Supreme Foodservice GmbH

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ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of - )

)

Supreme Foodservice GmbH ) ASBCA No. 60309

)

Under Contract No. SPM300-05-D-3130 )

APPEARANCES FOR THE APPELLANT: John R. Prairie, Esq.

J. Ryan Frazee, Esq.

Bryan T. Bunting, Esq.

Sarah B. Hansen, Esq.

Jennifer Eve Retener, Esq.

Wiley Rein LLP

Washington, DC

APPEARANCES FOR THE GOVERNMENT: Daniel K. Poling, Esq.

DLA Chief Trial Attorney

Kelly L. Diaz-Albertini, Esq.

Lindsay A. Salamon, Esq.

Anne P. Steel, Esq.

Ryan P. Hallisey, Esq.

Stacey E. Hirsch, Esq.

Robert L. Kieffer, Esq.

Lindsey R. Mossor, Esq.

Trial Attorneys

DLA Troop Support

Philadelphia, PA

OPINION BY ADMINISTRATIVE JUDGE O’CONNELL

ON APPELLANT’S MOTION FOR JUDGMENT ON THE

PLEADINGS OR FOR SUMMARY JUDGMENT

Appellant, Supreme Foodservice GmbH (Supreme) moves for judgment on the

pleadings or, in the alternative, for summary judgment, contending that the

government has no right to recover any funds from Supreme notwithstanding

Supreme’s disclosure of bid rigging by a former employee. The Board denies the

motion.

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STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTION

1. This contract has been the subject of extensive litigation between the parties,

including 47 appeals dating back to December 2011. The Board and the Federal

Circuit have issued a total of 10 published decisions.

2. In 2019, the Board conducted a one-month hearing on Supreme’s claims

related to Premium Outbound Transportation. Supreme Foodservice GmbH, ASBCA

No. 57884, et al., 20-1 BCA ¶ 37,618 (Supreme I), aff’d Supreme Foodservice GmbH

v. Dir. of the Def. Logistics Agency, 54 F.4th 1362 (Fed. Cir. 2022). Our decision in

Supreme I contains extensive findings of fact, some of which are relevant to the

present appeal, including those facts relating to the pricing of food and Supreme’s

history of fraud.

3. These appeals arise from a June 3, 2005, commercial items contract to

furnish and deliver food, including fresh fruits and vegetables, in Afghanistan.

Supreme I at findings 1, 22, 193 (R4, tab 1 1 at 13, 23). DLA paid Supreme based on a

Unit Price that had two components: the Delivered Price, which was the supplier’s

“actual invoice price” to deliver the food to Supreme, and the Distribution Fee, which

contained all other costs, including general and administrative expenses, overhead,

profit, packaging, and the cost of transport. Supreme I at findings 24, 156 (R4, tab 1

at 19-20).

4. Military customers placed their food orders through DLA’s online catalog,

in which Supreme listed its prices. The contract allowed Supreme to change the prices

once every two weeks. (R4, tab 1 at 20-21, 34-35)

5. With respect to monitoring the continuing reasonableness of prices, the

contract provided:

a. A firm receiving an award under this pricing

arrangement will be subject to price verification techniques

such as market basket analysis and random price and

invoice analysis. The distribution prices for the item

categories as well as the delivered prices for items in each

zone’s market basket . . . will be analyzed extensively to

ensure the pricing for all items is fair and reasonable. In

summary, the pricing strategy for this acquisition has been

formulated to ensure that:

1

R4, tab 1, is the solicitation. The contract incorporated the solicitation (R4, tab 6

at 1-2). Citations are to the .pdf page number of the electronic file.

2

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(i) A flexible pricing provision should facilitate the

establishment of a long-term partnership which allows for

price adjustment based on market factors;

(ii) The offerors’ procurement/pricing process is being

evaluated to ascertain that market pricing provided to the

Government is at the most favorable terms;

(iii) An ongoing post award review based on the plan

submitted by the successful offeror will be conducted to

verify that we [DLA] continue to receive market pricing

during contract performance.

