United States v. Kellogg Brown & Root Services, Inc.

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

)

UNITED STATES OF AMERICA, )

)

Plaintiff, )

)

v. ) 10-cv-530 (RCL)

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KELLOGG BROWN & ROOT SERVICES, INC. )

)

Defendant. )

)

MEMORANDUM OPINION

Before the Court is plaintiff’s Motion [61] to Dismiss KBR’s Counterclaim and to Strike

KBR’s First Affirmative Defense. Upon consideration of the Motion, Opposition, Reply, the

entire record, and the applicable law, the Court will grant plaintiff’s Motion, dismiss defendant’s

first counterclaim without prejudice, and strike its first affirmative defense.

I. BACKGROUND

As is explained more fully in an earlier opinion of this Court, the United States sued

Kellogg Brown & Root Services, Inc. (“KBR”) to recover civil penalties and treble damages on

over $100 million in allegedly false claims arising from the war in Iraq. See U.S. v. Kellogg

Brown & Root Servs., Inc., 800 F. Supp. 2d 143, 146–47 (D.D.C. 2011). The government

alleges that, in violation of a logistical services contract awarded to KBR in 2001 (the “LOGCAP

III” contract), the company knowingly billed the government for the cost of private security

contractors in Iraq. Id. at 147. Early in the case, KBR filed a Motion to Dismiss, which the

Court granted in part by dismissing the government’s claims for unjust enrichment and payment

by mistake. Id. at 161. However, the Court denied KBR’s Motion as to the government’s False

Claims Act and breach of contract claims. Id.

In August 2011, shortly after the Court ruled on KBR’s Motion to Dismiss, KBR

answered the Complaint, asserting as an affirmative defense that the government materially

breached the LOGCAP III contract by “failing to provide the contractually-required force

protection.” Answer [58] ¶39, Aug. 17, 2011. KBR also brought a counterclaim for

recoupment, “arising out of the Government’s failure to provide the requisite force protection, in

breach of the Government’s obligations under LOGCAP III.” Id. ¶86. The United States then

filed the instant Motion, asking the Court to dismiss KBR’s counterclaim and to strike its first

affirmative defense. Pl.’s Mot. Dismiss [61] 1, Sept. 12, 2011. The government asserts a

number of independent barriers to KBR’s counterclaim and affirmative defense, including

judicial estoppel, the political question doctrine, failure to exhaust administrative remedies, and

failure to state a claim. Pl.’s Mem. [61] 1–3.

II. ANALYSIS

The Court finds that KBR’s recoupment counterclaim must be dismissed for failure to

exhaust administrative remedies and for failure to state a claim. The Court also finds that KBR’s

first affirmative defense of material breach must be struck as precluded by the LOGCAP III

contract. However, anticipating that KBR may correct the jurisdictional and other defects in its

counterclaim and seek leave to amend its answer to include a revised version of that claim, the

Court will briefly address other arguments in the parties’ briefs, not necessary to the Court’s

decision, that may emerge again at a later stage of this case, should KBR amend its pleading.

A. KBR’s Counterclaim and First Affirmative Defense Are Not Barred by

Judicial Estoppel.

The government’s principal argument in its Motion to Dismiss concerns the doctrine of

judicial estoppel. Both KBR’s recoupment counterclaim and first affirmative defense of material

breach depend upon the allegation that the government breached LOGCAP III by failing to

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provide adequate force protection. See Answer [58] ¶¶39, 45, 47, 50, 86, 88. The government

argues that KBR is “judicially estopped from disputing the adequacy of the military’s measures

for the provision of force protection for KBR and its subcontractors in Iraq” based upon

positions it has taken, allegedly inconsistent with its present position, in previous cases. Pl.’s

Mem. [1] 1. The Court disagrees.

