Philadelphia Authority for Industrial Development v. United States

In the United States Court of Federal Claims

No. 07-628C

(Filed: January 6, 2014)

**************************************

PHILADELPHIA AUTHORITY FOR *

INDUSTRIAL DEVELOPMENT, * Misrepresentations; Negligent

* Estimates; Summary Judgment;

Plaintiff, * Genuine Issues of Material Fact;

* CDA; Negotiated Utility Service

v. * Contract

*

THE UNITED STATES, *

*

Defendant. *

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Kenneth I. Levin, Philadelphia, PA, for plaintiff.

Devin A. Wolak, United States Department of Justice, Washington, DC, for defendant.

OPINION AND ORDER

SWEENEY, Judge

In this action for breach of contract arising from the United States Department of the

Navy’s (“Navy” or “defendant”) sale of its steam plant to the Philadelphia Authority for

Industrial Development (“PAID” or “plaintiff”), 1 plaintiff seeks an award of money damages

based upon the alleged misrepresentations or negligent estimates provided by defendant to

plaintiff concerning defendant’s historical costs for and consumption of steam. Defendant filed a

motion to dismiss, or in the alternative, for summary judgment. The court finds that genuine

issues of material fact remain for five counts of plaintiff’s six-count amended complaint

regarding what defendant knew at the time it issued its solicitation, whether defendant

negligently or deliberately provided inaccurate or misleading information to plaintiff, and the

extent to which plaintiff relied on the data provided by defendant. Consequently, the court

grants in part and denies in part defendant’s motion.

I. BACKGROUND

In 1990, Congress enacted Public Law 101-510, the Defense Base Closure and

Realignment Act of 1990, which, among other things, directed the Navy to downsize and dispose

of excess properties. Among the properties identified by the Navy for closure were the Naval

1

Specifically, PAID entered into a contract with the Navy’s Atlantic Division, Naval

Facilities Engineering Command.

Station Philadelphia and the Philadelphia Naval Shipyard (“Naval Base”). Despite closure

designations for the properties, the Navy planned to maintain two facilities at its former Naval

Base: the Naval Surface Warfare Center Carderock Division-Ship Systems Engineering Station

and the Naval Foundry and Propeller Center. As a result, the Navy would become the tenant of

the new owner.

The City of Philadelphia became the owner of the Naval Base and established plaintiff as

its redevelopment authority to develop and manage the Naval Base under its new name, the

Philadelphia Naval Business Center (“PNBC”), commonly known as “The Navy Yard.” Plaintiff

would be the sole provider of utility service to the PNBC. On March 31, 1999, plaintiff and

defendant entered into a purchase agreement whereby the Navy agreed to convey to plaintiff

essentially all of the real property and improvements at the former Naval Base. PA 45-63, 67. 2

Contemporaneously, the parties entered into a related agreement – the Utilities Agreement.

The dispute giving rise to this litigation centers on the March 31, 1999 Utilities

Agreement, which, among other things, obligated defendant to convey to PAID all of the Navy’s

utilities systems at the Naval Base as well as negotiate utility agreements, a process that

culminated in the August 31, 2001 Utilities Service Contract. PA 67-73; DA 252-58. The utility

systems that provided electricity, natural gas, potable water, non-potable water, sewer, storm

sewer, and, most relevant to this litigation, steam, were to be transferred to plaintiff and

negotiated utility agreements were to be accomplished before April 1, 2000, PA 69; DA 254, but

the date for consummation of the agreements subsequently was extended by eighteen months to

August 31, 2001. 3

The transfer of the utility systems to plaintiff expressly was made conditional, however,

on an provision that imposed a ceiling on the rate PAID could charge for providing utility

services to the Navy:

The service agreements shall include provisions normally a part of

agreements covering such utility services in that particular industry

and shall establish mutually acceptable rate design and other rate

and service principles, and they shall describe the nature of the

service to be rendered, the term of the agreement, and other terms

and conditions typical in and appropriate to such agreements,

including mutually acceptable termination clauses without penalty

to either party. The parties agree that the utility rates to be paid by

the Government for the commodity and system maintenance will

2

Throughout this opinion, the court uses “PA ___” to refer to attachments to plaintiff’s

response to defendant’s motion to dismiss, and “DA ___” to refer to attachments to defendant’s

motion to dismiss. In many instances, the parties appended the identical material, and the court

cites to either, or both, of their submissions. Citations to the amended complaint appear as “Am.

Compl. ¶ ___.”

3

The parties memoranda agree that the date was extended to August 31, 2011, but do not

provide the documents reflecting the extension.

2

be at least as favorable as the rates charged by PAID to other

customers under like conditions of service, but in no event higher

than the Government’s fully allocated cost to the Government

immediately prior to the transfer of service, such rate to remain in

effect for a mutually agreed time period.

PA 68 (emphasis added).

On November 5, 1999, the Navy issued a sole-source Request for Proposal (“RFP”) to

plaintiff for the procurement of utility services. PA 74-203. The RFP asked plaintiff to propose

a rate structure that provided for a fixed rate for operation and maintenance services for a three-

year period and a pass-through rate reflecting the variable cost for commodities such as fuel,

electricity, and water. PA 77-78. As part of its preparations for its bid proposal, PAID issued its

own RFP to hire a utility vendor to serve as its subcontractor to operate the utility systems at the

PNBC. DA 275-304.

Ultimately, in November 2000, plaintiff selected Cinergy Solutions of Philadelphia, LLC

(“Cinergy”) as its subcontractor to provide operation and maintenance services for the PNBC’s

utility systems. PA 206-20. On December 4, 2000, plaintiff submitted its proposal in response

to the Navy’s RFP. PA 221-301. Plaintiff’s proposed steam rate consisted of two separate parts

– a fixed steam facilities charge and a variable steam consumables charge. PA 224-25. The

steam facilities charge consisted of the amount Cinergy would receive as compensation for its

services and a one percent administrative fee for PAID. Id.

