Lee's Ford Dock, Inc.

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of -- )

)

Lee's Ford Dock, Inc. ) ASBCA No. 59041

)

Under Contract No. DACW62-1-00-0105 )

APPEARANCES FOR THE APPELLANT: Alan I. Saltman, Esq.

Evangelin L. Nichols, Esq.

Smith, Currie & Hancock LLP

Washington, DC

Karl F. Dix, Jr., Esq.

Smith, Currie & Hancock LLP

Atlanta, GA

APPEARANCES FOR THE GOVERNMENT: Thomas H. Gourlay, Jr., Esq.

Engineer Chief Trial Attorney

Thomas M. Browder III, Esq.

Engineer Trial Attorney

U.S. Army Engineer District,

Nashville

OPINION BY ADMINISTRATIVE JUDGE CLARKE ON THE

GOVERNMENT'S MOTION TO DISMISS

The United States Army Corps of Engineers (COE) moves to dismiss this appeal ,

alleging that Lee's Ford Dock, Inc. (Lee's Ford) raised a new claim for the first time on

appeal, failed to certify the new claim, and filed the claim more than six years after

accrual. We have jurisdiction pursuant to the Disputes clause of the lease at issue and the

Contract Disputes Act of 1978 (CDA), 41 U.S.C. §§ 7101-7109. We grant the motion on

the first basis.

STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTION 1

1. The COE and Lee's Ford entered into Lease No. DACW62-1-00-0105 on

29 August 2000 for a commercial concession (marina) at Wolf Creek Dam-Lake

Cumberland project, Kentucky, commencing on 1 September 2000 and lasting

1

The COE's motion includes numerous other facts relating to bankruptcy and other

matters that are not relevant to the central issue in the motion for the Board to

decide.

25 years (R4, tab 3 at 1, 17). Paragraph 32 of the lease, the Disputes clause, stated

that, except as provided in the CDA, all disputes arising under or related to the lease

were to be resolved under this clause and the provisions of the CDA. The Disputes

clause provided that claims were to be submitted to the district engineer. The district

engineer's decision was to be final unless the lessee appealed as provided in the CDA.

See 41 U.S.C. § 7104. Claims over $100,000 required certification. (Id. at 14-15)

2. The lease provided that the United States had the right "to manipulate the

level of the lake or pool in any manner whatsoever ... and the lessee shall have no claim

for damages on account thereof against the United States" (R4, tab 3 at 6). On

19 January 2007 the COE decided that the dam was at high risk of failure and

emergency measures were necessary "to reduce imminent risk of human life, health,

property, and severe economic loss" (R4, tab 15 at 1). The COE concluded that it

would incrementally lower the "pool" to elevation 680 to achieve maximum risk

reduction while continuing hydropower and water supply operations (id.).

3. On 12 July 2007, as a result of lowering the water level in the "pool," the

COE reduced rent payments to one dollar for the period 1 July 2007 through 30 June

2008 (R4, tab 7). Regular rents were reinstated on 1 July 2008 (gov't mot. at 4, ~ 15).

4. On 18 January 2013, Lee's Ford's attorney emailed a claim to the COE's

district engineer and on 19 January 2013 a copy of the claim was placed in the

U.S. mail (gov't mot. at 4, ~ 18; app. opp'n at 2, ~ 18). The claim includes the

following:

As discussed below, Lee's Ford asserts that the very

purpose of the Lease contract has been frustrated by the

now six-year drawdown of Lake Cumberland caused by

the Corps' decision to lower the Lake on January 19, 2007.

