Gray Owl Services Inc. v. United States

In the United States Court of Federal Claims

No. 13-963C

(Filed: August 14, 2014)

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GRAY OWL SERVICES, INC., *

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Plaintiff, *

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v. *

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THE UNITED STATES, *

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Defendant. *

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ORDER OF DISMISSAL

Before the Court is Plaintiff’s claim for alleged breach of contract. Plaintiff, Gray Owl

Services, Inc., (“Plaintiff”) filed its Complaint on December 6, 2013. Plaintiff alleges that by

failing to provide a timely performance evaluation, the Government (“Defendant”) committed a

breach of contract which caused Plaintiff to suffer a loss of annual income. Defendant filed a

Motion to Dismiss based on RCFC 12(b)(1) and 12(b)(6) on April 3, 2014. For the reasons set

forth below, the Court grants the Defendant’s Motion to Dismiss pursuant to RCFC 12(b)(6).

I. Background

a. Factual Background

Plaintiff is a business which provides, inter alia, tree and wildlife maintenance services.

In 2007, the United States Department of Agriculture – Forest Service issued a solicitation for a

multi-award, Indefinite Delivery/Indefinite Quantity (“IDIQ”) contract to provide for tree-

snagging services in order to create structures for cavity nesting wildlife in the Pacific

Northwest. Compl. ¶ 2. The contract specified a base period of one year ending on December

31, 2008, with four option years that could extend the life of the contract through December 31,

2012. Def.’s Mot. to Dismiss Exhibit A at 15. The government chose three contractors based on

the solicitation, one of which was the Plaintiff. Compl. ¶¶ 19, 37. The Government then issued

task orders upon which the three approved providers could bid. Def.’s Mot. to Dismiss at 1-2.

Plaintiff completed its last Task Order related to the contract on December 30, 2010 and

the order was inspected and accepted on January 20, 2011. Compl. ¶ 15. On April 7, 2011,

Plaintiff received a letter of Notice of Final Acceptance for all work completed under the

contract, which stated that Plaintiff’s “continued interest and participation in the acquisition

program of the USDA-Forest Service is welcomed.” Compl. Exh. 4A. Believing itself to be in

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good standing with the Government, Plaintiff submitted bids on three additional task orders in

the summer of 2011 but was not selected, despite being the lowest bidder on each task order. Id.

at ¶ 39.

As part of a FOIA request, Plaintiff obtained an inter-office e-mail explaining why

Plaintiff’s bid was rejected. According to the e-mails, although the work was “finished [and the]

quality was fine,” Gray Owl owner Steve DiBiase “had difficulty communicating[,] threatened

and harassed the COR’s and Inspectors[, and turned] in incomplete and inaccurate paperwork

and not on time.” Id. Exhibit 7b. Thus, it was concluded that “[d]ue to these difficulties that

increase the cost of administration of the contract, I recommend awarding to the new low bidder

… both Task Orders.” Id.

Plaintiff filed a bid protest with the GAO, which was denied on November 4, 2011.

Matter of: Gray Owl Services, Inc., B-405458, B-405703. The GAO found that the rejection of

Plaintiff’s bid was reasonable because the task orders stated that “past performance, quality

control, and price” would be factors considered in issuing the task orders. Id. at 2. Thus, the

GAO concluded that “the agency’s assessment of Gray Owl’s past performance was reasonable.”

Id. at 5.

b. The Complaint

The precise legal basis of the Plaintiff’s Complaint before the Court is unclear. Certainly,

it highlights no specific counts with which it charges the Government. That said, the Court

discerns the same two possible bases for the Complaint as the Government has identified in its

motion to dismiss: a bid protest for damages that purportedly arise from the three task orders

issued in the Summer of 2011 and a breach of contract charge for the Government’s alleged

breach of certain contract terms allegedly contained in the original contract.

These two possible “Counts” can be fairly summarized as follows. With respect to the

former, Plaintiff challenges the Government’s decision not to award it the Task Orders based on

its past performance. Notably, this view of the case is supported by Plaintiff’s decision to file a

GAO protest on virtually identical facts as those now before the Court. This particular “Count,”

however, is expressly disclaimed by Plaintiff in its response to the Government’s motion, so the

Court need not address it in detail.