As is well known, judicial estoppel “is an equitable doctrine invoked by a court at its

discretion.” New Hampshire v. Maine, 532 U.S. 742, 750 (2001) (quoting Russell v. Rolfs, 893

F.2d 1033, 1037 (9th Cir. 1990)); see also Moses v. Howard Univ. Hosp., 606 F.3d 789, 792

(D.C. Cir. 2010). Its purpose is to “protect the integrity of the judicial process” by “prohibiting

parties from deliberately changing positions according to the exigencies of the moment.” New

Hampshire, 532 U.S. at 750 (citations omitted).

“[S]everal factors typically inform the decision whether to apply the doctrine in a

particular case.” Id.

(1) “First, a party’s later position must be ‘clearly inconsistent’ with its earlier

position.” Id.

(2) “Second, courts regularly inquire whether the party has succeeded in

persuading a court to accept that party’s earlier position, so that judicial

acceptance of an inconsistent position in a later proceedings would create ‘the

perception that either the first or the second court was misled.’” Id. (citations

omitted).

(3) “A third consideration is whether the party seeking to assert an inconsistent

position would derive an unfair advantage or impose an unfair detriment on

the opposing party if not estopped.”

Id. at 751. These factors are not “inflexible prerequisites,” and “[a]dditional considerations may

inform the doctrine’s application in specific factual contexts.” Id.

In light of these factors, the Court finds that exercising its discretion to estop KBR from

challenging the government’s performance of its force protection obligation in the LOGCAP III

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contract would be inappropriate. KBR’s position in this litigation is not “clearly inconsistent”

with its position in the tort cases cited by the government, where KBR successfully argued that

the political question doctrine barred judicial scrutiny of the military’s judgments regarding the

provision of force protection in wartime. See, e.g., Carmichael v. Kellogg, Brown & Root Servs.,

Inc., 572 F.3d 1271, 1282–83 (11th Cir. 2009); see also Pl.’s Ex. 1 [61-1] at 4–5). Carmichael,

for example, involved negligence claims brought against KBR by the wife of a U.S. soldier who

was seriously injured in Iraq while providing convoy protection. See Carmichael, 572 F.3d at

1275–76. KBR persuaded both the district court and the court of appeals that since, at trial, the

district could not adjudicate the plaintiff’s claims “without reexamining numerous core military

decisions”—such as the convoy commander’s decisions concerning how fast the convoy would

move and the route it would take—the case would unavoidably involve nonjusticiable political

questions. Compare Pl.’s Ex. 2 [61-2] 31–32 with Carmichael, 572 F.3d at 1282–83.

Furthermore, KBR successfully argued that the courts were incompetent to develop liability

standards for the military. Compare Pl.’s Ex. 2 [61-2] 41–42 with Carmichael, 572 F.3d at

1288–92.

Although the government argues, correctly, that judicial estoppel is not precluded simply

because the claims brought in previous litigation are different from the claims in this case, Pl.’s

Reply [71] 4–5, the tort settings of KBR’s prior litigating positions nevertheless inform the

question of whether, in this contract dispute, KBR is “playing fast and loose with the courts” by

arguing that this Court can review the military’s compliance with the force protection obligation

in the contract. See New Hampshire, 532 U.S. at 750 (quoting Scarano v. Central R. Co., 203

F.2d 510, 513 (3d Cir. 1953)). Both formally and functionally there are significant differences

between using tort standards to challenge a military’s decision making and using contract

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standards to challenge the military’s performance of its obligations. Whereas the policies

underlying tort law include the deterrence of tortious conduct, see Piamba Cortes v. Am.

Airlines, Inc., 177 F.3d 1272, 1302 (11th Cir. 1999), contract law focuses upon enforcement of

“the bargain that the parties themselves freely made, as . . . expressed in their agreement.”

