Urs Energy & Construction, Inc. v. United States

In the United States Court of Federal Claims

No. 12-57 C

(Filed April 14, 2016)

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

M.K. FERGUSON COMPANY, for the *

use and benefit of the secured creditors of *

GROUND IMPROVEMENT *

TECHNIQUES, INC.; PNC BANK, N.A.; *

FIREMAN’S FUND INSURANCE * Contracts; RCFC

COMPANY; and R.N. ROBINSON & * 12(b)(1); RCFC 12(b)(6);

SONS, INC., * Defective Certification of

* Claim; Severin Doctrine;

Plaintiffs, * Allowable Contract Costs.

*

v. *

*

THE UNITED STATES, *

*

Defendant. *

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

Robert G. Barbour, McLean, VA, for plaintiffs. Keith C. Phillips, McLean,

VA, of counsel.

Jeffrey A. Regner, United States Department of Justice, with whom were

Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Robert E.

Kirschman, Jr., Director, Steven J. Gillingham, Assistant Director, Washington,

DC, for defendant.

________________________________

OPINION AND ORDER

________________________________

Bush, Senior Judge.

The court has before it the government’s motion to dismiss brought under

Rules 12(b)(1) and 12(b)(6) of the Rules of the United States Court of Federal

Claims (RCFC). Defendant’s motion has been fully briefed. Oral argument was

neither requested by the parties nor required by the court. For the reasons set forth

below, defendant’s motion is denied.

BACKGROUND1

Most of the relevant background for this dispute may be found in

Ground Improvement Techniques, Inc. v. United States, 108 Fed. Cl. 162 (2012)

(GIT I), Ground Improvement Techniques, Inc. v. United States, No. 12-57C (Fed.

Cl. May 3, 2013) (GIT II), Ground Improvement Techniques, Inc. v. United States,

No. 12-57C (Fed. Cl. April 30, 2014) (GIT III), and Ground Improvement

Techniques, Inc. v. United States, 618 F. App’x 1020 (Fed. Cir. 2015) (GIT IV).

Only the facts essential to the dispute currently before the court are presented here.

In 1995, Ground Improvement Techniques, Inc. (GIT) became the subcontractor

for MK-Ferguson Company (MK) on a United States Department of Energy

project in Slick Rock, Colorado (the DOE project) for the remediation of uranium

mill tailings.2 As a result of a contract dispute, GIT eventually won a judgment

against MK in a federal court, a portion of which remains unsatisfied. It is that

unsatisfied portion of the judgment against MK that underlies the claim in

plaintiffs’ amended complaint.

In 2001, MK filed for bankruptcy under Chapter 11 of the Bankruptcy

Code, in the United States Bankruptcy Court for the District of Nevada (the MK

bankruptcy litigation). The unsatisfied portion of GIT’s judgment against MK,

and post-judgment interest, were claims administered in MK’s bankruptcy. The

bankruptcy court required MK to file a certified claim with DOE to attempt to

satisfy GIT’s claims against MK related to the DOE project. MK did so in 2010,

but the certification was contested as inadequate.

1

/ This background information is drawn largely from the parties’ filings in this case and

does not constitute fact finding by the court. The court does not reach the merits of the claim set

forth in the amended complaint in this opinion; nor should the parties rely on any descriptive

language in this opinion as a characterization of the nature of that claim.

2

/ MK has undergone multiple corporate name changes, and will be referred to as MK

even in reference to events which occurred after those name changes.

2

MK very recently corrected its certification of GIT’s claim to comply with

claim certification requirements under the Contract Disputes Act of 1978, 41

U.S.C. §§ 7101-7109 (2012) (CDA). Pls.’ App. Ex. 3. The type of claim

presented in this suit is sometimes referred to as a pass-through claim, where the

prime contractor certifies the claim of the subcontractor and sponsors that claim

under its own name. Because GIT also went through bankruptcy, any proceeds

from GIT’s claim will be paid to the assignees of that claim in GIT’s bankruptcy,

usually referred to as the “Secured Parties.”3 Those assignees are indicated in the

caption of this case by the term “secured creditors” of GIT. See Order of October

7, 2015.