Defendant raised several concerns with PAID’s December 4, 2000 proposal and

requested supporting information from PAID, which it provided. PA 302-07. It is worthy of

note that both during PAID’s search for a utilities subcontractor and after selecting Cinergy,

plaintiff requested additional information from defendant to assist PAID in its preparation of

PAID’s response to defendant’s RFP. 4 The parties exchanged correspondence and held meetings

as they continued their negotiations. On March 2, 2001, plaintiff wrote to defendant

summarizing the parties’ discussions at a meeting held the previous day. PA 308-18. In its

letter, plaintiff explained that its proposed pricing for the steam facilities charge had been

developed without access to the Navy’s actual historical records:

4

Plaintiff made at least three inquiries of defendant for information concerning the

utilities systems at the Naval Base. Am. Compl. ¶ 26. First, by letter dated December 30, 1999,

John Grady, plaintiff’s head of Naval Base development, requested from defendant information

related to the steam system and the Navy’s requirements regarding the quality of steam to be

delivered. DA 261-68. Six months later, in June 2000, plaintiff again sought information

regarding the utility system, including steam system boiler operating logs so it could evaluate

“fuel-to-steam efficiency and stack emissions.” DA 271-72. Plaintiff’s third request was made

on September 7, 2001, when PAID sought, among other things, a monthly breakdown of

defendant’s cost to purchase steam for each of its facilities for a twelve-month period. DA 305-

06.

3

The Navy RFP requested a fixed price for operation and

maintenance of the utilities systems. We provided this. Under our

proposal, PAID and its operators are taking the risk that the

[Operation & Maintenance] can be accomplished for that overall

price. If the cost to maintain the systems is greater than what

PAID has set forth in its Proposal, we bear that cost and the Navy

does not. The Navy must keep in mind that PAID and its operators

developed these budgets and fixed prices with no operating

experience and based on no operating history, in large part because

the Navy refused or was unable to provide maintenance logs and

relevant repair history. These budgets were developed by experts

based on their experience operating similar systems. In return for

taking this risk, we need the flexibility to operate the entire system,

as an integrated distribution system, in the most efficient manner

possible.

PA 310; DA 336. Plaintiff’s frustration with the Navy’s stance of requesting but not sharing

information with PAID was apparent in this same correspondence:

The Navy has never once indicated that any of the overall rates are

too high. Rather it has questioned detailed line items that make up

the overall rate. If the Navy has a rate it must achieve, based upon

the standard set forth in the Utilities Agreement, then give us that

number and we will respond accordingly. What we can’t do is

respond piecemeal to individual points in the PAID proposal.

PA 310; DA 336 (emphasis added). At this point in the parties’ negotiations, the annual fixed

charge for the operation and maintenance of the system was the lone risk factor because PAID’s

proposal contemplated that the variable costs would be passed through to the Navy each month

as the actual costs were incurred. See PA 310; DA 336.

Defendant responded by letter dated March 14, 2001. PA 314-18; DA 340-44. In its

letter, the Navy contended that plaintiff’s proposal had not been responsive. PA 314-15; DA

340-41. Specifically, defendant asserted that plaintiff’s proposal “greatly exceed[ed the] Navy’s

fully allocated costs,” which would violate the Utilities Agreement. PA 314; DA 340.

Defendant also provided plaintiff with the “Navy’s fully allocated costs for [its] review,” and

attached a worksheet, that included quantities of steam produced and consumed on a yearly

basis, along with a formula for converting these numbers into the costs. PA 316-18; DA 342-44.

The worksheet indicated that the Navy produced 177,000 MMBtu of steam per year at the site

and consumed 116,000 MMBtu per year. 5 PA 316; DA 342. The worksheet also reflected that

the “Navy’s fully allocated fixed cost for steam is $1,114,470 annually, as compared to PAID’s

proposed fixed costs of $1,638,240.” PA 316; DA 342. The Navy explained that it was

providing the cost information to plaintiff “in anticipation that, in accordance with the Utilities

5

The abbreviation MMBtu stands for “one million British thermal units,” a measurement

of heat produced. Def.’s Mot. 2 n.1.

4

Agreement, PAID’s costs will not exceed [the] Navy’s fully allocated costs.” PA 314-15; DA

340-41.

Plaintiff responded on March 27, 2001, taking issue with some of defendant’s

assumptions and proposing numbers regarding fixed costs and adjustments to the cost for

operation and maintenance for steam. PA 319-23; DA 345-50. Plaintiff explained that the

“Utilities Agreement, dated March 30, 1999, 6 clearly requires the Navy to compare PAID’s

proposal to the Navy’s fully allocated cost ‘immediately prior to transfer of service.’” PA 319;

DA 345 (footnote added). Plaintiff explained that it understood the figures in defendant’s March

14, 2001 letter to be estimates of fully allocated costs, not actual figures, and requested that

defendant provide actual operating expenses. PA 319-20; DA 345-46.

On April 9, 2001, defendant sent to plaintiff, via electronic mail, a spreadsheet that

compared three years of plaintiff’s projected costs from its proposals with the Navy’s costs. PA

324-26. Defendant again indicated that, per year, it had consumed 116,000 MMBtu of steam,

but now indicated that its fixed costs for steam totaled $1,268,064. PA 325. The worksheet also

provided a cost breakdown indicating that the Navy’s total per unit cost for steam was $24.05.

Id.