(R4, tab 1 at 23) (emphasis added)

6. On February 9, 2006, after Supreme had begun performing, DLA issued a

memorandum that required Supreme “to submit a valid manufacturer’s invoice

pertaining to any item that either increases or decreases in delivered price by 5% in the

proposed update, or either increases or decreases by 10% in total price” (app. mot.

at ex. 2). The contracting officer (CO) would then decide whether to accept the price

change (id.). Supreme complied with this directive (see compl., ex. A., encl. 1 at 23-

24).

7. Supreme’s initial supplier for a variety of items including fresh fruits and

vegetables was Barakat Vegetables & Fruits Co. (Barakat) (Supreme I at finding 193).

8. Supreme states, and DLA does not dispute, that in February 2010, after more

than four years of performance, DLA approved a second supplier, the Fresh Fruits

Company (FFC) (app. mot. at 3).

9. Both parties cite a May 23, 2012 supplemental disclosure that Supreme

submitted to the Department of Defense Inspector General (compl., ex. A, encl. 1 (the

“suppl. discl.”)). (This document at page 2 cites an initial disclosure by Supreme to a

DLA employee by email on April 10, 2011, but the parties have not provided this

email to the Board).

10. The supplemental disclosure describes “an apparent scheme by [Christoffel

Vos, a former Supreme purchasing manager] to corrupt the Company’s competition

for supply of Fresh Fruits and Vegetables . . . .” (suppl. discl. at 3). Supreme stated

that Mr. Vos had manipulated the monthly price competitions between the two

suppliers by sharing FFC’s prices with Barakat (id. at 4). Supreme found that

“Mr. Vos defrauded the Company by colluding with Barakat’s representative and

rigging prices” (id. at 13). Supreme reported the matter to the authorities in the United

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Arab Emirates (UAE), accusing Mr. Vos of committing larceny, fraud, breach of trust,

concealment of crimes, and fraud in commercial transactions, as those offenses are

defined under the UAE Penal Code (id. at 5).

11. Supreme stated in the supplemental disclosure that it had retained the

accounting firm Ernst & Young (EY) “for the purpose of helping to determine possible

damage to the Company” and to determine if it was appropriate to offer the

government restitution (suppl. discl. at 6). Supreme (or EY) learned that Mr. Vos had

a “lavish lifestyle” but stated that, while there were plausible reasons to believe that he

had received kickbacks, it found no “specific evidence of kickbacks” 2 (id. at 5, 8).

12. Supreme stated that Mr. Vos solicited prices from FFC and Barakat each

month and was supposed to award to the supplier that provided the best value to the

government (suppl. discl. at 10-11). Although prices from the companies were due

at the same time (id. at 10), Supreme discovered that Barakat regularly submitted its

prices after FFC (id. at 11). Further, on numerous occasions Mr. Vos placed telephone

calls to Barakat within minutes or hours of receiving FFC’s prices but before Barakat

submitted its prices (id. at 11). Between March 2010 and April 2011, Barakat won

95% of the fresh fruits and vegetable awards (id. at 13). After Supreme terminated

Mr. Vos and established better controls, Barakat’s award percentage dropped to 55%.

(id. at 15).

13. EY performed an analysis and developed an “upper range of total potential

damage” to the government of $2.736 million (suppl. discl. at 27). EY’s analysis was

based on the idea that price alone does not determine the best value of a food item and

that, for example, some countries have better products of specific fruit than others (id.

at 22). As a result, EY set out only to identify instances where Mr. Vos awarded the

sale to Barakat when Barakat’s price was higher, and the item came from the same

country or region (id. at 25).

14. EY discovered, for example, that in March 2010, both Barakat and FFC

proposed to deliver avocados from Thailand. Even though FFC’s price was

significantly lower at $2.72 per pound compared to $3.25 for Barakat, Mr. Vos

awarded the delivery to Barakat (id. at 26). While almost all of EY’s “upper range”

calculation came from instances similar to that, EY also discovered some instances

where Barakat initially proposed a lower price than FFC but then increased its final

2

The report states that Supreme examined Mr. Vos’s company issued laptop and

phone but does not state, and there is no reason to believe, that Supreme had

access to Mr. Vos’s personally owned devices or his banking or other financial

records (id. at 9). The report does not state what led Supreme to conclude that

Mr. Vos had a lavish lifestyle or how his lifestyle differed from what a

reasonable person could have afforded based on his salary at Supreme.