There are three basic arguments which provide the foundation for

defendant’s motion to dismiss presently before the court. Def.’s Mot. at 3-4. The

government’s first jurisdictional argument essentially contends that the

pass-through claim asserted in the amended complaint was never properly certified

to the contracting officer and that the defects in certification are so grave that they

cannot be cured. The government’s second argument, relying on RCFC 12(b)(1)

and RCFC 12(b)(6) and citing Severin v. United States, 99 Ct. Cl. 435 (1943),

contends that because MK is not liable for GIT’s claim, MK cannot sponsor GIT’s

claim before this court. In the alternative, defendant argues that the costs

presented in MK’s pass-through claim are not allowable costs pursuant to MK’s

contract with DOE; thus, in the government’s view, the claim set forth in the

amended complaint fails as a matter of law.

DISCUSSION

I. Standards of Review

A. RCFC 12(b)(1)

In rendering a decision on a motion to dismiss for lack of subject matter

jurisdiction pursuant to RCFC 12(b)(1), this court must presume all undisputed

factual allegations to be true and construe all reasonable inferences in favor of the

plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), abrogated on other

3

/ The term “GIT’s claim” is a shorthand reference to the pass-through claim sponsored

by MK and presented to the DOE contracting officer. This opinion does not revisit the topic of

the ownership of that claim, a topic which was fully explored in GIT I-IV.

3

grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982); Reynolds v. Army & Air

Force Exch. Serv., 846 F.2d 746, 747 (Fed. Cir. 1988). However, the plaintiff

bears the burden of establishing subject matter jurisdiction. Alder Terrace, Inc. v.

United States, 161 F.3d 1372, 1377 (Fed. Cir. 1998) (citing McNutt v. Gen.

Motors Acceptance Corp. of Ind., 298 U.S. 178, 189 (1936)). To meet this burden,

the plaintiff must establish jurisdiction by a preponderance of the evidence.

Reynolds, 846 F.2d at 748 (citations omitted).

B. RCFC 12(b)(6)

It is well-settled that a complaint should be dismissed under RCFC 12(b)(6)

“when the facts asserted by the claimant do not entitle him to a legal remedy.”

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

considering a motion to dismiss brought under RCFC 12(b)(6), “the allegations of

the complaint should be construed favorably to the pleader.” Scheuer, 416 U.S. at

236. The court must not mistake legal conclusions presented in a complaint,

however, for factual allegations which are entitled to favorable inferences. See,

e.g., Papasan v. Allain, 478 U.S. 265, 286 (1986) (“[W]e are not bound to accept

as true a legal conclusion couched as a factual allegation.”) (citations omitted).

The court must also determine whether a complaint meets the plausibility

standard described by the United States Supreme Court, i.e., whether it adequately

states a claim and provides a “showing [of] any set of facts consistent with the

allegations in the complaint.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563

(2007) (Twombly) (citations omitted). “To survive a motion to dismiss, a

complaint must contain sufficient factual matter, accepted as true, to ‘state a claim

to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(Iqbal) (quoting Twombly, 550 U.S. at 570). Plausibility is a context-specific

inquiry. See, e.g., Iqbal, 556 U.S. at 679 (“Determining 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.”)

(citation omitted).

II. Analysis

A. A Defective Certification Has Been Cured

1. MK’s Certification of the Pass-Through Claim

4

As ordered by the judge in the MK bankruptcy litigation, MK certified

GIT’s subcontractor claim on October 22, 2010 and provided that certification,

with supporting documents, to the contracting officer on the DOE project. That

certification statement contains the following language:

Attached please find the referenced subcontractor claim

and supporting documents.

As compelled by the Order being submitted herewith and

the terms of the previous Order of the Court granting

relief from the [bankruptcy] stay, I certify that the claim

is made consistent with the Court’s Orders; and that I am

duly authorized to certify the claim on behalf of the

contractor.

Am. Compl. Ex. 4 at 26. The claim amount was for $9,842,711.83. Id. at 27.