As a result, Lee's Ford demands that the Lease contract be

reformed in one or more of the following ways to

compensate Lee's Ford for the damages it has incurred due

to the drawdown: (a) rent owed by Lee's Ford to the

Corps under the Lease should be fully abated until such

time as the abated rent equals at least $4,000,000.00, which

is the amount of Lee's Ford's disaster loan debt to the

U.S. Small Business Administration ("SBA"); (b) the

Corps will pay the SBA the sum of $4,000,000.00, plus all

accrued interest and loan fees, in satisfaction of Lee's

Ford's disaster loan debt to neutralize the detrimental

effect that the frustrated contract continues to have on

Lee's Ford; and/or (c) the Corps will commit to working

with the SBA to develop a federal government policy that

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would allow the SBA to hold the disaster loan debt fully

satisfied by offsetting Lee's Ford's damages arising out of

its frustrated Lease against its disaster loan debt under the

unitary creditor doctrine.

B. THE LOWERING OF LAKE CUMBERLAND

As you are aware, Lake Cumberland is dammed by Wolf

Creek Dam. On January 19, 2007, LTC Steven J. Roemhildt

and Brigadier General Bruce A. Berwick signed the

Memorandum for Record on the subject of "Wolf Creek Dam

Interim Risk Reduction Measures" (the "January 19th Memo"),

which discussed concerns with the possible failure of

Wolf Creek Dam and the need to repair it. The January 19th

Memo concluded that the Lake must be substantially lowered

in order to accomplish the necessary repairs. Recognizing the

impacts of the lowering on the Lake region, the Memo

provided that "[p]lans are being developed to mitigate to the

maximum extent possible those impacts." Memo, p. 14. The

Memo also included a commitment that the "Nashville District

[of the Corps] will work with Lake Cumberland stakeholders to

minimize to the extent practicable the impact to recreation,"

which was said to include the "relocation of marinas" and the

"relaxation of user fees." Id. at 15. On January 22, 2007, the

Corps began to lower the Lake water levels by a total of

43 feet.

As the District Engineer for the Nashville District of the

Corps, Lee's Ford is submitting this letter to you to

formally assert its "claim" against the Corps and to

demand reformation of the frustrated Lease contract in

such a manner as to compensate Lee's Ford for the

damages it has incurred as a result of the drawdown

through payment, the adjustment of Lease terms, and/or

similar relief relating to the Lease ....

As the lessee under the Lease, Lee's Ford expected to

have a certain water level at its dock and the business

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traffic that has historically followed that water level.

While the Lease does contemplate that the Corps has the

right "to manipulate the level of the lake or pool," the

parties could not have envisioned at the time that they

entered into the Lease that the Lake would be drawn down

to such an extreme degree for such a long period of time,

as the Lake has only been lowered to 680' once in its more

than fifty year history. Instead, all that the parties could

have anticipated was perhaps a short-term drawn [sic]

down for repairs to the Dam - not a seven-year term of

drastically lowered levels that required Lee's Ford to

relocate its entire dock system within the leased area.

[Footnotes omitted]

(R4, tab 8 at 1, 2, 5) The claim included other facts relating to SBA involvement

(id. at 2) and COE actions following the lowering of the lake (id. at 3).

5. By a 26 August 2013 final decision, signed by both the district engineer and

the contracting officer (CO), sent by certified mail, the COE denied the claim (R4, tab

2). Lee's Ford received the final decision on 29 August 2013 (Bd. corr. file). On

27 November 2013, Lee's Ford timely appealed the final decision to the Board

(R4, tab 1 at 1). Lee's Ford's complaint, filed with its appeal, included one count,

Breach of Contract-Nondisclosure of Superior Knowledge, and itemized alleged

breach damages of $5,755,212.

6. On 2 December 2013, the Board docketed the appeal as ASBCA No. 59041.

7. On 5 February 2014, the COE filed its motion to "dismiss appellant's

complaint," which it referred to in the body of the motion as one to dismiss the appeal.

We treat the motion as one to strike the complaint. The COE contends that the claim

for "nondisclosure of superior knowledge was raised for the first time on appeal" and

was "never presented to the [CO] for decision as required by the CDA." (Gov't mot.

at 7, ~~ 34, 35)

8. On 21March2014, Lee's Ford filed its opposition to the COE's motion. On

29 April 2014, the COE notified the Board that it had decided not to file a reply to the

opposition.