Because Plaintiff has not disclaimed the second reasonable reading of its Complaint, the

Court’s analysis centers on it. Plaintiff’s Complaint states that “[t]he applicable Federal

Acquisition Regulation (FAR) is 42.1503d (42.1503b in 2011) incorporated by reference in

Contract.” Compl. ¶ 7. The heart of Plaintiff’s case is that FAR 42.1503d states that “Agency

evaluations of contractor performance, including both negative and positive evaluations,

prepared under this sub-part shall be provided to the contractor as soon as practicable after

completion of the evaluation. The contractor will receive a CPARS-system generated

notification when an evaluation is ready for comment.” FAR § 42.1503d(d). Although Plaintiff

received its final close out letter on April 7, 2011, the performance report was not entered into

the PPRS system until September 30, 2011. Compl. ¶ 8. This delay, according to Plaintiff’s

allegations, constitutes a breach of contract.

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Moreover, this alleged breach cost Plaintiff the opportunity to secure other business

opportunities while it was bidding on the Summer 2011 Task Orders. Specifically, Plaintiff

claims that because of this reliance, its 2011 income was “less than half of what [it] would

otherwise have been, and [has] been in the years before and after 2011.” Compl. ¶ 36. As relief,

Plaintiff asks for $48,251.49 which “is estimated to be the earnings the Plaintiff and his

employees would have earned on the three Task Orders the contractor was low bidder on and had

a reasonable expectation of award, but was not awarded.” Compl. ¶ 43.

II. Standard of Review

a. Motion to dismiss under RCFC 12(b)(1)

A motion brought pursuant to RCFC 12(b)(1) challenges the Court's subject matter

jurisdiction. See RCFC 12(b)(1). Subject matter jurisdiction may be challenged at any time by

the parties. Booth v. United States, 990 F.2d 617, 620 (Fed. Cir. 1993). Indeed, this Court's

jurisdiction to entertain claims and grant relief, like all Federal courts, depends on the extent to

which the United States has waived sovereign immunity. United States v. Testan, 424 U.S. 392,

399 (1976). The burden of establishing the Court's subject matter jurisdiction rests with the

plaintiff, who must establish jurisdiction. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561

(1992); McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 189 (1936). Even so,

when faced with a motion to dismiss for lack of subject matter jurisdiction, a court must assume

that all undisputed facts alleged in the complaint are true, and it must draw all reasonable

inferences in the plaintiff's favor. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); see also Henke

v. United States, 60 F.3d 795, 797 (Fed. Cir. 1995).

b. Motion to dismiss under RCFC 12(b)(6)

RCFC 12(b)(6) allows for the dismissal of a complaint if, assuming the truth of all the

allegations, the complaint fails to state a claim upon which relief may be granted as a matter of

law. Lindsay v. United States, 295 F.3d 1252, 1257 (Fed. Cir. 2002). When analyzing a motion to

dismiss under RCFC 12(b)(6), the Court must also accept as true the complaint's undisputed

factual allegations and should construe them in a light most favorable to plaintiff. Gould, Inc. v.

United States, 935 F.2d 1271, 1274 (Fed. Cir. 1991), and "the [f]actual allegations must be

enough to raise a right to relief above the speculative level." Bell Altantic Corp. v. Twombly, 550

U.S. 544, 555 (2007).

III. Discussion

a. This Court has subject matter jurisdiction under RCFC 12(b)(1)

Because the United States has sovereign immunity, it can be sued only if it expressly

consents to suit. United States v. Navajo Nation, 556 U.S. 287 (2009). It is well settled that the

Court of Federal Claims possesses jurisdiction to hear breach of contract claims. The United

States has waived sovereign immunity for breach of contract claims via the Tucker Act, which

provides that "[t]he United States Court of Federal Claims shall have jurisdiction to render

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judgment upon any claim against the United States founded . . . upon any express or implied

contract with the United States." 28 U.S.C. § 1491(a)(1).