There is no real dispute that an effective certification for a nine million

dollar claim must include four elements prescribed by the CDA. The contractor

must certify that:

(A) the claim is made in good faith;

(B) the supporting data are accurate and complete to the

best of the contractor’s knowledge and belief;

(C) the amount requested accurately reflects the contract

adjustment for with the contractor believes the Federal

Government is liable; and

(D) the certifier is authorized to certify the claim on

behalf of the contractor.

41 U.S.C. § 7103(b). Only the last of those four elements is clearly present in the

certification letter provided by MK on October 22, 2010. Unless the court orders

issued by the bankruptcy court could relieve MK of its certification burden, it is

clear that the October 22, 2010 certification is not sufficient under the CDA.

The court need not decide whether such a certification under court order, or

a subsequent certification under court order submitted in MK’s name but not

authorized by MK, could ever be sufficient to certify a CDA claim. MK, on

December 22, 2015, provided a second certification to the contracting officer

5

which stated, in relevant part, that:

On behalf of URS Energy & Construction, Inc.,

successor to Morrison Knudson Company d/b/a MK

Ferguson Company, I hereby certify that the

pass-through claim of Ground Improvement

Technologies, Inc. for the judgment amount of

$9,842,711.83, plus interest from August 16, 2006, is

made in good faith; that the supporting data are accurate

and complete to the best of my knowledge and belief;

that the amount requested accurately reflects the contract

adjustment for which the contractor believes the

Government is liable; and that I am duly authorized to

certify the claim on behalf of URS Energy &

Construction, Inc.

Pls.’ App. at 22. The December 22, 2015 certification submitted by MK contains

all four elements required by the CDA.

Defendant does not argue that the December 22, 2015 certification is itself

defective. In the court’s view, the December 22, 2015 certification cures the

defects in MK’s October 22, 2010 certification. The submission of a corrected

and proper certification normally ends the court’s inquiry into the certification

issue because it is well-established that a defective certification can be corrected at

any time before this court enters a judgment in a contractor’s suit under the CDA.

See, e.g., 41 U.S.C. § 7103(b)(3) (“A defect in the certification of a claim does not

deprive a court or an agency board of jurisdiction over the claim. Prior to the

entry of a final judgment by a court or a decision by an agency board, the court or

agency board shall require a defective certification to be corrected.”);

M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1329 (Fed. Cir.

2010) (“[W]hile technical compliance with certification is not a jurisdictional

prerequisite to litigation of a contractor’s claim under the CDA, it is a requirement

to the maintenance of such an action.”) (citations omitted); James M. Ellett

Constr. Co. v. United States, 93 F.3d 1537, 1546 (Fed. Cir. 1996) (noting that after

late 1992 “certification of [a CDA claim is] not a jurisdictional prerequisite”).

The government does not accept this interpretation of the effectiveness of

the December 22, 2015 certification, however. Defendant asserts that the October

6

22, 2010 certification was not a certification at all, and thus does not benefit from

the rule that a defective certification can later be corrected. See Def.’s Mot. at 15

(“Plaintiff[s’] claims are not merely defectively certified, they are not certified at

all.”). This is a plausible but ultimately unsuccessful argument.

The government’s “failure to certify” argument is constructed upon a

number of contentions. First, relying on a provision of the Federal Acquisition

Regulation (FAR), 48 C.F.R. § 33.201 (2010), defendant characterizes the October

22, 2010 certification as a “failure to certify,” rather than as a defective

certification. Def.’s Mot. at 15; see also FAR 33.201 (“Failure to certify shall not

be deemed to be a defective certification.”). Second, the government suggests that

jurisdiction in this court cannot lie where MK failed to certify the pass-through

claim, relying principally on Scan Tech Security, L.P. v. United States, 46 Fed. Cl.