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prices “nearer to, but not in excess of, the prices FFC proposed, apparently as a result

of learning FFC’s proposed prices from Mr. Vos” (id. at 27).

15. Supreme offered DLA “restitution” of $1.566 million (id. at 6).

16. DLA requested assistance from the Defense Contract Audit Agency

(DCAA), which issued a report dated May 30, 2013 (compl., ex. A, encl. 2). The

report challenged several of EY’s assumptions and calculated an audit adjusted

amount of $4,984,096 (id. at 5). DCAA’s largest criticism of EY was that, as

described above (SOF ¶ 13), EY eliminated from consideration instances where

Mr. Vos awarded a delivery to Barakat despite its higher price simply because Barakat

proposed a product from a different country than FFC (compl., ex. A, encl. 2 at 9).

DCAA questioned this because it stated that there was no evidence that Supreme did,

in fact, buy higher quality products that would justify a premium price. Moreover,

DCAA found evidence that when Barakat was the only company to offer products

from Holland or Australia it received the award but that when FFC was the only

company to offer products from Holland or Australia FFC did not receive the award

(id. at 10).

17. On October 14, 2015, CO Lourdes Valentin issued a final decision, citing

Supreme’s supplemental disclosure and the DCAA report, and demanding $4,984,096

from Supreme (app. mot. at ex. 6).

18. Supreme filed a timely appeal on November 3, 2015. DLA filed a

complaint containing three counts: breach of contract, breach of the duty of good faith

and fair dealing, and restitution. 3

DECISION

I. Standard of Review

In a motion for judgment on the pleadings, the Board applies the same standard

as in a motion for failure to state a claim. Unitech Servs. Grp., Inc., ASBCA

No. 56482, 10-1 BCA ¶ 34,362 at 169,695. In considering a motion to dismiss for

failure to state a claim, the Board “may consider judicially noticeable matters outside

the pleadings without converting [the] motion into one for summary judgment.”

CODA Dev. S.R.O. v. Goodyear Tire & Rubber Co., 916 F.3d 1350, 1360 (Fed. Cir.

2019) (citing Jackson v. City of Columbus, 194 F.3d 737, 745 (6th Cir. 1999),

overruled on other grounds by Swierkiewicz v. Sorema N. A., 534 U.S. 506 (2002)). In

Jackson, the Sixth Circuit stated that consideration of documents outside the pleadings

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When, as is the case here, the appeal involves a government claim, the Board often

requires the government to file the complaint.

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generally requires conversion of the motion to one for summary judgment. The Court

noted that there are exceptions to this rule, including that documents “attached to a

motion to dismiss are considered part of the pleadings if they are referred to in the

plaintiff’s complaint and are central to the plaintiff’s claim.” Jackson, 194 F.3d at 745

(citing Weiner v. Klais & Co., 108 F.3d 86, 89 (6th Cir. 1997)). Further, a tribunal

may “consider public records, matters of which a court may take judicial notice, and

letter decisions of governmental agencies.” Id. (citations omitted).

DLA’s complaint cites, and includes as attachments, the CO’s final decision,

Supreme’s supplemental disclosure, and the DCAA report. Supreme’s motion

includes as an attachment relevant excerpts from the contract, the supplemental

disclosure, and the CO’s final decision. The contract, Supreme’s supplemental

disclosure, the DCAA report, and the CO’s final decision are all integral to DLA’s

claim. There is no dispute about their authenticity by either party, and neither party

has objected to their consideration in this motion. Accordingly, the Board may

consider them in deciding Supreme’s motion for judgment on the pleadings.

II. DLA’s Complaint States a Claim Upon Which Relief May Be Granted

“A breach of contract claim requires two components: (1) an obligation or duty

arising out of the contract and (2) factual allegations sufficient to support the

conclusion that there has been a breach of the identified contractual duty.” Bell/Heery

v. United States, 739 F.3d 1324, 1330 (Fed. Cir. 2014) (citing Hercules, Inc. v. United

States, 24 F.3d 188, 198 (Fed.Cir.1994); San Carlos Irrigation & Drainage Dist. v.