One principle of contract law holds that a party may seek damages in any action for

breach of contract unless the contract at issue provides otherwise. United States v. Winstar

Corp., 518 U.S. 839, 885 (1996) (plurality opinion) (citing, e.g., Restatement (Second) of

Contracts § 346, cmt. a (1981)). In government contracts, as with private agreements, there

exists a presumption "in the civil context" that a damages remedy will be available upon a

breach. Sanders v. United States, 252 F.3d 1329, 1334 (Fed. Cir. 2001). As a result, in a

contract claim under the Tucker Act, the contract at issue does not have to mandate monetary

relief in the event of a breach. See Westover v. United States, 71 Fed. Cl. 635, 640 (2006) (citing

Ontario Power Generation v. United States, 369 F.3d 1298, 1301 (Fed. Cir. 2004); Martinez v.

United States, 333 F.3d 1295, 1302-03 (Fed. Cir. 2003); Hamlet v. United States, 63 F.3d 1097

(Fed. Cir. 1995)). Only Tucker Act claims not sounding in contract must seek money damages

on the basis of a constitutional provision, statute, regulation, or executive order. Westover, 71

Fed. Cl. at 640.

The Defendant argues that Plaintiff’s complaint must be dismissed under RCFC 12(b)(1)

because this Court lacks subject matter jurisdiction. Specifically, Defendant contends that

Plaintiff’s breach of contract claim is merely a disguised bid protest claim, designed “to bypass

[41 U.S.C. § 253j(d)]’s jurisdictional bar.” Def’s Mot. to Dismiss at 3-4. According to

Defendant, “[t]he issue presently before this Court is whether it may adjudicate individual task

order claims brought under the CDA despite the restriction provided in section 253j(d).” Id. at 4.

Whether or not this characterization is correct in a vacuum, Plaintiff has expressly

disavowed any basis for relief relating to the Summer 2011 task orders. The Complaint must,

therefore, be read as a claim for breach of contract on the basis that the Government failed to

prepare and provide to Plaintiff the relevant performance evaluation “as soon as practicable.”

Even though, as explained below, the Court sees no realistic factual basis for this case, the legal

theory of the case does fall within the Court’s jurisdiction.

The Court sees no reason why Plaintiff should not be allowed to proceed with its claim

under a breach of contract theory. Defendant need not fear this Court construing Plaintiff’s

claims as a bid protest because Plaintiff has not framed its argument as a bid protest and the

Court has no intention of construing it as such. Because this Court is authorized to hear breach

of contract claims under the Tucker Act, this Court has subject matter jurisdiction over Plaintiff’s

claim. Thus, Defendant’s request to dismiss the Complaint under RCFC 12(b)(1) is denied.

b. Plaintiff has failed to state a claim upon which relief can be granted because

FAR § 42.1503d was not incorporated into the service contract

To recover damages for a breach of contract, a plaintiff must allege and establish that: (1)

a valid contract existed between the parties; (2) there was an obligation or duty arising out of that

contract; (3) the Government breached that duty; and (4) plaintiff suffered damages that were

caused by the breach of contract. Zulueta v. United States, 553 Fed. Appx. 983, 985 (Fed. Cir.

2014) (citing San Carlos Irrigation & Drainage Dist. V. United States, 877 F.2d 957, 959 (Fed.

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Cir. 1989)). The first element for breach of contract has been satisfied – there is no dispute that a

valid contract existed between the parties. The Court examines the other three elements in order.

i. Obligation or Duty

The Court’s inquiry begins with an examination of the second element, whether the

Government had an obligation or duty arising out of the contract to provide a timely performance

report to Plaintiff. Plaintiff argues that 48 C.F.R. § 42.503(d) (also mentioned as FAR §

42.1503(d)) was incorporated by reference into the service contract. Compl. at ¶ 7. Defendant

rejects this position, noting that “[n]owhere in the contract is FAR § 42.1503(d) cited,

mentioned, or even implied.” Def.’s Mot. to Dismiss at 8. Thus, it is argued, “no duty or

obligation existed.” Id. at 7. Plaintiff responds by noting “[t]he government appears to be

correct that there is no specific reference in the contract to the requirement for performance

evaluations. However, the contract record shows many references by the parties to these

performance evaluations, and that it was the intent of the parties to follow these regulations.”