That same day, plaintiff sent a memorandum to defendant explaining that its

subcontractor, Cinergy, would not agree to a transfer of the utilities without the inclusion of the

steam plant. DA 368-71. Plaintiff included this requirement in its offer to the Navy despite

defendant’s prior advice that PAID’s proposal to provide steam exceeded the cost of the Navy

continuing to maintain the utility system itself and that half of the cost overrun was attributable

to steam operations. DA 368. Plaintiff maintained that without the steam operations or a long-

term contract, the contract would be too risky. Id.

By letter dated April 12, 2001, defendant responded to PAID’s April 9 memorandum. 7

In its letter, defendant explained that it could not accept plaintiff’s proposal because “PAID’s

latest proposal . . . does not meet the requirements in the Utilities Agreement of March 1999 for

matching [the] Navy’s fully allocated costs to own and operate the system.” PA 328; DA 373.

Defendant voiced its objection that plaintiff’s proposal for steam passed all operating costs along

to the Navy, and therefore plaintiff would have no incentive to hold down costs. PA 329; DA

374. Defendant also noted the cogeneration capability of the steam plant, which could also

produce electricity, and expressed its concern for the possibility that plaintiff could use the steam

plant to generate pure profit by running the steam plant to generate electricity, but charging the

steam operating costs fully to defendant. PA 329; DA 374. Finally, defendant expressed its

disagreement with plaintiff’s plan to staff and operate the steam plant on a year-round basis

6

Although the letter recites that the utilities agreement is dated March 30, 1999, there is

no dispute that the agreement is dated March 31, 1999.

7

Both copies of this letter provided by the parties are incorrectly paginated as: pages

one, four, two, three, and five. The court cites to the page numbers assigned by the parties and as

numbered in their respective appendixes.

5

because, historically, defendant only operated and staffed the steam plant during five-and-one-

half months of the year. PA 329; DA 374. Defendant, therefore, counterproposed a fixed rate of

$24 per MMBtu for steam produced, claiming that that price was “based on historic past

performance with this plant.” PA 330-31; DA 373. Defendant also proposed that the rate be

adjustable after three years to reflect inflation. PA 328; DA 373.

Just over a week later, on April 20, 2001, plaintiff responded to the Navy’s request for a

$24 per MMBtu fixed rate for steam as follows:

The Navy has requested that PAID provide steam to the Navy

retained facilities at a fixed price of $24.00 per MMBtu. PAID and

Cinergy have adjusted their operating strategy for the steam plant

in order to meet the Navy’s requirements. This strategy is based

on certain operating assumptions about the boiler plant that were

provided to us by the Navy. As PAID and Cinergy have no

operating experience with the boiler, we must rely on the Navy’s

representations in order to offer this fixed price.

PA 333; DA 380 (emphasis added). Thus, in agreeing to the Navy’s request for the cost of steam

to be provided at the fixed rate of $24 per MMBtu, plaintiff makes clear that the basis for the

agreement was its reliance on the Navy’s representations regarding operating and production

costs as well as the Navy’s anticipated demand for utility services. The letter also sought eleven

other conditions, including a minimum five-year term for the contract, a minimum consumption

guarantee, and detailed operating standard warranties, especially for boiler and system

efficiency. PA 333-34; DA 380-81.

Defendant responded to plaintiff on April 25, 2001, agreeing that “the steam rate should

be indexed to future increased fuel costs as proposed by PAID,” but rejecting plaintiff’s request

that the contract provide for minimum consumption, a minimum term of the agreement, and

specific operating standards. PA 338-40. With respect to the steam plant, defendant rejected the

minimum guarantees, but claiming that the “Navy calculated the proposed flat-rate for steam

based on actual costs to operate the plant adjusted to allow for increased cost of fuel . . . .” PA

340. Nowhere in its April 25 letter did the Navy qualify or retract its commitment regarding the

accuracy of the historical consumption data that it had provided to plaintiff in support of its

demand for a $24 per MMBtu fixed rate for steam.

With the parameters of an agreement taking shape, plaintiff reexamined its cost estimates

to determine whether it could accept the agreement without minimum consumption guarantees.

After concluding its internal deliberations, plaintiff’s representatives determined that although

PAID would incur annual losses on the steam side, PA 531, 8 plaintiff would agree to the $24 per

8

At her deposition, plaintiff’s contract negotiator, Sharon Barr, testified that plaintiff

expected to incur a loss of about $100,000-160,000 annually on the steam side. PA 531; DA

452; see also DA 392 (internal electronic mail from Ms. Barr stating: “[Y]es, clearly we knew

the steam was a loser and hoped that the electric would subsidize the steam. But as you know,

[we] thought the losses would be around $300K for 3 years then we would get off the system.”).

6

MMBtu flat rate because control of the utility systems was essential to develop the entire Naval

Base area in the way that plaintiff desired. PA 502; DA 474-80.

The parties executed Utility Service Contract N62470-99-C-3633 (“contract”) on August

31, 2001, DA 1-248, thus fulfilling the terms of the March 31, 1999 Utilities Agreement, see PA

67-73; DA 252-58. Exhibit B of the contract estimates that defendant would use 114,591

MMBtu of steam per year and that the steam service would be provided at twenty-eight

locations. DA 80-109. Importantly, each point of service specification also states: “The

Government is in no way obligated to deliver nor is it restricted to the above noted estimates.”

Id.

The contract also provides a mechanism whereby buildings no longer needing steam

could have their service cut off:

52.241-11 MULTIPLE SERVICE LOCATIONS (FEB 1995)

(a) At any time by written order, the Contracting Officer may

designate any location within the service area of the Contractor at

which utility service shall commence or be discontinued. Any

changes to the service requirements shall be made a part of the

Contract by the issuance of a modification hereto to include the

name and location of the service, specifying any different rate, the

point of delivery, different service specifications, and any other

terms and conditions.