326 (2000). Third, defendant argues that MK lacked the necessary intent to certify

the pass-through claim’s accuracy and merit, thus rendering its October 22, 2010

certification not merely defective, but incurable. See Def.’s Reply at 3 (“MK’s

failure to certify is not susceptible to being cured, because its refusal to provide

three of the four required certifications is not a mere defect.”) (citing Scan Tech,

46 Fed. Cl. at 335). These arguments are not persuasive, for the following

reasons.4

2. “Failure to Certify” Not Precisely Defined

4

/ Although defendant frames this inquiry as a question of jurisdiction, the court believes

such an approach to be questionable in light of precedent binding on this court. See, e.g., Engage

Learning, Inc. v. Salazar, 660 F.3d 1346, 1356 (Fed. Cir. 2011) (“[B]ecause these allegations [in

the complaint] are non-frivolous assertions of the existence of a contract under the [CDA], the

[board of contract appeals] may not decline to consider them on jurisdictional grounds.”); Fisher

v. United States, 402 F.3d 1167, 1175-76 (Fed. Cir. 2005) (“Assuming that the Court of Federal

Claims has taken jurisdiction over the cause as a result of the initial determination that plaintiff’s

cause rests on a money-mandating source, the consequence of a ruling by the court on the merits,

that plaintiff’s case does not fit within the scope of the source, is simply this: plaintiff loses on

the merits for failing to state a claim on which relief can be granted.”); Do-Well Mach. Shop, Inc.

v. United States, 870 F.2d 637, 639 (Fed. Cir. 1989) (“The presence of a valid defense, however,

does not oust a tribunal of jurisdiction unless, of course, the defense is jurisdictional.”). Here, in

light of these authorities, the court is not persuaded that an inquiry into whether a particular

certification of a CDA claim was defective (and thus curable) or incurably deficient is indeed

jurisdictional. In any event, the government does not prevail on this issue under either RCFC

12(b)(1) or 12(b)(6).

7

Neither the regulation cited by defendant nor the CDA itself contains

illuminating language which explains the difference between submitting a

defective certification and “failing” to submit a certification. Both parties cite to

legislative history of the CDA which indicates that the 1992 amendment of the

CDA sought to prevent “[w]asteful and esoteric litigation” over the certification of

CDA claims. H.R. Rep. 102-1006, at 28 (1992). The bill before Congress also

apparently attempted to favor technically deficient certifications (“the result of

innocent mistake or inadvertence”) over certifications which were “made

fraudulently, in bad faith, or with reckless or grossly negligent disregard of the

Contract Disputes Act or applicable regulations,” id. at 28-29, although this

particular concern is not explicitly stated in the final amendment of the statute, 41

U.S.C. § 7103(b)(3). The court notes that the governing statute, 41 U.S.C.

§ 7103(b)(3), and the text of the regulation, FAR 33.201, even if these authorities

were interpreted to incorporate every statement in the legislative history cited by

the parties, do not, by any means, address every type of imperfect certification.

Courts and contract appeals boards have attempted to apply the statute and

regulation to diverse fact patterns, but the court has searched in vain for a case on

all fours with the facts of this case.

It is obvious that a complete failure to submit any certification whatsoever

for a CDA claim seeking more than $100,000 is a “failure to certify” and this

failure cannot qualify as a defective certification which may be cured. See, e.g.,

Estes Express Lines v. United States, 123 Fed. Cl. 538, 550 (2015) (dismissing a

CDA claim for lack of jurisdiction in part because the contractor conceded that it

had not submitted any certification of its large claim), appeal docketed, No. 16-

1298 (Fed. Cir. Dec. 9, 2015). Under less obvious, but understandable,

circumstances the Armed Services Board of Contract Appeals has repeatedly held

that a failure to sign a certification also constitutes a failure to certify a CDA claim

under FAR 33.201. See, e.g., Tokyo Co., ASBCA No. 59059, 14-1 BCA ¶ 35,590

(Apr. 23, 2014) (“Thus, the altogether lack of a signature on a certification is not a

defect that can be cured under FAR 33.201 such that we can retain jurisdiction.”)