Pl.’s Resp. at 4.

Whether and to what extent material has been incorporated by reference into a host

document is a question of law. Cook Biotech, Inc. v. Acell, Inc., 460 F.3d 1365, 1376 (Fed. Cir.

2006) (citing Advanced Display Sys., Inc. v. Kent State University, 212 F.3d 1272, 1282 (Fed.

Cir. 2000)). "Incorporation by reference provides a method for integrating material from various

documents into a host document . . . by citing such material in a manner that makes clear that the

material is effectively part of the host document as if it were explicitly contained therein."

Advanced Display Sys., Inc., 212 F.3d at 1282 (citations omitted). "To incorporate material by

reference, the host document must identify with detailed particularity what specific material it

incorporates and clearly indicate where that material is found in the various documents." Id.

"Under general principles of contract law, a contract may incorporate another document by

making clear reference to it and describing it in such terms that its identity may be ascertained

beyond doubt." New Moon Shipping Co., Ltd. v. MAN B & W Diesel AG, 121 F.3d 24, 30 (2d

Cir. 1997) (citations omitted); see also Standard Bent Glass Corp. v. Glassrobots Oy, 333 F.3d

440, 447 (3d Cir. 2003) ("[i]ncorporation by reference is proper where the underlying contract

makes clear reference to a separate document, the identity of the separate document must be

ascertained, and incorporation of the document will not result in surprise or hardship");

American Dredging Co. v. Plaza Petroleum, Inc., 799 F. Supp. 1335 (E.D.N.Y. 1992)

("[i]ncorporation by reference requires that the document to be incorporated be referred to and

described in the contract so that the referenced document may be identified beyond doubt").

Incorporation by reference also requires not only that the incorporating document refer to the

incorporated document, but that it bring the terms of the incorporated document into itself as if

fully set out. Sucesion J. Serralles, Inc. v. United States, 46 Fed. Cl. 773, 785 (2000) (citing

Firth Constr. Co., Inc. v. United States, 36 Fed. Cl. 268, 275 (1996)).

Specific to the government contracts arena, the Court of Appeals for the Federal Circuit

has noted:

This court has been reluctant to find that statutory or regulatory provisions are

incorporated into a contract with the government unless the contract explicitly

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provides for their incorporation. Smithson v. United States, 847 F.2d 791, 794

(Fed. Cir. 1988). In Smithson, the court warned that wholesale incorporation of

regulations into a contract would allow the contracting party to "choose among a

multitude of regulations as to which he could claim a contract breach--and thus

[a] wholly new ground of obligation would be summarily created by mere

implication." Id. (internal quotation omitted).

St. Christopher’s Assocs., L.P. v. United States, 511 F.3d 1376, 1384 (Fed. Cir. 2008).

With the above standard in mind, after viewing the documents Plaintiff cites as evidence

of FAR § 42.1503(d) being incorporated into the contract, the Court concludes that the provision

in question has not been incorporated into the contract. After reviewing the whole of the

contract (submitted to the Court by Defendant as Exhibit A in its Motion to Dismiss), the Court

is in agreement with both parties that FAR § 42.1503(d) is not mentioned anywhere within the

document.1 The contract is not lacking in references to various FAR provisions – in fact, an

entire section is devoted to a checklist where the contracting officer can simply check a box

indicating that a particular FAR provision is to be incorporated by reference into the contract.

See Def.’s Mot. to Dismiss, Exhibit A at 17-20.