(b) The applicable monthly charge specified in this Contract shall

be equitably prorated from the period in which commencement or

discontinuance of service at any service location designated under

the Service Specifications shall become effective.

DA 31.

Beginning with the heating season of 2001-2002, plaintiff began providing steam service

to heat defendant’s buildings. Eventually, plaintiff found a large discrepancy between the

volume of steam defendant actually consumed and the historical production record provided by

defendant to plaintiff during the parties’ negotiations. DA 486. Similarly, plaintiff identified a

large variation between the amount of steam the plant was required to produce to achieve

operational efficiency as compared with the production estimates provided by defendant to

plaintiff during the parties’ negotiations. Id. Plaintiff determined that there was a large

difference between the amount of steam lost in operating the plant and the amount of steam it

had to produce as compared to defendant’s estimates. See Am. Compl. ¶¶ 37-40. Thus, the cost

of providing steam to defendant was creating a “significant loss” and plaintiff actively sought

ways to reduce the loss by removing certain properties from the combined steam system and

shifting to more localized package boilers. DA 483-86.

7

In addition to its operational efforts to reduce losses, plaintiff sought an equitable

adjustment to the contract. DA 396-427. Plaintiff requested an adjustment in the amount of

$2,151,211.60 because the costs to provide steam to defendant were higher than expected due to

defendant’s lower than estimated consumption of steam, lower than expected steam plant

efficiency, and a lack of compensation for providing nonpotable water. Plaintiff also sought

$600,621 for the misrepresentation of steam system efficiency and $527,986.82 attributable to

the under consumption of steam, which reduced the boiler’s efficiency even more. 9

On November 15, 2005, the contracting officer denied plaintiff’s request for an equitable

adjustment. DA 428-30. After plaintiff requested the equitable adjustment be converted to a

Contract Disputes Act claim on November 28, 2005, the contracting officer issued a final

decision denying the claim in its entirety on February 8, 2007. DA 438-45.

Plaintiff timely filed suit in this court on August 23, 2007. The parties engaged in

discovery and plaintiff received responsive documents from defendant demonstrating that,

despite the Navy’s representations during contract negotiations, defendant actually produced

235,035 MMBtu during the winter of 1999-2000 and that it consumed 95,464 MMBtu of steam

that same season. 10 PA 204-05. Defendant did not use these numbers when it provided plaintiff

with estimates of its steam needs on April 9, 2001, instead estimating that it would produce

177,000 MMBtu of steam per year at the site and would consume 116,000 MMBtu per year. PA

316; DA 342.

On June 1, 2011, the court granted plaintiff’s motion for leave to file an amended

complaint, which was filed on July 21, 2011. The amended complaint included six counts. In

Count I, plaintiff alleges that defendant recklessly and negligently prepared its estimate of steam

consumption and revenues, and that it reasonably relied upon those estimates in agreeing to the

contract price of $24 per MMBtu of steam produced. In Count II, plaintiff asserts in the

alternative that defendant materially breached the utilities contract by misrepresenting the

estimates of steam production and consumption to induce plaintiff to agree to the $24 per

MMBtu price. In Count III, plaintiff argues that the Navy’s estimates of steam consumption and

production, which it provided to plaintiff on April 9, 2001, were defective specifications. In

Count IV, plaintiff sets forth a theory of recovery pursuant to the superior knowledge doctrine.

In Count V, plaintiff avers that both parties were mutually mistaken as to the true nature of

defendant’s steam needs, and therefore reformation of the contract would be appropriate.

Finally, in Count VI, plaintiff alleges that it is entitled to a rate adjustment under the terms of the

contract because several buildings originally listed in Exhibit B of the contract no longer receive

steam from the steam system.

9

Plaintiff also sought $169,509.75 for providing nonpotable water, but dropped its

request for compensation for nonpotable water in this court.

10

Plaintiff also received in discovery a worksheet indicating that in the winter of 2000-

2001, defendant actually produced 173,303 MMBtu of steam and consumed 105,371 MMBtu

that same season. PA 444-45.

8

Defendant moves to dismiss the complaint for failure to state a cause of action under

which relief can be granted as to counts III, IV, and V. Defendant also moves for summary

judgment in its favor as to counts I, II, III, IV, and VI. 11 The parties have completed briefing the

issues raised by defendant’s motion and the court deems oral argument unnecessary.

II. DISCUSSION

A. Failure to State a Claim Standard

Defendant has moved in part for dismissal for failure to state a claim pursuant to Rule

12(b)(6) of the Rules of the United States Court of Federal Claims (“RCFC”). “A complaint

must be dismissed under Rule 12(b)(6) when the facts asserted do not give rise to a legal

remedy.” Indian Harbor Ins. Co. v. United States, 704 F.3d 949, 954 (Fed. Cir. 2013) (citing

Lindsay v. United States, 295 F.3d 1252, 1257 (Fed. Cir. 2002)). “When considering an RCFC

12(b)(6) motion, the court “must determine ‘whether the claimant is entitled to offer evidence to

support the claims,’ not whether the claimant will ultimately prevail.” Chapman Law Firm Co.

v. Greenleaf Constr. Co., 490 F.3d 934, 938 (Fed. Cir. 2007) (quoting Scheuer v. Rhodes, 416

U.S. 232, 236 (1974), overruled on other grounds by Harlow v Fitzgerald, 457 U.S. 800, 814-19

(1982)). “[T]he consequence of a ruling by the court . . . that plaintiff’s case does not fit within

the scope of the [money-mandating] source . . . is simply this: plaintiff loses on the merits for

failing to state a claim on which relief can be granted.” Jan’s Helicopter Serv. v. United States,

525 F.3d 1299, 1307 (Fed. Cir. 2008) (alteration in original); see also RhinoCorps Co. v. United

States, 87 Fed. Cl. 481, 492 (2009) (“A motion made under Rule 12(b)(6) challenges the legal

theory of the complaint, not the sufficiency of any evidence that might be adduced.”).

