Sperient Corporation, Inc. v. United States

In the United States Court of Federal Claims

No. 12-865

Filed: September 30, 2013

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*

* Administrative Procedure Act, 5 U.S.C. § 706;

* Contract Disputes Act, 41 U.S.C. § 7103;

* Declaratory Relief Act, 28 U.S.C. § 2201;

SIGMA CONSTRUCTION, INC., * Duty of Good Faith and Fair Dealing;

a/k/a SIGMA SERVICES, INC., * Federal Acquisition Regulation,

* 2.101 (contract modification);

Plaintiff, * 43.103(a) (bilateral contract modification);

* 49.001 (settlement agreement);

v. * 49.107 (audit of settlement proposals);

* 52.249-2(a) (termination for convenience of

THE UNITED STATES, * the Government – fixed price);

* Small Business Act, 15 U.S.C. § 637(a)(1)(B);

Defendant. * Motion to Dismiss,

* RCFC 12(b)(1) (lack of subject matter

* jurisdiction);

* RCFC 12(b)(6) (failure to state a claim).

*

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Robert A. Brunette, Law Offices of Robert A. Brunette, Glendale, California, Counsel for

Plaintiff.

Katy M. Bartelma, United States Department of Justice, Civil Division, Washington, D.C.,

Counsel for the Government.

MEMORANDUM OPINION AND FINAL ORDER

Braden, Judge.

I. FACTUAL BACKGROUND. 1

On April 22, 2008, SIGMA Construction, Inc. (“Sigma” or “Plaintiff”) submitted a

proposal in response to a Request For Proposals (“RFP”) No. GS-09P-07-NP-C-0005, issued by

the United States General Services Administration (“GSA” or the “Government”). Compl. ¶ 6.

1

The facts discussed herein were derived from the December 12, 2012 Complaint

(“Compl.”) and attachments thereto (“Pl.’s Attach. 1–8”).

The project was an 8(a) 2 sole source procurement for a design/build contract to install a roofing

system on the Hawthorne Federal Building in Lawndale, California. Compl. ¶ 6. Sigma and

GSA negotiated and agreed upon a final contract price of $979,588. Compl. ¶ 7. On May 30,

2008, Sigma was awarded GSA Contract No. GS-09P-08-NPC-0005 (“the Contract”).

Compl. ¶ 8. The initial schedule required approval for shop drawings within 30 days, with roof

construction to be completed 130 days thereafter. Compl. ¶ 7. On June 24, 2008, the initial

Contracting Officer (“CO”) issued a letter confirming the GSA’s receipt of Sigma’s Performance

and Payment Bonds and establishing November 6, 2008 completion date. Pl.’s Attach. 1.

Numerous incidents, however, delayed the scheduled construction. GSA did not timely

approve Sigma’s performance bonds and shop drawings. Compl. ¶ 9. In addition, GSA

requested that Sigma change access authorization for twenty-three workers, requiring

fingerprints and a background investigation for each worker. Compl. ¶ 9. And, in May 2009, a

dispute about the warranty occurred. Compl. ¶ 9.

On May 21, 2009, a new CO sent Sigma a Notice to Proceed for on-site work that stated:

“because of factors out of [Sigma’s] control,” the Contract needed to be modified to reflect a

new completion date of October 1, 2009. Pl.’s Attach. 1; see also Compl. ¶ 10.

On September 24, 2009, the GSA disclosed that a 2003 “Asbestos-Containing Material

Field Survey Report” indicated that the roof contained toxic asbestos. Compl. ¶ 9. In response,

Sigma provided GSA with a cost proposal for asbestos abatement. Compl. ¶ 9.

On October 5, 2009, Sigma requested from GSA compensation for the increased costs of

abatement and additional time required to complete the project. Compl. ¶ 11.

On April 6, 2010, the GSA terminated the Contract, pursuant to Federal Acquisition

Regulation (“FAR”) 52.249-2(a) “Termination for Convenience of the Government—Fixed

Price.” Compl. at ¶ 12.

On November 12, 2010, Sigma submitted a Request For Equitable Adjustment (“REA”)

to the GSA for delay-related cost increases in the amount of $823,904. Compl. ¶ 13.

On February 18, 2011, the CO directed Sigma to submit a document combining the REA

with a Termination Settlement Proposal. Compl. ¶ 14

On March 21, 2011, Sigma submitted a consolidated proposal requesting $86,106 as a

Termination Settlement Proposal, together with the previously submitted REA for $823,904, for

the combined amount of $1,116,220. Compl. ¶ 15. At the CO’s direction, Sigma included, in

the combined amount, two prior GSA progress payments in the amount of $206,010.

Compl. ¶ 15.

On September 19, 2011, Sigma submitted a separate certification of the March 21, 2011

Termination Settlement Proposal for $86,106. Compl. ¶ 16. Thereafter, the CO advised Sigma’s

2

The 8(a) program is established by the Small Business Act to arrange for and assist

socially and economically disadvantaged small businesses in the performance of procurement

contracts for construction work and other services. See 15 U.S.C. § 637(a)(1)(B).

2

CEO that a GSA review and analysis of Sigma’s proposals was underway. Compl. ¶ 17. On

November 22, 2011 the GSA sent via e-mail an attached signed letter offering “final settlement

amount of $235,842, all items considered.” Compl. ¶ 17. Sigma rejected the offer. Compl. ¶

17.