United States, 877 F.2d 957, 959 (Fed.Cir.1989)). When the language of the contract

is clear and unambiguous, it must be given its plain and ordinary meaning. Id. at 1331.

The contract must be construed as a whole and “in a manner that gives meaning to all

its provisions and makes sense.” Id. (quoting McAbee Const., Inc. v. United States,

97 F.3d 1431, 1435 (Fed.Cir.1996)).

“When interpreting the contract, the document must be considered as a whole

and interpreted so as to harmonize and give reasonable meaning to all of its parts.”

NVT Technologies, Inc. v. United States, 370 F.3d 1153, 1159 (Fed. Cir. 2004) (citing

McAbee, 97 F.3d at 1434–35). “An interpretation that gives meaning to all parts of the

contract is to be preferred over one that leaves a portion of the contract useless,

inexplicable, void, or superfluous.” Id. (citing Gould, Inc. v. United States, 935 F.2d

1271, 1274 (Fed. Cir. 1991).

A. DLA Has Pled Actionable Harms

Supreme accused its former purchasing manager, Mr. Vos, of “colluding” with

Barakat and “rigging prices.” Supreme reported him to UAE authorities for

committing various crimes. (SOF ¶ 10) We expect that Supreme would not make

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such accusations, nor would it go to the expense of hiring EY, nor would it have sent a

letter to DLA suggesting millions of dollars in damages, if it did not believe that

Mr. Vos had committed serious misconduct. The reason why Supreme made the

disclosure seems obvious: because DLA reimbursed Supreme for the Delivered Prices,

DLA would have been harmed by any inflated costs. Thus, it is rather jarring to read

Supreme’s motion to dismiss, in which Supreme contends that DLA suffered no

actionable harm. In its reply brief, Supreme goes even further, making the dubious

assertion that “the nature of Mr. Vos’s actions has the general effect of lowering prices

to undercut competition” (app. reply at 6).

We read the provisions of the contract cited above in SOF ¶ 5 as requiring

Supreme to provide “fair and reasonable” prices. The provisions for continuing post-

award verifications that the prices remain advantageous to the government and comply

with market-based rates are only sensible in this context. Moreover, as described

above, the contract provided that Supreme could charge DLA a Delivered Price, which

was the “actual invoice price” from the supplier (SOF ¶ 3). We do not believe that the

term, ‘actual invoice price’ embraces invoices that are the product of fraud, such as bid

ridding or kickbacks, and, in any event, we could certainly find that the government’s

reasonable contract-based expectation was that when Supreme submitted an invoice,

that invoice would not be one that was so tainted. Billing DLA with rigged prices

would be a breach.

Further, Supreme agreed that it would be subject to post-award scrutiny by

DLA to ensure, among other things, that “pricing for all items is fair and reasonable,”

that pricing “is at the most favorable terms,” and that DLA would “continue to receive

market pricing during contract performance” (SOF ¶ 5). For purposes of a motion to

dismiss for failure to state a claim, we believe that it is reasonable to conclude that a

rigged price is not a price “at the most favorable terms” or a “fair and reasonable”

price. See Anaheim Gardens v. United States, 444 F.3d 1309, 1314-15 (Fed. Cir.

2006) (in a motion to dismiss for failure to state a claim, the tribunal assumes well-

pled factual allegations are true and makes reasonable inferences in favor of the

nonmovant) (quoting Gould, 935 F.2d at 1274).

In addition, the contract provided that post-award DLA could conduct “market

basket analysis and random price and invoice analysis” (SOF ¶ 5). Supreme has

disclosed Mr. Vos’s “corrupt” relationship with Barrakat and has disclosed that when

both Barakat and FFC offered comparable products, he awarded the delivery to

Barakat despite its higher prices due to his relationship with Barakat (SOF ¶ 12). That

Supreme, and Mr. Vos, escaped DLA’s scrutiny at the time is not the end of the

matter. We see no reason why DLA cannot analyze the prices after the deliveries were

made to ensure that it received pricing that was fair and reasonable and at the most

favorable terms.

