determination' regarding Monsanto's alleged waste disposal practices." Nor was there any evidence that the Government had "exercised consistent oversight over Monstanto's waste disposal practices." The Court came to the same conclusion with respect to air pollution. Because the defendants had not demonstrated that the complained-of activity was conducted "pursuant to reasonably precise government specifications," the District Court denied their motion based on the government contractor defense.