On December 1, 2011, the CO and Sigma’s CEO negotiated a $485,000 settlement in a

telephone conference, in addition to the $206,210 GSA previously paid as progress payments.

Compl. ¶¶ 18–19. The CO advised Sigma’s CEO that a written confirmation of this amount

would be forthcoming. Compl. ¶ 19.

On December 6, 2011, the CO e-mailed Sigma a letter confirming that the December 1,

2011 agreement would be issued as a “final supplemental modification to the [C]ontract.” Pl.’s

Attach. 3; see also Compl. ¶ 20. The letter also stated that “[t]he supplemental modification

finalizing the settlement agreement under the [C]ontract will be transmitted to you for your

signature prior to final execution by the Government.” Pl.’s Attach. 3.

But, on January 30, 2012, the CO sent an e-mail letter to Sigma stating that “the final

modification requires a review by the GSA’s Regional office.” Compl. ¶ 23.

On April 20, 2012, the CO sent another e-mail. The CO advised Sigma that, pursuant to

GSA’s internal review, the GSA concluded that the “[December 1, 2011] negotiated settlement

has not been deemed acceptable and w[ould] not be approved without a complete third party

audit.” Pl.’s Attach. 4; see also Compl. ¶ 24. The CO also stated that the GSA would like to re-

open negotiations to avoid an audit. Pl.’s Attach. 4; Compl. ¶ 24.

On April 24, 2012, Sigma responded by e-mail that it considered the December 1, 2011

agreement final and declined to renegotiate. Compl. ¶ 25. On May 30, 2012, Sigma’s counsel

sent a letter to GSA stating that the settlement contract modification required GSA to pay Sigma

$485,000. Compl. ¶ 26. On June 22, 2012, the CO reaffirmed GSA’s position and informed

Sigma that the GSA had initiated an audit. Compl. ¶ 26.

On August 13, 2012, Sigma’s CEO mailed the CO a certified claim requesting payment

of $485,000, plus interest. Compl. ¶ 29; Pl.’s Attach. 5. Sigma also requested that the CO “issue

a written final decision on this claim.” Compl. ¶ 29; Pl.’s Attach. 5.

On September 13, 2012, GSA’s Office of the Inspector General (“OIG”) contacted Sigma

for information. Compl. ¶ 30. Sigma responded that an audit was unnecessary because Sigma

previously provided a REA and the Termination Settlement Proposal to the CO, as well as a

certified invoice for the negotiated amount. Compl. ¶ 30. On that same date, Sigma mailed a

second copy of the CDA claim to the CO via registered mail. Compl. ¶ 31.

On September 20, 2012, the OIG advised Sigma by e-mail that the Termination

Settlement Proposal was not valid and requested additional information about Sigma’s delay

claim. Pl.’s Attach. 6; see also Compl. ¶ 32.

On October 29, 2012, Sigma contacted the CO again, reasserting the August 13, 2012

claim for $485,000 and requesting a final written decision. Compl. ¶ 35.

3

On November 13, 2012, after receiving no reply from the CO, Sigma mailed a third

certified copy of Plaintiff’s August 13, 2012 claim. Pl.’s Attach. 8; see also Compl. ¶ 36. As of

December 12, 2012, the GSA did not respond. Compl. ¶ 37.

II. PROCEDURAL HISTORY.

On December 12, 2012, Sigma filed a Complaint in the United States Court of Federal

Claims seeking: (1) judgment under the Declaratory Relief Act, 28 U.S.C. § 2201

(Compl. ¶¶ 38–40); (2) mandamus under the Administrative Procedure Act, 5 U.S.C. § 706

(Compl. ¶¶ 41–44); and (3) $485,000 plus costs for GSA’s breach of the December 1, 2011

settlement agreement. Compl. ¶¶ 45–54.

On April 19, 2013, the Government filed a Motion To Dismiss, pursuant to Rules of the

United States Court of Federal Claims (“RCFC”) 12(b)(1) and 12(b)(6).

On April 26, 2013, Sigma filed a Motion For Summary Judgment. On April 30, 2013,

the Government filed a Motion To Stay Briefing On Plaintiff’s Motion For Summary Judgment.

On May 3, 2013, Plaintiff filed a Response. On May 7, 2013, the parties were informed that the

court would address any jurisdictional issues first and instructed the parties to finalize briefing on

the Government’s April 19, 2013 Motion To Dismiss.

On May 10, 2013, Sigma filed a “Request For Leave To Amend The Complaint To Strike

[Plaintiff’s] First And Second Claims For Relief.” On May 21, 2013, the court granted that

request. As such, the Government’s April 19, 2013 Motion To Dismiss, insofar as it pertains to

Plaintiff’s First and Second Claims for relief—under the Declaratory Judgment Act and

Administrative Procedure Act, respectively—is moot.

On May 13, 2013, Sigma filed a Response To the Government’s Motion To Dismiss and

attached pages 19-38 of Sigma’s April 26, 2013 Motion For Summary Judgment, pursuant to

RCFC 5.4(b)(3). On June 5, 2013, the Government filed a Reply.