“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim of relief that is plausible on its face.’” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2006)).

“Deciding whether a complaint states a plausible claim for relief will . . . be a context-specific

task that requires the reviewing court to draw on its judicial experience and common sense.”

Iqbal, 556 U.S. at 679. “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.” Id. at 678 (citing Twombly, 550 U.S. at 556). Neither allegations “that are

‘merely consistent with’ a defendant’s liability,” nor “[t]hreadbare recitals of the elements of a

cause of action, supported by mere conclusory statements” are sufficient. Id.

“The court assumes all well-pled factual allegations are true and indulges in all

reasonable inferences in favor of the nonmovant.” Terry v. United States, 103 Fed. Cl. 645, 652

(2012) (citing United Pac. Ins. Co. v. United States, 464 F.3d 1325, 1327-28 (Fed. Cir. 2006)).

11

Defendant also suggests that the court lacks jurisdiction over Count I of the complaint

because the allegedly negligent estimates were prepared before the contract was signed.

However, defendant does not argue this position as an independent ground for dismissal and the

court is satisfied that there is jurisdiction because the data was made part of Exhibit B to the

contract.

9

The court is “not bound to accept as true a legal conclusion couched as a factual allegation.”

Twombly, 550 U.S. at 555.

B. Summary Judgment Standard

Defendant has moved in part for summary judgment pursuant to RCFC 56. Summary

judgment is appropriate when there is no genuine issue of material fact and the moving party is

entitled to a judgment as a matter of law. RCFC 56(a); Celotex Corp. v. Catrett, 477 U.S. 317,

322 (1986). A fact is material if it “might affect the outcome of the suit under the governing

law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue is genuine if it “may

reasonably be resolved in favor of either party.” Id. at 250.

The moving party bears the initial burden of demonstrating the absence of any genuine

issue of material fact. Celotex Corp., 477 U.S. at 323. The nonmoving party then bears the

burden of showing that there are genuine issues of material fact for trial. Id. at 324. Both parties

may carry their burden by “citing to particular parts of materials in the record, including

depositions, documents, electronically stored information, affidavits or declarations, stipulations

(including those made for purposes of the motion only), admissions, interrogatory answers, or

other materials” or by “showing that the materials cited do not establish the absence or presence

of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the

fact.” RCFC 56(c)(1).

The court must view the inferences to be drawn from the underlying facts in the light

most favorable to the nonmoving party. Matsushita Elec. Ind. Co. v. Zenith Radio Corp., 475

U.S. 574, 587 (1986). However, the court must not weigh the evidence or make findings of fact.

See Anderson, 477 U.S. at 249 (“[A]t the summary judgment stage the judge’s function is not

himself to weigh the evidence and determine the truth of the matter but to determine whether

there is a genuine issue for trial.”); Contessa Food Prods., Inc. v. Conagra, Inc., 282 F.3d 1370,

1376 (Fed. Cir. 2002) (“On summary judgment, the question is not the ‘weight’ of the evidence,

but instead the presence of a genuine issue of material fact . . . .”), abrogated on other grounds by

Egyptian Goddess, Inc. v. Swish, Inc., 543 F.3d 665 (Fed. Cir. 2008) (en banc); Ford Motor Co.

v. United States, 157 F.3d 849, 854 (Fed. Cir. 1998) (“Due to the nature of the proceeding, courts

do not make findings of fact on summary judgment.”); Mansfield v. United States, 71 Fed. Cl.

687, 693 (2006) (“[T]he Court may neither make credibility determinations nor weigh the

evidence and seek to determine the truth of the matter. Further, summary judgment is

inappropriate if the factual record is insufficient to allow the Court to determine the salient legal

issues.”). Entry of summary judgment is mandated against a party who fails to establish “an

element essential to that party’s case, and on which that party will bear the burden of proof at

trial.” Celotex Corp., 477 U.S. at 322.

C. Count III of the Amended Complaint Must Be Dismissed

In its response to defendant’s motion, plaintiff fails to address defendant’s arguments that

Count III of its amended complaint, which advances a theory of liability based upon defective

specifications provided by defendant, should be dismissed. The court construes plaintiff’s

silence regarding the merits of defendant’s argument respecting Court III as PAID’s concession

10

as to the validity of defendant’s position. Accordingly, plaintiff has waived its arguments

respecting Count III, and the court need not consider it further. Cardiosom, LLC v. United

States, 91 Fed Cl. 659, 664 (2010) (noting that when a plaintiff fails to respond to an argument,

the plaintiff “has effectively conceded the issue”). Thus, Count III of the amended complaint is

dismissed.

D. Plaintiff Has Presented Allegations Sufficient to State a Claim for Superior Knowledge

and Mutual Mistake

Defendant has also moved the court to dismiss Counts IV and V, arguing that plaintiff

failed to state a claim upon which relief can be granted. Count IV of the amended complaint

alleges that plaintiff undertook to perform pursuant to the contract despite defendant’s superior

knowledge of the history of the operation of the steam plant that it withheld from plaintiff,

leading to plaintiff’s losses. Count V of the amended complaint alleges that the parties were

mutually mistaken as to the operating history of the steam plant when they agreed to the fixed

rate of $24 per MMBtu of steam.