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DECISION

Initial Jurisdictional Considerations

The leases's Disputes clause invokes the CDA. Parties cannot, by contractual

agreement, confer CDA jurisdiction upon the Board if CDA jurisdiction does not

otherwise exist. See Florida Power & Light Co. v. United States, 307 F.3d 1364, 1371

(Fed. Cir. 2002); Patriot Pride Jewelry, LLC, ASBCA No. 58953, 2014 ASBCA Lexis

at *15 (9 June 2014). However, the Board has jurisdiction to entertain this appeal

under the Disputes clause alone, which incorporates procedures for appeal to the

Board. See, e.g., Donald M Lake, dlbla Shady Cove Resort & Marina, ASBCA

No. 54422, 05-1BCA~32,920. We also have jurisdiction under the CDA because a

lease involves the disposal of personal property within the CDA's coverage.

41 U.S.C. § 7102(a)(4); Arnold V. Hedberg, ASBCA Nos. 31747, 31748, 90-1 BCA

~ 22,577; accord New London Development Corp., ASBCA No. 54535, 05-2 BCA

~ 33,018; see also Forman v. United States, 767 F.2d 875 (Fed. Cir. 1985).

Jurisdictional Dispute at Issue

Both parties correctly recognize that whether the complaint asserts a new claim

or not depends, in part, on if it relies on the same "operative facts" cited in the claim.

The alleged new claim in this case is failure to disclose superior knowledge.

The elements of proof of superior knowledge are:

( 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.

Scott Timber Co. v. United States, 692 F.3d 1365, 1373 (Fed. Cir. 2012). As reflected

in these elements of proof, the "operative facts'' alleged in the claim must somehow

communicate to the CO a disparity in knowledge between the parties at contract award

of which the government was aware. The theory of superior knowledge is unique in

that it normally relies on "operative facts" in existence before award. Grumman

Aerospace Corp. v. Wynne, 497 F.3d 1350, 1357 (Fed. Cir. 2007) (addressing Board's

determinations about the contractor's knowledge during "pre-award period" and "vital

knowledge or the opportunity to obtain that knowledge before contract entry"

(emphasis added); Bannum, Inc. v. United States, 80 Fed. Cl. 239, 247 (2008) (A

superior knowledge claim ordinarily relates to knowledge regarding contractual

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specifications that the government failed to impart to a contractor prior to the

contractor's agreement to undertake performance of a contract); Renda Marine, Inc.

v. United States, 66 Fed. Cl. 639, 721 (2005) ('"When analyzing a claim that the

government breached its duty to disclose superior knowledge, "(t]he court ... must focus

its inquiry on the government's knowledge at the time of contracting and its

relationship to the contractor's lack of knowledge)"' (citations omitted). It is the

pre-award disparity in knowledge that distinguishes the operative facts pertinent to

superior knowledge allegations from those of other cases of action.

In Todd Pacific Shipyards Corp., ASBCA No. 55126, 06-2 BCA ii 33,421, cited

by appellant, the contract involved work related to maintenance of U.S. Navy vessels.

In order to perform the contract Todd had to maintain a large dry dock. After award

the Navy transferred several of the vessels and decommissioned another resulting in

less work for Todd. Todd's 18 June 2004 certified claim referred to its 5 March 2004

"Drydock No. 3 Settlement Proposal" that alleged the following operative facts:

Todd stated that, upon concluding contract negotiations in

June, 2001, it had undertaken a five-year repair and

maintenance project to ensure that dry dock No. 3 would

remain certified and ready to support all scheduled and

potential <lockings covered by the contract. It alleged that,

since nearly all of its non-Navy customers could be

accommodated on a mid-sized dry dock, its continuing

need for a dock as large as dry dock No. 3 was driven by

this AOE contract and the Navy's representations and

commitments as to the future work. It alleged that the

project cost was $16 million; it was clearly understood that

the Navy would pay for the dry dock costs through direct

charges or as unrecovered costs included in overhead; and

Todd had engaged in the project because of the Navy's

representations and commitments and the $8.9 million in

support Todd expected from it. However, after signing the

contract, the Navy decided to transfer two vessels

elsewhere and to decommission the U.S.S. Sacramento

early. Todd alleged that it and the Navy had been

discussing the need to change Todd's dry dock No. 3 cost

recovery methodology for three years, and that the Navy's

decisions had damaged it.