On September 24, 2013, the court held a telephonic oral argument with the parties

concerning the Government’s Motion to Dismiss and Sigma’s Response. Following that

argument, the Government filed a Status Report on September 27, 2013. 3

3

In its September 27, 2013 Status Report, the Government estimated that, upon

submission by Sigma of its claims pursuant to the Contract Disputes Act and dismissal of this

litigation, the Contracting Officer would renew the audit request with the GSA within five

business days. Gov’t Status Rep. 1. GSA anticipates beginning the audit in January 2014 and

completing it within 90 days. Gov’t Status Rep. 1–2. At that point, the Contracting Officer will

issue a final decision within 60 days. Gov’t Status Rep. 2.

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III. DISCUSSION.

A. Jurisdiction. 4

The United States Court of Federal Claims has jurisdiction under the Tucker Act, 28

U.S.C. § 1491, “to render judgment upon any claim against the United States founded either

upon the Constitution, or any Act of Congress or any regulation of an executive department, or

upon any express or implied contract with the United States, or for liquidated or unliquidated

damages in cases not sounding in tort.” 28 U.S.C. § 1491(a)(1). The Tucker Act, however, is “a

jurisdictional statute; it does not create any substantive right enforceable against the United

States for money damages . . . the Act merely confers jurisdiction upon [the United States Court

of Federal Claims] whenever the substantive right exists.” United States v. Testan, 424 U.S.

392, 398 (1976) (citations omitted). Therefore, to pursue a substantive right under the Tucker

Act, a plaintiff must identify and plead an independent contractual relationship, Constitutional

provision, federal statute, and/or executive agency regulation that provides a substantive right to

money damages. Todd v. United States, 386 F.3d 1091, 1094 (Fed. Cir. 2004) (“[J]urisdiction

under the Tucker Act requires the litigant to identify a substantive right for money damages

against the United States separate from the Tucker Act itself.”); see also Fisher v. United States,

402 F.3d 1167, 1172 (Fed. Cir. 2005) (en banc) (“The Tucker Act . . . does not create a

substantive cause of action; in order to come within the jurisdictional reach and the waiver of the

Tucker Act, a plaintiff must identify a separate source of substantive law that creates the right to

money damages. In the parlance of Tucker Act cases, that source must be ‘money-

mandating.’”).

B. Relevant Standards Of Review.

A challenge to the United States Court of Federal Claims’ “[ability] to exercise its

general power with regard to the facts peculiar to the specific claim . . . . is raised by a [Rule]

12(b)(6) motion . . . .” Palmer v. United States, 168 F.3d 1310, 1313 (Fed. Cir. 1999); see also

RCFC 12(b)(6) (allowing a party to assert, by motion, “failure to state a claim upon which relief

can be granted”). When considering whether to dismiss an action for failure to state a claim, the

court must assess whether the complaint states “allegations plausibly suggesting (not merely

consistent with)” behavior by defendant that, if proven, would entitle the plaintiff to judicial

relief. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007); see also Ashcroft v. Iqbal, 556

U.S. 662, 679 (2009) (“[O]nly a complaint that states a plausible claim for relief survives a

motion to dismiss.”). In other words, “[a] claim has facial plausibility when the plaintiff pleads

factual content that allows the court to draw the reasonable inference that the defendant is liable

for the misconduct alleged.” Iqbal, 556 U.S. at 678. “Factual allegations must be enough to

raise a right to relief above the speculative level, on the assumption that all the allegations in the

4

The December 12, 2012 Complaint is captioned as a suit against the Government, as

well as “Does 1 through 5, inclusive” who allegedly “participated in, conspired, and contributed

to the damages suffered” by Plaintiff. Compl. ¶ 4. The only proper defendant in the United

States Court of Federal Claims, however, is the United States. See 28 U.S.C. § 1491(a); see also

RCFC 10. Therefore, the court does not have jurisdiction to adjudicate the claims against Does 1

through 5.

5

complaint are true (even if doubtful in fact).” Bell Atl. Corp., 550 U.S. at 555 (internal citations

omitted). But see Iqbal, 556 U.S. at 678 (“[T]he tenet that a court must accept as true all the

allegations contained in a complaint is inapplicable to legal conclusions.”).

C. Issues Raised In The Government’s April 19, 2013 Motion To Dismiss.

1. Whether The December 12, 2012 Complaint Alleged Sufficient Facts

To Conclude That The Government Entered Into An Enforceable

Oral Settlement.

a. The Government’s Argument.

The Government argues that the December 12, 2012 Complaint fails to allege sufficient

plausible facts to establish the existence of a separate, enforceable contract arising out of the

December 1, 2011 oral negotiations concluded. Gov’t Mot. 8–15. Any oral or written settlement

agreement purporting to arise out of the original GSA contract is invalid because, as a matter of

law, an agency-level resolution of a settlement request only can be made by a written

modification. Gov’t Mot. 8 (citing FAR 49.001 (defining “settlement agreement” as a “written

agreement”) and FAR 49.109-1 5 (requiring Standard Form 30 for settlement agreements)). In

addition, a contracting officer cannot resolve a payment request under to a GSA contract by

entering into a separate agreement purporting to govern the same terms as the original. Gov’t

Mot. 9 (citing Schism v. United States, 316 F.3d 1259, 1278 (Fed. Cir. 2002) (holding that an

express contract precludes the existence of an implied-in-fact contract purporting to govern the

same subject matter)). Although the Government concedes that Schism’s holding concerned an

implied-in-fact contract, in this case Sigma “has not explained why an express contract

purporting to govern the same subject matter as another express contract is any more acceptable

than an [implied-in-fact] contract purporting to do the same.” Gov’t Reply 4–5. In addition, “in

the event that the parties could not agree on a modification and a contractor’s subsequent claim is

denied, then the contractor’s sole remedy is a suit brought pursuant to the Contract Disputes Act

(CDA).” Gov’t Mot. 9.