(citations omitted). There is also a line of decisions from the contract appeals

boards that assesses the contractor’s knowledge of proper certification language,

or weighs evidence of the contractor’s intent to be bound by its certification. E.g.,

Walashek Indus. & Marine, Inc., ASBCA No. 52166, 00-1 BCA ¶ 30,728 (Jan. 6,

2000); Keydata Sys., Inc., GSBCA No. 14281-TD, 97-2 BCA ¶ 29,330 (Oct. 10,

1997); Prod. Corp., ASBCA No. 49122-812, 96-1 BCA ¶ 28,053 (Nov. 6, 1995).

8

None of these board decisions were discussed by the parties.5 Because the facts

underlying each of these board decisions appear to vary greatly, and because the

decisions of the appeals boards are not binding on this court, the court finds little

assistance in these board decisions for the analysis required in this case.

3. “Failure to Certify” Cases Decided by This Court

Defendant relies principally on Scan Tech for the proposition that MK did

not certify its claim in 2010 as required by the CDA, thus depriving this court of

jurisdiction over the claim presented in plaintiffs’ amended complaint. Def.’s

Mot. at 14 (citing Scan Tech, 46 Fed. Cl. at 334). Scan Tech, however, is

inapposite. Two documents in Scan Tech, a “cost or pricing data” form submitted

to the contracting officer and a letter sent to the contracting officer over two years

later, were deemed by the court to have fallen short of the “defective certification”

benchmark. 46 Fed. Cl. at 335-38. The form was a “Contract Pricing Proposal

Cover Sheet” which bears no resemblance to the letter submitted by MK on

October 22, 2010. Id. at 329. The second document was a letter from a company

official which enclosed some invoices which he stated were “as complete an

assembly as possible.” Id. Unlike MK’s October 22, 2010 certification, this letter

did not explicitly attempt to certify a CDA claim. Id. The court in Scan Tech

found that neither of these documents was a “defective certification” because each

reflected “a complete disregard of the CDA’s certification requirement.” Id. at

338.

This court’s interpretation of CDA certification requirements in Scan Tech,

although persuasive, is not binding on this court. See, e.g., W. Coast Gen. Corp. v.

Dalton, 39 F.3d 312, 315 (Fed. Cir. 1994) (“Court of Federal Claims decisions,

while persuasive, do not set binding precedent for separate and distinct cases in

5

/ In its reply brief, defendant, for the first time, indirectly alludes to the line of decisions

from the boards of contract appeals which distinguishes between defective certifications and

“failure to certify” scenarios. See Def.’s Reply at 4-5 (citing URS Energy & Constr., Inc., CBCA

No. 2589, 12-1 BCA ¶ 35,055 (May 30, 2012)). To the extent that the analysis in this board

decision cited by the government is properly before the court, the court does not find it

persuasive under the facts of this case. As explained in the following section of this opinion,

MK’s pass-through claim certification was made under orders from a bankruptcy court, and this

special circumstance must be considered when such a CDA certification is challenged. The

board decision cited in the government’s reply brief does not consider this crucial issue,

apparently because judicial orders were not at issue in that appeal.

9

that court.”) (citations omitted). The court in Scan Tech appropriately relied on

the FAR, which provides the following guidance:

Defective certification means a certificate which alters or

otherwise deviates from the language in [FAR] 33.207(c)

or which is not executed by a person authorized to bind

the contractor with respect to the claim. Failure to

certify shall not be deemed to be a defective certification.

FAR 33.201. The remainder of that court’s analysis, however, applies caselaw to

the facts before it in Scan Tech, which involved neither a bankrupt prime

contractor under orders from a bankruptcy court, nor an explicit statement of

certification, which is the case here. Because the court in Scan Tech did not

confront facts similar to the instant case, this court cannot agree with the

government that Scan Tech compels a finding that “MK’s failure to certify is not

susceptible to being cured, because its refusal to provide three of the four required

certifications is not a mere defect.” Def.’s Reply at 3.

The other cases cited by the government for its “failure to certify” argument

are just as unavailing as Scan Tech. In CSX Transportation, Inc. v. United States,

123 Fed. Cl. 244 (2015), the court held that the submission of a standard claim

form for damage to property, often used to lodge tort claims against the federal

government, could indeed constitute a claim under the CDA. Id. at 251. Because

the claim exceeded the $100,000 threshold, however, certification was required

under 41 U.S.C. § 7103. Id. at 251-52. The standard form’s certification language

did not resemble the language required for CDA certification set forth in 41 U.S.C.