Todd, 06-2 BCA ii 33,421 at 165,684. After the claim, final decision and appeal, Todd

filed a complaint with seven counts, one of which was superior knowledge that had not

been asserted in the claim. We held:

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Although many of appellant's legal theories of recovery

remained the same, it expanded upon them in the

complaint to articulate such theories as breach of contract

and superior knowledge. However, appellant essentially

alleged the operative facts necessary to those theories in its

28 March 2005 claim, in the 18 June 2004 claim

referenced therein, and in the 5 March 2004 submission to

which the 18 June claim, in tum, referred.

Todd, 06-2 BCA ~ 33,421 at 165,688. It is significant that the operative facts stated in

the 5 March 2004 settlement proposal included Navy pre-award "representations and

commitments" concerning the amount of work to be performed under the contract.

We found that these facts were sufficient to support the added legal theory of superior

knowledge.

We see a different result in Advanced Technologies & Testing Laboratories, Inc.,

ASBCA No. 55805, 08-2 BCA ~ 33,950 (ATTL), which involved a 21September2002

COE delivery order contract with a small business for sampling and testing dredged

material. After award A TTL submitted its "initial demonstration of capability data" and

"standard operating procedures" on 21 February 2003, 5 September 2003, 30 December

2003, and 18 June 2004 to the Environmental Protection Agency (EPA) for approval. On

12 August 2004 the EPA found the last submission deficient, as it had all of the previous

submissions. As a result, the COE decided not to order more than the contract's

minimum quantity of $5,000 worth of work. ATTL submitted a claim alleging

constructive change based on a 29 October 2002 letter and the EPA's "improper"

rejection of its submissions. During discovery ATTL obtained a memorandum written by

Ms. Beth Nash on 4 December 2001, before contract award, which stated the contract

should not be a Small Business set-aside, because the contract required a high degree of

precision and would be difficult for a small business to perform. A TTL also obtained a

December 2001 memorandum written by Mr. John Hartmann agreeing with Ms. Nash.

A TTL moved to amend its complaint to allege a superior knowledge cause of action. The

Board held, "[a]ppellant's original claim alleged operative facts limited to two theories of

recovery - the government changed the contract and the EPA review of appellant's

submittals was faulty." Advanced Technologies, 08-2 BCA ~ 33,950 at 167,975. The

Board held, "[w ]e do not have jurisdiction to the extent that the underlying bases for the

superior knowledge and commercial impracticability theories are the information in the

Discovery Documents (i.e., a small business would find it difficult to complete the

contract)". Id. The operative facts in the claim related to a 29 October 2002 letter and

EPA rejections of ATTL's submissions on 21February2003, 5 September 2003,

30 December 2003, and 18 June 2004. It is significant that all of the operative facts

alleged in the claim were well after the 21 September 2002 award of the contract. Again,

the theory of superior knowledge requires an allegation of operative facts occurring in the

pre-award period.

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Shams Engineering & Contracting Co. and Ramli Co., ASBCA Nos. 50618,

50619, 98-2 BCA ii 30,019, involved a United States Agency for International

Development (USAID) contract to construct residential buildings in Gaza. Shams

submitted claims alleging "unfair settlement of claims submitted to USAID," "extra

difficulties which cost us more than ABB SUSA on purchasing materials from Israel

because of the [border] closure" and "delay of paying the amount of Claims on time

'interest' as per FAR (Clause 52.233-1)." Shams, 98-2 BCA ii 30,019 at 148,523.