The cause of action in this case, however, is not premised on a contract. Gov’t Mot. 9

n.3. But, even if Sigma is allowed to amend the Complaint to allege a breach of contract, this

claim also must be dismissed, because Sigma has identified no provision or clause, contract

modification, or any other obligation sufficient to establish, above a speculative level, the

existence of an obligation to pay $485,000. Gov’t Mot. 15. Sigma has not contested these facts,

nor the arguments relating to the requirements of the FAR, and therefore has conceded these

arguments. Gov’t Reply 5, 12.

Even if a separate agreement could be reached outside of the Contract, the parties did not

meet all of the requisite elements of contract formation, because Sigma’s “allegations reveal the

parties contemplated the execution of a written contract modification and the [CO] possessed

only the authority to resolve [Sigma’s] requests by means of a written contract modification” on

Standard Form 30. Gov’t Mot. 10–11 (citing FAR 43.103(a) (describing a “bilateral

modification” as a modification signed by both parties used to “[m]ake negotiated equitable

5

The Government mistakenly cites to FAR 49.109-2, but quotes FAR 49.109-1.

6

adjustments [that r]eflect other agreements of the parties modifying the terms of [the]

contract[]”); FAR 43.301(a)(1) (providing that SF 30 “shall . . . be used for . . . (v)

[s]upplemental agreements”)). In addition, opinions hold that “oral negotiations, even if

confirmed, do not give rise to a binding contract where . . . the parties anticipate the execution of

a formal written agreement.” Gov’t Mot. 11–12 (citing SCM Corp. v. United States, 595 F.2d

595, 598 (Ct. Cl. 1979) (holding that an oral agreement to settle an REA was not a binding

contract, where, in light of the regulations and the parties’ understanding, the commitments in

the oral understanding were not to be consummated until the execution of a written supplemental

agreement as reflected on a Form SF 30); see also Mil-Spec Contractors, Inc. v. United States,

835 F.2d 865, 867 (Fed. Cir. 1987) (“Unless and until there was a binding modification to which

both [plaintiff] and the contracting officer had agreed in writing, there could not be a binding

modification of the contract.”)).

In this case, the parties agreed in principle to an amount to settle their dispute, but

contemplated a written document to finalize that agreement. Gov’t Reply 10. The CO is

presumed to act in accordance with the law, which is evidenced by references to the need for a

supplemental modification. Gov’t Reply 10 (citing Compl. ¶¶ 20, 23). In any case, the CO did

not have the authority to waive any legal requirements or alter her authority. Gov’t Mot. 14;

Gov’t Reply 10–11. Further, as a government contractor, Sigma “is charged with knowledge of

the regulatory requirements,” and the facts alleged in the Complaint raise a plausible inference

that Sigma indeed understood the need for a written modification. Gov’t Reply 11. Therefore,

whether the CO made any assurances or statements of authority, they are not dispositive of the

CO’s actual authority or the existence of a contract. Gov’t Reply 11–12. Sigma “requests the

Court to review the applicability of the common law” (Pl.’s Resp. 6–7), but “general principles

do not challenge [the Government’s] specific demonstration of the applicable regulatory

requirements.” Gov’t Reply 6. Nor do non-binding decisions of the Boards of Contract Appeals

outweigh the Government’s demonstration that the oral negotiations could not have given rise to

a binding contract. Gov’t Reply 6–7.

As the May 13, 2013 Response clarifies, the sole basis of Sigma’s claim is that the

December 1, 2011 oral settlement agreement has the effect of a contract. Gov’t Reply 3 (citing

Compl. ¶ 48–49 and Pl.’s Resp. 4–5). Sigma specifically disclaimed that the settlement was

implied-in-fact and arose out of anything other than the parties’ verbal agreement. Gov’t Reply

3 (citing Pl.’s Resp. 5 (“This case concerns an express oral contractual settlement arising from

Sigma’s claims in the express written GSA construction contract.”)). Reliance on an oral

agreement with the Government invokes 31 U.S.C. § 1501(a) (“An amount shall be recorded as

an obligation of the United States Government only when supported by documentary evidence

of . . . a binding agreement between an agency and another person . . . that is . . . in writing . . .

and executed . . . .”). Gov’t Reply 3. Plaintiff’s reliance on an express oral contract does not

meet this statutory requirement. Gov’t Reply 3–4; see also Daly Construction, Inc. v. Garret, 5

F.3d 520, 521 (Fed. Cir. 1993) (“To recover on an express agreement with a Government

agency, the agreement must be in writing and signed by an authorized person.”).

b. The Plaintiff’s Response.