As the United States Court of Appeals for the Federal Circuit has explained:

The doctrine of superior knowledge is generally applied to

situations where (1) a contractor undertakes to perform without

vital knowledge of a fact that affects performance costs or

duration, (2) the government was aware the contractor had no

knowledge of and had no reason to obtain such information, (3)

any contract specification supplied misled the contractor or did not

put it on notice to inquire, and (4) the government failed to provide

the relevant information.

Hercules, Inc. v. United States, 24 F.3d 188, 196 (Fed. Cir. 1994); see also Scott Timber Co. v.

United States, 692 F.3d 1365, 1373 (Fed. Cir. 2012) (citing Hercules).

Plaintiff’s theory of superior knowledge rests on defendant providing to PAID, in April

2001, what the Navy claimed were the historical operating and consumption figures concerning

steam at the Navy Yard. According to plaintiff, despite its requests for this information during

contract negotiations with the Navy, plaintiff did not receive accurate figures from defendant

until it instituted suit in this court and served discovery requests on defendant. Although

defendant argues that plaintiff did not rely on the inaccurate information furnished by the Navy

during the parties’ negotiations, plaintiff sufficiently has alleged that it did so rely and

documentary evidence provided to the court supports plaintiff’s allegations. See PA 333; DA

308 (letter from plaintiff to defendant accepting the $24 per MMBtu rate but stating: “[a]s PAID

and Cinergy have no operating experience with the boiler, we must rely on the Navy’s

representations in order to offer this fixed price”); see also PA 531; DA 452 (deposition

testimony of Ms. Barr in which she indicated that “based on the assumptions that [it was] using

throughout the negotiations regarding efficiency and consumption” plaintiff expected to lose

$100,000 per year in steam operations). The amended complaint alleges that the actual costs of

performance increased as more steam was required to be produced to meet the lesser quantity of

11

stream actually consumed by the Navy as compared to the data provided in the Navy’s estimates.

Such averments support plaintiff’s theory of recovery based upon defendant’s superior

knowledge. Hercules, 24 F.3d at 196 (noting that a superior knowledge claim is “tenable where

the government fails to provide a contractor with vital knowledge in the government’s

possession which bears upon the costs of the contractor’s performance under the contract at

issue”). The facts surrounding these questions cannot be weighed by the court on a motion to

dismiss, but the court is satisfied that plaintiff is entitled to offer evidence to support its claim,

see Chapman Law Firm Co., 490 F.3d at 938, and as discussed more fully below, this evidence

must be weighed at trial. Thus, plaintiff may proceed with its superior knowledge claim.

In order for plaintiff to recover under Count V of the amended complaint, which

advances the theory of mutual mistake, plaintiff must demonstrate: “(1) The parties to the

contract were mistaken in their belief regarding a fact; (2) the mistaken belief constituted a basic

assumption underlying the contract; (3) the mistake had a material effect on the bargain; and (4)

the contract did not put the risk of the mistake on the party seeking reformation.” Atlas Corp. v.

United States, 895 F.2d 745, 750 (Fed. Cir. 1990). Reformation, rescission, and restitution all

are available remedies in the case of a mutual mistake. Rosenberg Lumber Co. v. Madigan, 978

F.2d 660, 665 (Fed. Cir. 1992). In Count V of the amended complaint, plaintiff has alleged that

the parties made a mutual mistake of fact regarding the historical consumption of steam on the

base and that this mistake drastically increased the costs of plaintiff’s performance such that it

should be allowed to recover those costs through a reformed contract.

Defendant moves to dismiss Count V of the amended complaint, arguing that any alleged

mistake did not go to a basic assumption of the contract. Defendant argues that the $24 per

MMBtu fixed rate did not have separate components for operation and maintenance overhead

and a variable component for the costs of fuel and other consumables; it was all one rate.

Because plaintiff assumed the risk that one component would be able to offset or subsidize the

other, defendant reasons, plaintiff took the risk that it would lose money on one aspect of its

operations. Defendant also argues that plaintiff could not have reasonably assumed that the past

operating status of the steam plant would continue unchanged into the foreseeable future, as

plaintiff intended all along to ultimately to shut down the steam plant. Defendant is incorrect

that plaintiff is foreclosed from stating a claim based on mutual mistake concerning the steam

plant’s history as a basic assumption of the contract. 12 In fact, in an April 20, 2001

memorandum sent as part of the negotiation where plaintiff agreed to the $24 per MMBtu rate,

plaintiff explained: “This strategy is based on certain operating assumptions about the boiler

plant that were provided to us by the Navy. As PAID and Cinergy have no operating experience

with the boiler, we must rely on the Navy’s representations in order to offer this fixed price.” PA

333; DA 380. In addition, the rate was proposed by defendant “based on historical past

performance with this plant.” PA 328, DA 373. This correspondence suggests that both plaintiff

and defendant made the basic assumption that the historical operating conditions would continue.

In addition, the documentary evidence and deposition testimony presented to the court is, at this

particular procedural juncture, sufficient to demonstrate that plaintiff’s allegation that it had an

12

Defendant, in this briefing, did not admit that the parties were mistaken as to the actual

operating history of the steam plant. Thus, the existence of a mutual mistake also is a question to

be decided in future proceedings.

12

expectation of the fixed rate of $24 per MMBtu rate leading to a limited loss. Plaintiff’s

averments and the evidence it offers to meet defendant’s jurisdictional challenge under RCFC

12(b)(6) supports plaintiff’s theory, therefore, the court may not dismiss Count V of the amended

complaint for failure to state a claim upon which relief can be granted.