Appellant appealed the final decision denying the claims and then moved to amend its

complaint to add six counts. Count 2 was breach of the duty to disclose superior

knowledge. The Board held:

In Count 2, appellants contend that USAID

breached its duty to disclose information vital for

appellants' performance under the contracts, and that it

knew or should have known that appellants did not possess

the information. That information allegedly included

(a) the volatile political and economic conditions in the

region, which USAID should have anticipated, (b) the

terms of the contract written in a language understandable

to appellants and the physical inclusion of FAR provisions

rather than their incorporation by reference into the

contract, and (c) the business and accounting standards to

which USAID would hold appellants. Those contentions

are essentially different than those presented to the

contracting officer in appellants' claims seeking equitable

adjustments. With respect to Count 2, appellants' motion

to amend is denied.

Shams, 98-2 BCA ii 30,019 at 148,526. As before, it is significant that none of the

operative facts cited in the claim involved facts reflecting a disparity of knowledge

between the government and the contractors before award.

Court of Federal Claims cases in this area are also instructive. For example, in

Laidlaw Environmental Services (GS), Inc. v. United States, 43 Fed. Cl. 44 (1999), which

involved a waste disposal (magnesium batteries) contract, the parties filed cross-motions for

summary judgment and the government filed a motion to dismiss for lack of jurisdiction.

The motion to dismiss alleged that Laidlaw raised three theories of entitlement in its

complaint that were not presented in its claim to the CO, including superior knowledge:

As noted supra, the complaint in this court asserts three

basic theories of liability, i.e., i) breach of contract, ii)

constructive change, and iii) failure to disclose superior

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knowledge. In contrast, the claim previously filed before

the contracting officer asserted, in essence, that-i) CLIN

0502 cannot be used on the contract because it is for state

regulated batteries only; ii) the tests indicating the toxicity

of magnesium batteries are disputable; iii) magnesium

batteries are not regulated in North Carolina; iv) the use of

CLIN 0502 in the contract was erroneous; and v) such use

constituted a change in the contract.

Laidlaw, 43 Fed. Cl. at 50. The operative facts supporting the claim were:

i) The state of North Carolina does not regulate

magnesium batteries so that the use of CLIN 0502 was

erroneous;

ii) The basis of the tests finding the magnesium batteries to

be hazardous is disputable;

iii) The government changed the terms of the contract

when it informed Laidlaw it would use CLIN 0500 or

CLIN 0502 in delivery orders because magnesium

batteries exhibited '"toxicity characteristics for

chromium" making them a RCRA regulated waste;

iv) CLIN 0502 cannot be used on the contract because it is for

state regulated batteries only and magnesium batteries are

not regulated in North Carolina; and

v) A new "'RCRA" CLIN with a unit price based on

supportable data must be added to the contract.

Laidlaw, 43 Fed. Cl. at 48. Focusing on the superior knowledge theory, the court held:

The nature of this last claim is an assertion regarding what

the government and Laidlaw knew in regard to the toxicity

of magnesium batteries, and when they knew it. While

such a claim before the contracting officer need not be

legally precise, if the general nature of this claim had been

presented to the contracting officer, we would expect a

statement in Laidlaw's claim to the effect that Laidlaw was

unaware of the government studies finding that

magnesium batteries were hazardous under the RCRA; that

the government did not inform Laidlaw of the results of

such studies; and that Laidlaw was damaged by this lack

of, or withheld, knowledge. This claim is thus a new claim,

and a variance, based on "operative facts'' beyond those

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presented for the contracting officer's final decision and

must, therefore, be dismissed.