Sigma responds that the December 12, 2012 Complaint alleged substantial and sufficient

facts to evidence the plausible existence of a binding express oral agreement with the GSA. Pl.’s

7

Resp. 2–3. The allegations therein are sufficient to meet the RCFC 12(b)(6) standard, as they

“state plausible grounds for the [c]ourt to infer that a binding settlement agreement was intended

by both [p]arties to be negotiated and finalized on December 1, 2011—meeting the four basic

contract formation requirements.” Pl.’s Resp. 4 (quoting from Anderson v. United States, 344

F.3d 1343, 1353 (Fed. Cir. 2003) (“To form an agreement binding upon the government, four

basic requirements must be met: (1) mutuality of intent to contract; (2) lack of ambiguity in offer

and acceptance; (3) consideration; and (4) a government representative having actual authority to

bind the United States in contract.”)).

The GSA, as an agency of the United States, is bound by common law contract rules

when it acts in its contracting capacity. Pl.’s Resp. App. 19–21 (citing United States v. Winstar

Corp., 518 U.S. 839, 895 (1996) (“An even more serious objection is that allowing the

Government to avoid contractual liability merely by passing any ‘regulatory statute’ would flout

the general principle that, ‘[w]hen the United States enters into contract relations, its rights and

duties therein are governed generally by the law applicable to contracts between private

individuals.’” (quoting Lynch v. United States, 292 U.S. 571, 579 (1934))). As such, the

common law contract formation requirements apply to the December 1, 2011 settlement

agreement. Pl.’s Resp. 4; Pl.’s Resp. App. 21–23. In addition, the GSA is bound by the conduct

of its CO, as an authorized agent, under the rule of finality. Pl.’s Resp. 4; Pl.’s Resp. App. 23–

25. For this reason, the Armed Services Board of Contract Appeals has held that an enforceable

oral agreement can be formed when the Government accepts an offer, without the necessity of

any formal modification of the contract. Pl.’s Resp. 4; Pl.’s Resp. App. 25–27 (citing In re MPR

Assocs., Inc., ASBCA No. 54689, 05-2 B.C.A. (CCH) ¶ 33115 (Oct. 27, 2005) (“[T]he

government may enter into an enforceable oral agreement with respect to resolution of rights

under a contract without formal modification of the contract itself.”)).

In addition, the December 1, 2011 oral agreement was not executory and did not

contemplate a formal contract modification or use of a SF 30 Form. Pl.’s Resp. App. 27–33.

Contrary to the Government’s argument, the CO never mentioned the need for any written

contract modification or SF 30 Form during the negotiations leading up to the December 1, 2011

final settlement. Pl.’s Resp. 7. The CO only unilaterally raised this requirement for the first time

in her December 6, 2011 letter. Pl.’s Resp. 7. In addition, contrary to the Government’s reliance

on SCM Corporation, a number of decisions of the United States Court of Claims and various

Boards of Contract Appeals decided after SCM and Mil-Spec support the proposition that the

absence of an SF 30 Form is not dispositive. Pl.’s Resp. 7–8 (citing Robinson Contracting Co.

Inc. v. United States, 16 Cl. Ct. 676, 681, 688 (1989) (describing the execution of a SF 30 Form

as a “mere formality” in the specific circumstances of that case); see also Adams Constr. Co.,

VABCA No. 4669, 97-1 B.C.A. (CCH) ¶ 28801 (Feb. 13, 1997) (“Thus, Mil-Spec does not

establish a rigid, formalistic standard that would permit an enforceable, bilateral agreement

modifying a contract to arise only upon a talismanic execution of the SF-30 by both

parties . . . .”)); Pl.’s Resp. App. 27–33.

Finally, the Government’s April 19, 2013 Motion To Dismiss misstates the facts and

misapplies case law. Pl.’s Resp. 5–6. First, contrary to the Government’s argument, the

December 12, 2012 Complaint contains plausible allegations that the parties intended and

reached “a binding lump-sum settlement agreement” to satisfy the claims set forth in Sigma’s

combined REA and Termination Settlement Proposal. Pl.’s Resp. 5. In addition, the

8

Government’s reliance on Schism is misplaced because the rule established therein precludes

only the existence of an implied-in-fact contract that purports to cover the same subject matter as

an express contract. Pl.’s Resp. 5–6. That is not the situation here. Third, Sigma has satisfied

the elements of contract formation: Sigma’s offer and the CO’s acceptance were unambiguous

and specific; Sigma’s $425,010 reduction in its consolidated proposal from the $910,000 amount

claimed was more than adequate consideration; the CO was warranted on July 9, 2009 and

authorized to bind the Government up to amounts well in excess of the $485,000 offered and was

the assigned Government representative with actual authority to finalize the agreement

(Compl. ¶ 18; Pl.’s Attach. 2); and there is $773,378 still obligated and available under the

Contract to pay Sigma the agreed-to amount, so that there is no need for a supplemental

modification to increase funding to pay that amount. Pl.’s Resp. 3, 6; Pl.’s Resp. App. 22–23.

c. The Court’s Resolution.

The first issue before the court is whether the December 12, 2012 Complaint has alleged

sufficient plausible facts to state a claim for breach of the alleged December 1, 2011 oral

settlement agreement reached between Sigma and the GSA.

In general, an agreement must meet four basic elements in order to bind the government:

(1) mutuality of intent to contract;

(2) lack of ambiguity in offer and acceptance;

(3) consideration; and

(4) a government representative having actual authority to bind the United States in

contract.