While Plaintiff contends that “the contract record shows many references by the parties to

these performance evaluations, and that it was the intent of the parties to follow these

regulations,” Pl.’s Resp. at 4, the evidence cited is wholly irrelevant. The documents that

Plaintiff alleges demonstrate the intention of the parties include an excerpt from the GAO bid

protest decision, a FOIA response letter, several close out letters for issued task orders, midterm

evaluations, and various e-mail correspondence between assorted government officials and

Plaintiff. See Compl. Appendex A. Plaintiff’s argument, however, is unavailing. None of these

documents explicitly mentions or references performance evaluations, with the exception of an

affidavit signed by Plaintiff’s attorney regarding a FOIA request, and the GAO bid protest

decision, in which Plaintiff raised a nearly identical argument. Except the GAO decision, none

of these documents mention FAR § 42.1503(d). Finally, none of the documents proffered by

Plaintiff existed at the time the contract was entered into on August 31, 2007. Because the

documents fail to make any reference whatsoever to FAR § 42.1503(d) and because the

documents were not in existence at the time the contract was executed, the Court finds that none

of these documents support an inference that it was the intention of the parties to incorporate

FAR § 42.1503(d) into the contract.

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Under RCFC 12(d), “matters outside the pleadings” may not be considered by the Court in

deciding a motion under RCFC 12(b)(6). However, although the court primarily examines the

allegations in the complaint when considering a motion to dismiss pursuant to RCFC 12(b)(6), it

may also consider "'matters incorporated by reference or integral to the claim, items subject to

judicial notice, [and] matters of public record.'" A&D Auto Sales, Inc. v. United States, No. 2013-

5019, 2014 U.S. App. LEXIS 6338, 2014 WL 1345499, at *1 (Fed. Cir. Apr. 7, 2014). There is

no doubt that in a claim for breach of contract, the contract itself is integral to the claim. Thus,

the Court may consider the contract when reaching its decision, even though it was submitted by

the Defendant, without converting the motion to one for summary judgment.

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ii. Breach

Little in the parties’ briefing is directed specifically to the issue of breach. To the extent

the Government addresses this issue, it is largely implicit in the Government’s argument that it

was under no duty or obligation. Plaintiff, for its part, offers nothing of substance on this

element. It certainly does not explain how a delay of several months violates the “as soon as

practicable” language contained in the FAR, especially in light of the Forest Service’s transition

from one past performance review system to another during that time period.

The Court has already explained that the past performance provision of the FAR was not

incorporated into the contract, and why it finds no evidence of the parties’ intent to include that

provision in the contract. Without a duty, there can be no breach. Thus, in light of the contract’s

plain language, Plaintiff cannot prove breach under any set of facts.

iii. Damages

Assuming, arguendo, that Plaintiff could demonstrate the existence of the Government’s

obligation and its breach thereof, the Court turns to the issue of damages. Plaintiff alleges that it

“was contra[c]tually obligated to submit … quotes, and maintain and reserve the capacity to

perform Task Orders” on the contract. Compl. ¶ 22; see also Compl. ¶¶ 27-28. On the basis of

this allegation, Plaintiff alleges that it could not devote its time to securing work from other

customers. See Compl. ¶¶ 32, 36-68.

The Government argues that Plaintiff once again attempts to build its case around non-

existent contract terms. It observes that nothing in the contract requires Plaintiff to limit its

involvement with other customers. Plaintiff’s response fails to address this issue at all.

While the point is irrelevant given the Court’s analysis above, it is worth noting that the

contract is entirely silent on exclusivity. The obvious conclusion to be drawn from this silence is

that the contract is not exclusive. The only decision to avoid involvement with other customers

was one made by Plaintiff. To this point, the Government’s argument is correct. That said,

again assuming that Plaintiff adequately pled all other elements of a breach of contract claim,

this point would not necessitate dismissal. Perhaps Plaintiff’s evident failure to even attempt to

mitigate damages would lessen the remedy available by some amount, but it would not

necessitate dismissal at this juncture.

IV. Conclusion

For the reasons set forth above, the Court concludes that because FAR § 42.1503(d) was

not incorporated by reference into the contract, the Government owed Plaintiff no duty under the

contract to provide a performance report, timely or otherwise and the Government, therefore,

breached no duty. Hence, the Court hereby GRANTS the Government’s Motion to Dismiss

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pursuant to RCFC 12(b)(6) for failure to state a claim upon which relief can be granted. The

Clerk is directed to enter judgment accordingly.

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EDWARD J. DAMICH

Senior Judge

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