Hershon v. Gibraltar Bldg. & Loan Ass’n, Inc., 864 F.2d 848, 853–54 (D.C. Cir. 1989). These

differing policies result in important differences in the way tort and contract cases are litigated

and decided. While, in a tort setting, the government’s conduct would be judged by reference to

duties set out in the common law or arising from a statute, in a contract setting the relevant

standards are defined by the parties in their contract, and the court’s role is to enforce their intent

as evidenced by the language of the contract, as illuminated (if necessary) by extrinsic evidence.

Therefore, KBR’s position now is not “clearly inconsistent” with its position before, since a

persuasive argument can be made that the political question doctrine is more likely to pose a

problem in tort cases involving the military, where second-guessing its decisions would be the

name of the game, than in contract cases, where all the Court would be doing is holding the

parties to their bargain. Given these differences, allowing KBR to litigate its counterclaim and

assert its first affirmative defense will not create the perception that either this Court or the courts

in the tort cases cited by the government have been misled by KBR, nor will it have any negative

impact on the integrity of the judicial process. See New Hampshire, 532 U.S. at 750. Nor will

KBR obtain an unfair advantage here as a result of its taking its current position on the

justiciability of its counterclaim. Id. at 751.

Accordingly, the Court rejects this aspect of the government’s Motion.

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B. The Government Has Failed to Demonstrate (at this Stage) that the

Political Question Doctrine Bars KBR’s Counterclaim or First

Affirmative Defense.

The government also contends that KBR’s position in the previously cited tort cases—

namely, that the political question doctrine bars judicial second-guessing of the military’s

decision making as regards the provision of force protection in Iraq—is the correct position in

this case, and that KBR’s challenge to the military’s performance of its contractual obligation to

provide force protection is nonjusticiable. Pl.’s Mem. [61] 11. However, the Court finds that

although this case may potentially generate nonjusticiable political questions, absent some

discovery, and more detailed briefing by the parties specifically concerning the political question

problem, the Court cannot perform the “discriminating analysis” required to resolve this

problem. See El Shifa Pharm. Indus. Co. v. U.S., 607 F.3d 836, 841 (D.C. Cir. 2010).

The political question doctrine “excludes from judicial review those controversies which

revolve around policy choices and value determinations constitutionally committed for resolution

to the halls of Congress or the confines of the Executive Branch.” Japan Whaling Ass’n v. Am.

Cetacean Soc’y, 478 U.S. 221, 230 (1986). The doctrine originates in Article III of the

Constitution, which limits the judicial power to “cases” or “controversies.” U.S. Const. art. III;

see also El Shifa, 607 F.3d at 840–41. No justiciable “controversy” exists when the issue to be

adjudicated is “political” in nature. Massachusetts v. EPA, 549 U.S. 497, 516 (2007).

As outlined by the Supreme Court in Baker v. Carr, there are six circumstances in which

an issue may present a political question:

(1) “a textually demonstrable constitutional commitment of the issue to a

coordinate political department”;

(2) “a lack of judicially discoverable and manageable standards for resolving it”;

(3) “the impossibility of deciding without an initial policy determination of a kind

clearly for nonjudicial discretion”;

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(4) “the impossibility of a court’s undertaking independent resolution without

expressing lack of the respect due coordinate branches of government”;

(5) “an unusual need for unquestioning adherence to a political decision already

made”; or

(6) “the potentiality of embarrassment from multifarious pronouncements by

various departments on one question.”

Baker v. Carr, 369 U.S. 186, 217 (1962). To find that a political question exists, only one of

these factors need be present, not all. El Shifa, 607 F.3d at 841. However, courts must conduct

“a discriminating analysis of the particular question posed” in the “specific case” to determine

whether the political question doctrine bars a claim. Id.

The government contends that the military’s decision making, as it relates to providing

force protection for KBR in Iraq, involves “quintessential military judgments” in areas such as

intelligence gathering and analysis, as well as the development of risk assessments and risk

management strategies that consider the military’s limited resources and threat levels. Pl.’s

Mem. [61] 12. The military’s judgments include, the government says, decisions to use less, or

less visible, force to protect convoys and installations so as to minimize their perceived

importance to the enemy. Id. The political question doctrine bars the courts from “second-

guessing these military decisions and other judgments confided in the Executive and Legislative

Branches by the Constitution.” Id. The government’s position is that KBR’s counterclaim and

affirmative defense “necessarily require” the Court to second-guess such judgments. Id. at 13.