Anderson, 344 F.3d at 1353. The court is mindful that in some contexts, oral agreements can be

binding. See, e.g., Tiburzi v. Dep’t of Justice, 269 F.3d 1346 (Fed. Cir. 2001) (finding an oral

settlement agreement between a Drug Enforcement Agency employee and the Agency to be

binding).

The Federal Acquisition Regulation (“FAR”), however, imposes additional requirements.

FAR Part 49 states that the settlement of a contract terminated for convenience requires a written

contract modification, executed by both the contractor and the terminating contract officer, on a

Form SF 30. FAR 49.001 defines a “settlement agreement” as a “written agreement in the form

of a contract modification settling all or a severable portion of a settlement proposal.” FAR

49.109-1 provides that “[w]hen a termination settlement has been negotiated and all required

reviews have been obtained, the contractor and [terminating contracting officer] shall execute a

settlement agreement on Standard Form 30.” 48 C.F.R. § 49.001; 48 C.F.R. § 49.109-1. In

addition, FAR 2.101 defines a contract modification as “any written change in the terms of a

contract.” 48 C.F.R. § 2.101. FAR 43.103 defines a “bilateral modification” or “supplemental

agreement” as a “contract modification that is signed by the contractor and the contracting

officer” and used to, among other things, “reflect . . . agreements of the parties modifying the

terms of contracts.” 48 C.F.R. § 43.103. And, FAR 43.301 provides that the SF 30 “shall . . . be

used for . . . supplemental agreements.” 48 C.F.R. § 43.301(a)(1)(v).

9

The United States Court of Appeals for the Federal Circuit has recognized that these

provisions of the FAR “require that a modification of a contract be in writing and executed by

both parties.” Mil-Spec, 835 F.2d at 867–68. Moreover, these provisions support “the basic

principle . . . that an oral modification of a written contract, which may be modified only by

bilateral written agreement, is ineffective.” Id. at 869; cf. SCM Corp., 595 F.2d at 597–98

(holding that an oral agreement reached by the parties—where the Armed Services Procurement

Regulations, which, like the FAR, “view a settlement as a separate written contract altering the

rights and liabilities of the parties”—“was not a contract and [could not] sustain a breach of

contract action”).

While Sigma cites several cases for the proposition that the absence of an executed SF 30

Form is not dispositive, these cases are either inapposite or not binding. For example, Sigma

characterizes Robinson Contracting as “finding that the use of a[n] SF-30 was a ‘mere formality’

(after an oral agreement was in fact created).” Pl.’s Resp. 7. Although Robinson did determine

that the absence of a SF 30 Form was not dispositive, the accord that the appellate court

determined was enforceable “was not solely oral . . . . [and b]oth parties signed a written

agreement” that was complete and unambiguous. 16 Cl. Ct. at 688–89. Likewise, Sigma’s

reliance on Texas Instruments Inc. v. United States, 922 F.2d 810 (Fed. Cir. 1990), is misplaced.

In that case the United States Court of Appeals for the Federal Circuit held that a binding

agreement was reached in the absence of a written agreement, after also finding that the

“agreement was not a ‘bilateral modification of a contract’ but rather a fulfillment of an express

contractual term,” and that “[t]he regulations governing Mil-Spec and SCM simply [were]

inapplicable to the facts.” Id. at 814. In any event, regardless of whether an SF 30 Form is an

absolute prerequisite to a binding settlement agreement or a mere formality, the FAR is clear that

an agreement settling a termination for convenience, as with any other bilateral contract

modification, must be in a written agreement and executed by both the contractor and the

contracting officer. See Mil-Spec, 835 F.2d at 867 (“Unless and until there was a binding

modification to which both Mil-Spec and the contracting officer had agreed in writing, there

could not be a binding modification of the contract. The oral agreement . . . could not and did

not constitute a valid accord and satisfaction.”). That did not occur in this case.

Instead, the CO and Sigma’s CEO participated in a telephone negotiation on December 1,

2011, during which the parties reached an oral agreement on a settlement amount.

Compl. ¶¶ 18–19. On December 6, 2011, the CO e-mailed Sigma a signed and dated letter that

confirmed the December 1, 2011 negotiated settlement amount “determined to be acceptable

under a final settlement agreement, to be issued as a final supplemental modification to the

[C]ontract.” Compl. ¶ 20; Pl.’s Attach. 3. The letter further stated, “[t]he supplemental

modification finalizing the settlement agreement under the contract will be transmitted to you for

signature prior to final execution by the Government.” Pl.’s Attach. 3. The CO’s e-mail thus

made clear to Sigma that the signed December 6, 2011 letter confirmed the agreed-upon

settlement amount, but that a formal contract modification, as required by the FAR, would be

forthcoming. Therefore, pursuant to the FAR provisions cited above, the December 1, 2011 oral

agreement alone did not create a binding final settlement agreement between the parties. Instead,

the parties were required to execute a written contract modification. The December 12, 2012

Complaint contains no allegations that the parties did so.