E. Genuine Issues of Material Fact Exist as to Counts I, II, and IV

The crux of this case turns on whether defendant provided plaintiff with negligent

estimates or made material misrepresentations concerning the cost of production of and

consumption of steam by the Navy. Clearly, there is no question that the sole repository of the

historical data regarding the Navy’s steam production, consumption, and system efficiency

resided with defendant. Plaintiff had no other source from which it could obtain this vital

information other than the Navy. Both in the solicitation materials and in Exhibit B to the

Utilities Service Agreement, defendant provided plaintiff with estimates of steam production and

consumption that proved inaccurate. Moreover, as alleged in the amended complaint, during the

critical period in April 2001, when the parties were negotiating the cost for utilities that PAID

would charge the Navy, the Navy supplied additional inaccurate information in meetings with

and correspondence to plaintiff. Specifically, PAID alleges that defendant supplied it with

misleading information regarding the operating history of the steam plant at the Naval Base –

including operating costs and volume of steam consumption. Plaintiff also avers that had

defendant furnished it with accurate information, it would not have agreed to the fixed rate of

$24 per MMBtu for steam.

Defendant’s theory for dismissal relies heavily, as it plainly admits, on the theory that

plaintiff knowingly and willingly assumed the risk that the steam plant would sustain losses

when billing at a rate of $24 per MMBtu. According to defendant, summary judgment is

appropriate under these facts because plaintiff expected to lose money on the steam service; thus,

the actual amount of plaintiff’s loss is irrelevant and cannot provide the basis for a cause of

action against the government. In support of its argument, defendant relies on the deposition

testimony of plaintiff’s lead negotiator for the contract, Ms. Barr, who testified that during the

course of negotiations and while contemplating the proposed rate plaintiff “concluded . . . that

[it] would lose some money . . . and decided to take that risk.” PA 531; DA 452. Defendant’s

motion emphasizes that during the parties’ negotiations, plaintiff was represented by

sophisticated representatives, plaintiff had experienced steam plant system operators who were

skeptical of defendant’s representations concerning its operating history, and that ultimately

plaintiff made a business decision that it required the steam system to fully develop the former

Naval Base. Thus, defendant concludes, plaintiff willingly and knowingly assumed the risk that

a flat rate of $24 per MMBtu for steam would adequately compensate it to achieve its

development goals, and therefore summary judgment is appropriate.

Plaintiff, however, has presented evidence that, at the time of contracting, it expected,

based on information and data supplied by defendant, to lose only a finite amount on the

contract. In fact, defendant’s deposition of Ms. Barr illustrates that plaintiff only expected

moderate annual losses:

13

Q. Do you recall what kind of risk – could you describe the risk

that you came to examine and analyze?

A. We concluded that based on the assumptions that we were

using throughout the negotiations regarding efficiency and

consumption, that we would lose some money. I can’t remember

the exact number, that there would be some loss – annual loss on

the steam side and decided to take that risk.

Q. You just said you can’t remember the number. Do you

remember a ballpark figure?

A. 100,000 a year, something like that.

PA 531; DA 452; see also DA 392 (internal electronic mail from Sharon Barr stating: “[Y]es,

clearly we knew the steam was a loser and hoped that the electric would subsidize the steam.

But as you know, [we] thought the losses would be around $300K for 3 years then we would get

off the system.”). This deposition testimony demonstrates the existence of a genuine issue of

material fact regarding what plaintiff’s expectations were as to how much money it would lose

on one portion of the contract and whether PAID knowingly assumed the risk that it might be

expected to lose almost $800,000 per year in providing steam to the Navy, and therefore

summary judgment is not appropriate. The evidence also raises genuine questions of material

fact as to exactly how much plaintiff relied upon defendant’s estimates in agreeing to the $24 per

MMBtu fixed rate for steam that forecloses the court granting summary judgment.

These issues of material fact are clearly relevant to the extent to which plaintiff relied

upon defendant’s representations in the contract’s Exhibit B, the solicitation, and the April 9,

2001, communications concerning its historical production of steam.

Count I of the amended complaint alleges that defendant breached its contract with

plaintiff by providing negligent estimates of the amount of steam to be produced and consumed

by the Navy in the solicitation materials and in Exhibit B to the Utilities Agreement. In Count II,

plaintiff claims a breach of contract based upon defendant’s misrepresentations in the solicitation

materials of three key factors that influenced the ceiling on the rate PAID could charge for utility

services and that ultimately led to the negotiated $24 unit rate: the Navy’s historical steam

production, its steam consumption, and its system efficiency information. Normally, the

estimated quantities in a requirements contract are not guarantees or warranties that the

contractor may rely upon. Technical Assistance Int’l, Inc. v. United States, 150 F.3d 1369, 1372

(Fed. Cir. 1998). However, if a contractor can demonstrate that an estimate made by the

defendant was prepared negligently, in bad faith, or was grossly unreasonable, the defendant may

be liable for breach of contract. Medart, Inc. v. Austin, 967 F.2d 579, 581 (Fed. Cir. 1992);

Clearwater Forest Indus., Inc. v. United States, 650 F.2d 233, 240 (Ct. Cl. 1981); Womack v.

United States, 389 F.2d 793, 801 (Ct. Cl. 1968). “[T]o the extent that a government estimate is

inadequately or negligently prepared, its inclusion without correction in a solicitation or contract

constitutes a misrepresentation that, whether deliberate or unintentional, amounts to a breach of

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contract.” Rumsfeld v. Applied Cos., 325 F.3d 1328, 1335 (Fed. Cir. 2003). The rationale for

this exception to the normal rule was explained by the United States Court of Claims:

An estimate as to a material matter in a bidding invitation is an

expedient. Ordinarily it is only used where there is a recognized

need for guidance to bidders on a particular point but specific

information is not reasonably available. Intrinsically, the estimate

that is made in such circumstances must be the product of such

relevant underlying information as is available to the author of the

invitation. If the bidder were not entitled to so regard it, its

inclusion in the invitation would be surplusage at best or deception

at worst.