Contrary to the government’s position, the Court is unpersuaded at this time that KBR’s

litigating position will “necessarily require” the Court to define force protection standards or

adjudge the adequacy of the Army’s provision of force protection in Iraq according to some

court-made standard. As stated above in the context of the Court’s discussion of judicial

estoppel, the parties’ own contract provides a standard by which to judge the Army’s

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performance of its force protection obligation, and to the extent that this provision is ambiguous

parol evidence may be permitted to clarify the parties’ intent. In either case, the Court would be

determining and enforcing the parties’ intent, not subjecting the military to standards drawn from

the common law or elsewhere. However, discovery may reveal such conflicting accounts of the

Army’s force protection obligation in LOGCAP III that the judicial process could amount to

judicial identification and application of force protections standards, implicating the political

question doctrine more directly.

Consequently, the Court declines at this time to rule on the applicability of the political

question doctrine to KBR’s counterclaim and first affirmative defense. However, anticipating

that KBR may remedy the defects presented below and seek leave to amend its Answer to

include a similar claim in the future, the Court will, at a later point, following some discovery,

invite briefing specifically on the question of the applicability of the political question doctrine to

KBR’s counterclaim.

C. The Court Lacks Jurisdiction Over KBR’s Counterclaim Because It

Failed to Exhaust Its Administrative Remedies Before Filing Its

Counterclaim.

While the Court declines to dismiss KBR’s counterclaim on judicial estoppel or political

question grounds, it agrees with the government that it lacks jurisdiction over KBR’s

counterclaim because the company failed to exhaust its administrative remedies prior to filing it

in this Court.

Congress, in passing the Contract Disputes Act (“CDA”), sought “to promote the

efficient resolution of contract claims by relying in the first instance upon the contracting

officer’s general experience in the administration of [g]overnment contracts and specific

knowledge of the contract and parties in question.” Blinderman Const. Co. v. U.S., 39 Fed. Cl.

529, 560 (1997) (citations omitted). Accordingly, “[u]nder the CDA, a contractor [must] take

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recourse against the government’s alleged breach by submitting a written claim to the

contracting officer for a final decision prior to commencing suit.” U.S. v. Intrados/Int’l Mgmt.

Group, 277 F. Supp. 2d 55, 63 (D.D.C. 2003) (citing 41 U.S.C. § 605(a)). A federal court “does

not have jurisdiction over a new claim or a claim of different scope that was not previously

presented and certified to the contracting officer for decision.” Armour of Am. v. U.S., 69 Fed.

Cl. 587, 590 (2006). A claim is “new” when it does not “arise from the same set of operative

facts as the claim submitted to the contracting officer.” Id. (citations omitted). While the

exhaustion requirement “does not require rigid adherence to the exact language of the original

administrative CDA claim,” the claim must provide the contracting officer with adequate notice

of the basis and amount of the claim. Scott Timber Co. v. U.S., 333 F.3d 1358, 1365 (Fed. Cir.

2003). A failure to exhaust administrative remedies under the CDA requires dismissal of the

claim. A&S Council Oil Co., Inc. v. Lader, 56 F.3d 234, 236 (D.C. Cir. 1995).

KBR responds to the government’s exhaustion argument by claiming that it “fil[ed] three

claims that provided the contracting officer with . . . notice of the basis of [its] counterclaim . . .

.” Def.’s Opp’n [69] 21. These claims, KBR argues, “informed the Army that it had breached

the LOGCAP III Contract and provide notice of the amount of damages [KBR] was owed.” Id.