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Assuming, arguendo, the validity of Sigma’s allegations that the CO indicated the

intention to finalize a settlement agreement during the December 1, 2011 telephone conference,

and never provided notice of the need for a written modification or any upper-level review at that

time, these facts are not dispositive. After the December 1, 2011 telephone conference, the

parties did not take the steps necessary to execute a binding contract. Moreover, Sigma is

“‘charged with notice of all statutory and regulatory limitations,’” including the limits of the

CO’s authority. CACI, Inc. v. Stone, 990 F.2d 1233, 1236 (Fed. Cir. 1993) (quoting Prestex, Inc.

v. United States, 320 F.2d 365, 371 (Ct. Cl. 1963)); see also SCM Corp., 595 F.2d at 598

(“Parties are presumed to know and required to be cognizant of the governing regulations.”). As

a matter of law, the CO does not have the authority to waive statutory or regulatory

requirements. See United States v. Amdahl Corp., 786 F.2d 387, 392 (Fed. Cir. 1986) (“Failure

to follow the applicable rules negates the agent’s authority to enter into a contract binding on the

government. To permit otherwise would be to nullify those very statutes, regulations, and

determinations—a result clearly contrary to the public interest.” (quoting Brous, Termination for

Convenience: A Remedy for the Erroneous Award, 5 Pub. Cont. L.J. 221, 222–23 (1972)). Nor

is the Government “bound by its agents acting beyond their authority and contrary to regulation.”

CACI, 990 F.2d at 1236 (quoting Urban Data Sys., Inc. v. United States, 699 F.2d 1147, 1153

(Fed. Cir. 1983)).

Therefore, the court has determined, as it must, that because the alleged oral settlement

did not comply with FAR provisions 49.001 and 49.109-1 requiring a written modification for a

settlement of a termination for convenience, and because the CO did not have authority to enter

into an oral settlement, the December 12, 2012 Complaint fails to allege facts sufficient to

establish the existence of a contractual obligation binding on the Government.

2. Whether The December 12, 2012 Complaint States A Claim For

Breach Of The Duty Of Good Faith And Fair Dealing.

a. The Government’s Argument.

The Government argues that the December 12, 2012 Complaint’s claim that the GSA

breached the duty of good faith and fair dealing also must be dismissed. Gov’t Mot. 15 (citing

Compl. ¶ 52 (“Said contract entered into between Plaintiff and the Government contains said

implied-in-law covenant [of good faith and fair dealing] by which the GSA assumed this duty,

and promised to promptly transmit to Plaintiff a written contract modification . . . .”)). The

implied duty of good faith and fair dealing does not exist in the absence of an underlying

contract, so Sigma has no claim for the breach of the implied duty in this case. Gov’t Mot. 16

(citing Scott Timber Co. v. United States, 692 F.3d 1365, 1372 (Fed. Cir. 2012) (“[B]ecause the

existence of the covenant of good faith and fair dealing depends on the existence of an

underlying contractual relationship, there is no claim for a breach of this covenant where a valid

contract has not yet been formed.” (alterations omitted)). In addition, the Government is liable

for a breach of the duty of good faith and fair dealing “only where the Government’s purpose in

acting ‘was to specifically target the plaintiff and reappropriate a benefit guaranteed by a contract

with the plaintiff.’” Gov’t Mot. 16 (quoting Scott Timber, 692 F.3d at 1375). Even assuming the

settlement was a contract, Sigma has not alleged any action by the GSA to specifically target

Sigma and re-appropriate a benefit guaranteed by the contract, since the GSA simply followed

applicable regulations. Gov’t Mot. 16–17. In addition, the December 12, 2012 Complaint failed

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to set forth plausible facts that identify the elements necessary for a breach of the duty of good

faith and fair dealing or to evidence specifically targeted actions by the GSA. Gov’t Reply 12–

13.

b. The Plaintiff’s Response.

Sigma responds that the simple showing required to claim a breach of the duty of good

faith and fair dealing is an allegation that the “party’s contracting partner deprived it of the fruits

of the contract.” Pl.’s Resp. 8–9 (quoting Riviera Agredano v. United States, 70 Fed. Cl. 564,

574 n.8 (2006)). A breach of this duty can be established by showing, inter alia, “lack of

diligence, negligence or failure to cooperate or through subterfuges and evasions . . . even though

the actor believes his/her conduct to be justified, or by failing to communicate with plaintiff for a

long period, or by refusing to respond to many requests, or a lack of honesty in fact in the

conduct or transaction concerned.” Pl.’s Resp. 9 (emphasis and footnotes omitted).

In this case, the December 12, 2012 Complaint alleges that the CO repeatedly assured

Sigma that a thorough GSA review and analysis of Sigma’s proposals was ongoing. Compl. ¶ 7.

The CO represented that she had the legal authority to finalize and accept Sigma’s offer. Pl.’s

Resp. 9. Nevertheless, on January 30, 2012, the CO advised Sigma for the first time that the

December 1, 2011 settlement agreement required review by the GSA. Pl.’s Resp. 9 (citing

Compl. ¶¶ 17–20, 23). And, on April 20, 2012, June 22, 2012, and October 16, 2012, the CO

stated that she would demand a third party audit, unless Sigma agreed to re-open negotiations.

Pl.’s Resp. 9 (citing Compl. ¶¶ 24, 26–28, 33). Moreover, the CO never responded to or

acknowledged Plaintiff’s repeated CDA claims. Pl.’s Resp. 9–10 (citing Compl. ¶¶ 29, 31, 33,

35–37). Finally, the Government tries to narrow the scope of Sigma’s good faith and fair dealing

claim only to GSA’s conduct regarding the December 1, 2011 settlement, but the covenant also

attaches to the underlying Contract, as well. Pl.’s Resp. 10.

c. The Court’s Resolution.