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Supreme’s supplemental disclosure, which is cited and attached to DLA’s

complaint, provides compelling evidence that Supreme breached the contract because

its purchasing manager undertook a number of acts directly contrary to obtaining

reasonable prices such as: 1) failing to engage in arms-length bargaining with

Barakat; 2) rigging prices and possibly accepting kickbacks; 3) deviating from

Supreme’s standard practice of purchasing the product that was the best value for the

government; 4) disclosing confidential information from a bidder to a competitor;

5) repeatedly failing to select the lowest offeror; and 6) concealing his actions (SOF ¶¶

10-14). Supreme’s supplemental disclosure is also persuasive evidence that Supreme

violated the duty of good faith and fair dealing because it deprived DLA of its

reasonable expectation of fair and reasonable market pricing. Dobyns v. United States,

915 F.3d 733, 739 (Fed. Cir. 2019).

Supreme bases its motion on several contentions, all of which ignore its

contractual duty to obtain reasonable prices for the government and the effects that

price fixing and potential kickbacks have upon that pricing. It states that: for the first

several years of performance, Barakat was the exclusive supplier; Supreme was not

obligated to bring FFC into the contract; and there was no contractual provision that

required Supreme to compete the monthly awards to a supplier other than Barakat or to

find the lowest possible price every month (app. mot. at 7; app. reply at 1-2). Supreme

also contends that DLA fails to allege that any specific fruits and vegetable prices it

paid were unreasonable or that Supreme violated the process (SOF 6) for changing

prices (app. mot. at 8).

The short answer to Supreme’s contentions is that throughout performance

Supreme had a duty to comply with the law and the contract. For example, Supreme’s

employees were barred from accepting kickbacks from Barakat when Barakat was the

sole supplier. E.g., Kellogg Brown & Root Services, Inc. v. United States, 728 F.3d

1348, 1370 (Fed. Cir. 2013). Once Supreme brought FFC on board, its employees

continued to have a duty not to accept kickbacks or to rig the bids. And once DLA

had bids from two approved suppliers, Supreme’s obligation to provide DLA pricing

at the most favorable terms meant that Supreme could not charge DLA nearly 20%

more for avocados simply because it had a corrupt employee (SOF ¶ 14). In other

words, voluntarily bringing FFC into the contract did not give Supreme a free pass for

bad conduct.

As for Supreme’s contention that DLA fails to identify specific transactions in

which it overpaid, this is true if we confine ourselves to the numbered paragraphs of

the complaint. But the complaint incorporates Supreme’s supplemental disclosure,

which gives us the big picture fact that after Mr. Vos was terminated the award

percentage to Barakat dropped from 95% to 55% (SOF ¶ 12). It also gives us the

specific example of the avocados from Thailand and Mr. Vos’s award to Barakat even

though its price was nearly 20% higher than FFC (SOF ¶ 14). We add that it is not

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uncommon for the government to encounter difficulty in proving the exact damages in

matters involving fraud, which does not justify dismissal of such cases. See

Continental Mgmt., Inc. v. United States, 527 F.2d 613, 619 (Ct. Cl. 1975).

Accordingly, when the complaint is read along with the incorporated supplemental

disclosure, DLA has alleged more than enough to survive a motion to dismiss for

failure to state a claim.

CONCLUSION

Supreme’s motion is denied.

Dated: April 12, 2024

MICHAEL N. O’CONNELL

Administrative Judge

Vice Chairman

Armed Services Board

of Contract Appeals

I concur I concur

OWEN C. WILSON J. REID PROUTY

Administrative Judge Vice Chairman

Acting Chairman Administrative Judge

Armed Services Board Armed Services Board

of Contract Appeals of Contract Appeals

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I certify that the foregoing is a true copy of the Opinion and Decision of the

Armed Services Board of Contract Appeals in ASBCA No. 60309, Appeal of Supreme

Foodservice GmbH, rendered in conformance with the Board’s Charter.

Dated:

PAULLA K. GATES-LEWIS

Recorder, Armed Services

Board of Contract Appeals

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