Womack, 389 F.2d at 801 (citations omitted).

In this instance, the Utilities Agreement that guided the negotiation of the contract

required that the rates for steam be no higher than defendant’s “fully allocated costs” to run the

system. The information available to compute these costs was fully and exclusively within the

control of defendant. While defendant correctly notes that the cases discussing the negligent

estimate theory normally arise in the context of bidding procurements, the rationale for allowing

recovery applies with equal force in a negotiated procurement where, as here, defendant has total

exclusive control over the required information. See id. If plaintiff can prove that it relied upon

the estimates provided on April 9, 2001, in agreeing to the rate of $24 per MMBtu of steam, then

it may be able to prevail at trial.

In short, genuine issues of material fact remain as to the extent plaintiff relied upon

defendant’s estimates of steam production and consumption, the amount of risk of loss plaintiff

anticipated taking on based on the estimates provided, and the negligence or recklessness of

defendant in preparing those estimates. 13 Accordingly, defendant’s motion for summary

judgment as to Counts I, II, and IV must be denied.

F. Count VI May Entitle Plaintiff to a Rate Adjustment Under the Contract

modifications pursuant to 48 C.F.R. § 52.241-11, after certain buildings occupied by defendant

Count VI of the amended complaint alleges that the Navy failed to issue proper contract

were removed from steam service. Am. Compl. ¶¶ 96-101. According to plaintiff, the deletion

13

Plaintiff has presented information in its response that indicates that defendant had, in

its possession, in April 2001, information on the actual quantities of steam used at the Naval

Base that was significantly different from the numbers presented in the April 9, 2001 worksheet.

Pl.’s Resp. 28; see also PA 204-05, 444-45 (copies of government worksheets showing actual

utilities system operations at the close of Fiscal Years 2000 and 2001); PA 436, 490-94, 504-06

(expert reports and deposition testimony about the “Genesis system,” which tracked actual

consumption prior to and after 2001). This evidence, presented and properly authenticated at

trial, would be relevant to whether the estimates of steam presented by defendant on April 9,

2001, were negligently or recklessly prepared.

15

of steam service at various buildings entitles plaintiff to a rate adjustment, including possible

adjustments to a higher rate to allow recovery of fixed operation and maintenance costs.

Relevant to this issue, the contract provides, as noted above:

52.241-11 MULTIPLE SERVICE LOCATIONS (FEB 1995)

(a) At any time by written order, the Contracting Officer may

designate any location within the service area of the Contractor at

which utility service shall commence or be discontinued. Any

changes to the service requirements shall be made a part of the

Contract by the issuance of a modification hereto to include the

name and location of the service, specifying any different rate, the

point of delivery, different service specifications, and any other

terms and conditions.

(b) The applicable monthly charge specified in this Contract shall

be equitably prorated from the period in which commencement or

discontinuance of service at any service location designated under

the Service Specifications shall become effective.

DA 31 (quoting Federal Acquisition Regulations (“FAR”) 52.241-11). Contract provisions,

including those incorporating specific provisions of the FAR, which the Multiple Service

Locations provision does, are interpreted according to their plain language. Lockheed Corp. v

Widnall, 113 F.3d 1225, 1227 (Fed. Cir. 1997). “It is firmly established as a general rule of

contract interpretation that the ‘interpretation that gives a reasonable meaning to all parts of the

contract will be preferred to one that leaves portions of the contract meaningless.’” Westfed

Holdings, Inc. v. United States, 407 F.3d 1352, 1359 (Fed. Cir. 2005) (quoting United States v.

Johnson Controls, Inc., 713 F.2d 1541, 1555 (Fed. Cir. 1983)).

Defendant argues that because there was no monthly service charge, only a flat fee per

unit of steam consumed, the contract does not require a rate adjustment when several steam

service points are deleted. Defendant argues that section 52.241-11(a) does not provide for a rate

adjustment of the entirety of the $24 per MMBtu rate because the provision is permissive, not

mandatory, and points to the use of the word “any” to modify “different rate” in support of this

interpretation. Defendant also argues that 52.241-11(b) does not apply because there was no

monthly charge that could be prorated. Therefore, defendant argues, summary judgment in its

favor or dismissal for Count VI is required.

Clearly, subparagraphs (a) and (b) of section 52.241-11 must be read as two independent

provisions. Because there was no monthly charge provision in the contract, only a fixed per unit

charge, section 52.241-11(b) does not apply in this context and plaintiff is not entitled to recover

under that provision. In its reply memorandum, defendant argues that 52.241-11(a) is

permissive, thus, the contracting officer’s decision not to provide a rate adjustment was

discretionary. This limited issue has not been fully addressed by the parties and must be the

subject of future briefing to allow the court to receive both parties’ views respecting this issue.

16

Consequently, the court denies defendant’s motion for summary judgment or dismissal as to

Count VI without prejudice. The court shall permit defendant to file a renewed motion with

respect to Count VI if it so chooses.

III. CONCLUSION

For the reasons set forth above, the court GRANTS defendant’s motion to dismiss Count

III of the complaint for failure to state a claim upon which relief can be granted and DENIES the

remainder of defendant’s motion to dismiss or, in the alternative, for summary judgment.

The parties shall confer to schedule future proceedings with regards to Counts I, II, IV,

V, and VI of the amended complaint and file a status report proposing a schedule for further

proceedings with the court on or before Friday, February 14, 2014.

IT IS SO ORDERED.

s/ Margaret M. Sweeney______________

MARGARET M. SWEENEY

Judge

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