As both parties recognize, government contracts, like contracts between private

individuals, include an implied duty of good faith and fair dealing that requires each party not to

interfere with the other party’s rights under the contract. See Precision Pine & Timber,

Inc. v. United States, 596 F.3d 817, 828 (Fed. Cir. 2010) (“The duty of good faith and fair

dealing is inherent in every contract. . . . In essence, this duty requires a party to not interfere

with another party's rights under the contract.” (internal citations omitted)); see also Centex

Corp. v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005) (same). Because the implied duty

protects contractual rights, what it “entails depends in part on what [a given] contract promises.”

Precision Pine, 596 F.3d at 830. But, the implied duty of good faith and fair dealing “cannot

expand a party’s contractual duties beyond those in the express contract or create duties

inconsistent with the contract’s provisions.” Id. at 831; see also Bradley v. Chiron Corp., 136

F.3d 1317, 1326 (Fed. Cir. 1998) (citing Racine & Laramie, Ltd. v. Cal. Dep't of Parks &

Recreation, 11 Cal. App. 4th 1026 (1992) for the proposition that “implied covenants of good

faith and fair dealing are limited to assuring compliance with the express terms of the contract

and [cannot] be extended to create obligations not contemplated in the contract”). In addition,

the duty of good faith and fair dealing “‘does not deal with good faith in the formation of a

contract.’” Scott Timber, 692 F.3d at 1372 (quoting RESTATEMENT (SECOND) OF

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CONTRACTS § 205 cmt. c. (1981)); id. (“[B]ecause the existence of the covenant of good faith

and fair dealing depends on the existence of an underlying contractual relationship, there is no

breach of this covenant where a valid contract has not yet been formed.” (quoting Mountain

Highlands, LLC v. Hendricks, 616 F.3d 1167, 1171 (10th Cir. 2010) (alterations omitted)).

To prevail on a claim for breach of the implied duty of good faith and fair dealing, a

plaintiff must show that the government acted in a way “specifically designed to reappropriate

the benefits the other party expected to obtain from the transaction, thereby abrogating the

government’s obligations under the contract.” Precision Pine, 596 F.3d at 829 (citing Centex,

395 F.3d at 1311). In other words, “liability only attaches if the government action ‘specifically

targeted’ a benefit” of the government contract at issue, Precision Pine, 596 F.3d at 830, “so as

to destroy the reasonable expectations of the other party regarding the fruits of the contract.”

Centex, 395 F.3d at 1304.

In this case, Sigma cannot premise a claim for breach of the implied duty of good faith

and fair dealing on the alleged December 1, 2011 oral settlement agreement, since, unless and

until a written modification had been mutually executed “a valid contract ha[d] not yet been

formed.” Scott Timber, 692 F.3d at 1372. To the extent that the CO made representations about

her authority to finalize a settlement, assured Sigma that GSA review of Sigma’s proposals had

been ongoing, and later insisted on a third party audit of the proposals and requested that Sigma

re-open negotiations, these facts are not relevant to a claim for breach of the implied duty of

good faith and fair dealing, because the GSA had the right to verify the expenses Sigma claims

and a binding settlement never materialized.

In addition, while it is true that the “[c]ovenant [of good faith and fair dealing] attaches to

the underlying construction contract” (Pl.’s Resp. 10 (citing Compl. ¶¶ 50-53)), the duty “cannot

expand a party’s contractual duties beyond those in the express contract.” Precision Pine, 596

F.3d at 830–31. Sigma has failed to identify any provision or term in the Contract requiring the

GSA to pay $485,000, to waive a written contract modification, or settle the termination of the

contract under the specific terms asserted in the December 12, 2012 Complaint. As discussed

above, the FAR governs how the CO must proceed with the negotiation and settlement of a

termination for convenience. Specifically, FAR 49.107(a) provides that the terminating CO must

“refer each prime contractor settlement proposal of $100,000 or more to the appropriate audit

agency for review and recommendations” and “may submit settlement proposals of less than

$100,000 to the audit agency.” 48 C.F.R. § 49.107(a) (emphasis added). After the GSA’s

internal review deemed Sigma’s settlement proposals unacceptable, the CO’s decision to submit

this matter to a GSA auditor, even if inconsistent with prior statements regarding the necessity of

review and even if the audit report would be “advisory only” (FAR 49.107(d)), was well within

the CO’s discretion. This action, like the CO’s rationale for reopening negotiations and the

GSA’s requirement of a written contract modification to effectuate a valid settlement, in

compliance with the FAR, does not amount to “specifically targeted” actions by GSA “designed

to reappropriate the benefits the other party expected to obtain from the transaction, thereby

abrogating the government’s obligations under the contract.” Precision Pine, 596 F.3d at 829–

30. Therefore, the court has determined that the December 1, 2012 Complaint failed to plausibly

state a claim for breach of the implied duty of good faith and fair dealing.

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IV. CONCLUSION.

For the foregoing reasons, the Government’s April 19, 2013 Motion To Dismiss is

granted. The Clerk of the Court is directed to dismiss the December 12, 2012 Complaint,

without prejudice.

IT IS SO ORDERED.

s/ Susan G. Braden

SUSAN G. BRADEN

Judge

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