However, “[o]ut of an abundance of caution,” KBR also filed (after filing its counterclaim) a

“protective claim” with the Army. Id. In the event that the Court determines that KBR’s

counterclaim was not exhausted, KBR suggests, the Court can stay the proceedings until the

Army (as KBR expects) denies the claim. Id. at 22.

As support for its contention that its counterclaim is properly exhausted, KBR has

attached (under seal) claims submitted to the contracting officer in October 2007, October 2009,

and June 2010. See Bhatia Decl. [69-2] 1. However, each of these claims, filed with the

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contracting officer prior to KBR’s filing of its counterclaim in this Court in August 2011,

concerns only a portion of the $103 million disapproved by the government in an August 2009

notice to KBR. Since KBR’s recoupment counterclaim seeks an offset for everything the

government is asking for in this lawsuit, Answer [58] ¶93, these certified claims for portions of

that amount could not have put the contracting officer on notice of the “amount” of KBR’s

claim, as is required. See Scott Timber, 333 F.3d at 1365. Accordingly, the Court lacks

jurisdiction over KBR’s counterclaim, and the Court will dismiss it. However, this dismissal is

without prejudice, and KBR can seek leave to amend its Answer and reassert its counterclaim

once the exhaustion requirement is satisfied. Also, in view of the fact that discovery on the

government’s claims and KBR’s counterclaim should proceed simultaneously for the sake of

efficiency and judicial economy, the Court will entertain motions from the parties, with fourteen

days of this date, debating the advisability of a stay of the proceedings while KBR’s September

29, 2011 claim is exhausted.

D. KBR Has Failed to State a Counterclaim Upon Which Relief Can Be

Granted.

In addition to the jurisdictional defect identified above, the Court also concludes that

KBR’s counterclaim is legally deficient because it fails to allege facts that would show KBR’s

entitlement to relief.

A motion to dismiss is appropriate when a complaint fails “to state a claim upon which

relief can be granted.” Fed. R. Civ. P. 12(b)(6). To overcome this hurdle, a complaint must

contain “a short and plain statement of the claim showing that the pleader is entitled to relief, in

order to give the defendant fair notice of what the . . . claim is and the grounds upon which it

rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). The

Court must “accept as true all of the factual allegations contained in the complaint,” Atherton v.

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District of Columbia, 567 F.3d 672, 681 (D.C. Cir. 2009), and grant a plaintiff “the benefit of all

inferences that can be derived from the facts alleged.” Kowal v. MCI Commc’ns Corp., 16 F.3d

1271, 1276 (D.C. Cir. 1994). However, the Court may not “accept inferences drawn by plaintiffs

if such inferences are unsupported by the facts set out in the complaint.” Id. In other words,

“only a complaint that states a plausible claim for relief survives a motion to dismiss.” Ashcroft

v. Iqbal, 129 S. Ct. 1937, 1950 (2009); see also Atherton, 567 F.3d at 681.

Turning to KBR’s counterclaim for recoupment, recoupment is the right of a defendant to

have the plaintiff’s claim reduced or eliminated because of the plaintiff’s breach of contract or

duty in the same transaction. Intrados, 277 F. Supp. 2d at 57 n.1 (citing Reiter v. Cooper, 507

U.S. 258, 264 (1993)). To establish such a claim, the defendant must meet three requirements:

(1) “the claim must arise from the same transaction or occurrence as the government’s suit”; (2)

“the relief sought must be of the same kind or nature as the [government’s] requested relief”; and

(3) “any damages sought cannot exceed the amount sought by the government’s claim.” Id. at 60

(citations omitted).

The government argues that KBR’s recoupment counterclaim is inadequately pled

because, while it alleges that the Army breached the LOGCAP III contract by “fail[ing] to

provide the requisite force protection,” Answer [58] ¶86, nowhere does KBR allege “specifics”

concerning “how the military’s force protection supposedly failed to meet the contractual

guidelines.” Pl.’s Mem. [61] 15. Accordingly, the government says, KBR has failed to allege

facts sufficient to give rise to a plausible claim that the Army breached the contract. Id. at 16.