Laidlaw, 43 Fed. Cl. at 50. Significantly, it was the lack of operative facts reflecting

that Laidlaw was "unaware" of information the government was aware of that caused

the court to dismiss. The court commented, "[ n]o reasonable person could have

inferred, from reading Laidlaw's claim before the contracting officer, that Laidlaw was

alleging that the government had superior information that Laidlaw did not possess,

which it had a duty to disclose." Id. at 51.

The common thread in these and other superior knowledge cases is their

analysis of whether the operative facts in a claim to the CO communicated the

disparity of knowledge between the contractor and the government before contract

award. If they did, there is jurisdiction to consider the claim, if not, there is no

jurisdiction. That is the standard we apply to Lee's Ford. The legal theories asserted

in the claim are "frustration of purpose" and "reformation" (SOF ii 4). The claim cites

the following material operative facts 2 :

• On 19 January 2007 a decision was made to lower

the water level in the lake.

• Lee's Ford expected to have "a certain water level

at its dock and the business traffic that has

historically followed that water level."

• The parties could not have envisioned at the time

they entered into the Lease that the Lake would be

drawn down to such an extreme degree for such a

long period of time, as the Lake has only been

lowered to 680' once in its more than fifty year

history.

(SOF ii 4) The last two bullets relate to pre-award knowledge.

The parties entered into the lease on 29 August 2000 (SOF ii 1). The decision to

lower the water level was made over six years after the lease was executed3 (SOF ii 2).

While two of the operative facts in the claim deal with the parties' knowledge at award

of the lease, they do not reflect the disparity of knowledge between the parties required

to support a superior knowledge theory. Indeed, Lee's Ford's assertion that the parties

could not have envisioned at the time they entered into the Lease that the lake would be

2

The facts presented in the claim relating to the SBA and the Corps' mitigation

efforts are not material to superior knowledge.

3

We do not consider the fact that ownership of Lee's Ford changed in 2003 to be

significant (R4, tab 4).

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drawn down to such an extreme degree for such a long period of time communicates a

common understanding that is inconsistent with the disparity of knowledge required for

superior knowledge. We disagree with the implication in appellant's brief that it alleged

facts supporting superior knowledge, "[f]irst, the claim letter certainly indicates that,

prior to lease execution, the Corps did not provide Lee's Ford with any information

about defects with the Wolf Creek Dam that were likely to result in major

reconstruction." (App. br. at 15) Of critical importance is the complete absence of any

assertion that the COE had information that appellant did not.

There is nothing in Lee's Ford's operative facts alleged in the claim that arguably

supports the theory of superior knowledge. As in Laidlaw, no reasonable person could

have inferred, from reading Lee's Ford's claim, that it was alleging the government had

pre-award superior information that Lee's Ford did not possess. Accordingly, the

complaint incorporated into the appeal constitutes a new claim that has not been

presented to a CO for decision as required by the CDA, 41 U.S.C. § 7103(a)(l), we do

not have jurisdiction to consider it, and we strike it.

Since we do not have jurisdiction over the superior knowledge count, we do not

address the government's other two issues, failure to certify and timeliness.

CONCLUSION

For the reasons stated above, we strike the complaint as it relates to the theory

of superior knowledge without prejudice to the filing of a proper claim with the CO. 4

The appeal, however, remains within the jurisdiction of the Board and Lee's Ford may

amend its complaint to assert theories supported by the operative facts stated in the

claim.

Dated: 23 July 2014

Administr, tive Judge

Armed Services Board

of Contract Appeals

4

Since this claim is not before us we express no opinion on any possible untimeliness

of the filing of the claim, should such occur.

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(Signatures continued)

I concur I concur

c

Administrative Judge aministrative Judge

Acting Chairman Acting Vice Chairman

Armed Services Board Armed Services Board

of Contract Appeals of Contract Appeals

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

Armed Services Board of Contract Appeals in ASBCA No. 59041, Appeal of

Lee's Ford Dock, Inc., rendered in conformance with the Board's Charter.

Dated:

JEFFREY D. GARDIN

Recorder, Armed Services

Board of Contract Appeals

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