KBR counters that its counterclaim alleges specific facts indicating that Army officials conceded

that the Army had breached its force protection obligation. Def.’s Opp’n [69] 23.

The Court finds that KBR’s counterclaim fails to allege facts that would show a breach of

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the specific standard set out in the contract, which obligates the Army to provide, not “adequate”

force protection generally speaking, but “force protection to contractor employees commensurate

with that given to Service/Agency (e.g., Army, Navy, Air Force, Marine, DLA) civilians in the

operations area unless otherwise stated in each task order.” Compl. [1] ¶21 (quoting Clause H-

16 of the LOGCAP III contract). KBR’s allegations regarding the “adequacy” of the military’s

force protection, including alleged statements by military officials opining that the government

wasn’t living up to its contractual obligation, do not by themselves suggest a violation of Clause

H-16, absent specific allegations that KBR and its subcontractors did not receive the level of

force protection set out in LOGCAP III—namely, force protection “commensurate” with that

given by the military to other Department of Defense civilians in Iraq. KBR’s allegations would

be sufficient if they contained facts suggesting that Department of Defense civilians were

provided with a level of military force protection that was not commensurate with that provided

to KBR, but its Answer contains no such allegations. Accordingly, KBR has not presented a

plausible claim for recoupment based on breach of contract, and the Court will dismiss KBR’s

counterclaim on this independent basis.

E. KBR’s First Affirmative Defense Is Legally Deficient.

The Court also finds that KBR’s first affirmative defense of material breach—based upon

the government’s alleged failure to fulfill the force protection obligation in the contract—must

be struck, since the defense is precluded by the parties’ contract.

Under the doctrine of prior material breach, a party may defend against a breach of

contract claim on the ground that its performance was excused by the other party’s prior breach

of the contract. See Long Island Bank, FSB v. U.S., 503 F.3d 1234, 1251 (Fed. Cir. 2007).

However, in the government’s Motion, it argues that this defense fails as a matter of law because

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the LOGCAP III contract obligates KBR to continue performance “irrespective of any

governmental breach.” Pl.’s Mem. [61] 18. The government points to a regulation, which

LOGCAP III incorporates, that requires KBR to “proceed diligently with performance . . . ,

pending final resolution of any request for relief, claim, appeal, or action arising under the

contract . . . .” Id. at 20 (citing Pl.’s Ex. 6 [61-6] 39 and 48 C.F.R. § 52.233-1). Therefore, the

government asserts, KBR’s defense is legally deficient because, under the LOGCAP III, any

alleged breach by the government could not excuse KBR’s performance of its obligation to not

use private armed security or permit its subcontractors to do so. Id. at 20.

As noted by the government, Pl.’s Reply [71] 21, KBR fails to address this independent

basis for striking its first affirmative defense, and so that argument is deemed conceded. See

Buggs v. Powell, 293 F. Supp. 2d 135, 141 (D.D.C. 2003) (holding that a court may treat as

conceded any arguments raised in a dispositive motion that the plaintiff fails to address in its

opposition). Therefore, pursuant to Federal Rule of Civil Procedure 12(f), the Court will strike

KBR’s first affirmative defense of material breach.

III. CONCLUSION

For the reasons stated above, the Court will grant the government’s Motion [61] to

Dismiss KBR’s Counterclaim and to Strike KBR’s First Affirmative Defense. Furthermore, the

Court will order the parties to file, within fourteen (14) days of this date, motions addressing the

appropriateness of a limited stay of the proceedings pending administrative exhaustion of KBR’s

September 29, 2011 certified claim and the filing of an amended answer that passes muster under

Rule 12(b)(6).

A separate Order consistent with this Memorandum Opinion shall issue this date.

Signed by Royce C. Lamberth, Chief Judge, on April 23, 2012.

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