§ 7103(b). Id. at 252. The court therefore ruled that the plaintiff’s certification on

the standard claim form was a failure to certify, not a defective certification. Id.

As in Scan Tech, the certification inquiry in CSX did not involve a bankruptcy

court order or a letter whose sole purpose was to certify a subcontractor claim.

For this reason, the analysis in CSX is distinguishable from the analysis required in

this case.

Finally, defendant, in its reply brief, relies upon another decision of this

court, Sam Gray Enterprises, Inc. v. United States, 32 Fed. Cl. 526, 530 (1995),

without explaining how the holding in that case supports its “failure to certify”

argument. Def.’s Reply at 4. The communications between the businessman and

the United States Air Force in that case did not include a CDA claim or a CDA

10

claim certification. Sam Gray, 32 Fed. Cl. at 529-30. Instead, the businessman’s

letters and facsimiles presented requests for widely-varying amounts of money,

and a statement that the contractor “in good faith” had to borrow “approximately

Two Million Dollars” to provide housing to federal contractors in the Bahamas.

Id. The “coincidental” usage of the term “good faith” was held to “bear[] so little

resemblance to the broadest possible reading of the [CDA] certification

requirement that the court [found] that [the] plaintiff never made any attempt to

certify his claim and that his allegation [was] merely an after-the-fact attempt to

ameliorate his error.” Id. at 530. The facts in Sam Gray in no way resemble the

facts of this case. The court cannot rely on the cases cited by the government to

hold that MK failed to certify the pass-through claim submitted on October 22,

2010.

4. Precedential Cases Discussing CDA Certification

Requirements

In the instant case the inquiry into certification requires consideration of the

particular facts under which the October 22, 2010 certification was made by MK,

and a review of analogous cases. Most relevant to this case, both in the court’s

view and as demonstrated by the parties’ recitation of facts in their briefs, are the

following circumstances: (1) MK’s claim is a pass-through claim; (2) MK’s

October 22, 2010 certification of the claim was made under orders of the

bankruptcy court; and, (3) MK’s certification employed language specified by the

bankruptcy court. See Def.’s Mot. at 9 (noting that MK’s October 22, 2010

certification “utilized the language from the bankruptcy court’s August 4, 2010

order”). For guidance, the court turns first to two precedential decisions of the

United States Court of Appeals for the Federal Circuit which discuss the

certification of pass-through claims. The court then turns to a dispute which

proceeded from a contract appeals board to the Federal Circuit, and in which a

bankruptcy court’s order influenced a prime contractor’s certification of a pass-

through claim.

A seminal case, with a long procedural history not of interest here, is

United States v. Turner Constr. Co., 827 F.2d 1554 (Fed. Cir. 1987). Turner, the

prime contractor, offered two certifications of a pass-through claim originating

from its subcontractor Johnson, but also advised the contracting officer, as

required under its master contract, as to the merits of the claim. Turner, 827 F.2d

at 1556-57. One of these advisory reports was negative, suggesting that the

11

agency deny the claim, while a later advisory suggested that Turner could only

provide factual background and no longer offered any legal advice as to whether

the claim should be denied or granted. Id. at 1557. Although Turner’s second

certification conformed perfectly with CDA requirements, the government

attempted to invalidate the certification because Turner had once recommended

denial of the very claim it later certified. The Federal Circuit disagreed with the

government’s overly rigorous interpretation of the CDA’s claim certification

requirement.

The court’s analysis of the validity of Turner’s second certification is

instructive:

The government . . . argues . . . that the certification must

not only be submitted in good faith but must reflect the

prime contractor’s own belief that the submitted claim

reflects the amount owed by the government and that to

allow the prime to substitute the subcontractor’s belief

for its own in making a certification would make a sham

of the certification requirement, regardless of the merits

of the submitted claim, and would render meaningless

the prohibition against direct appeals by subcontractors.

Under the facts of the present case, we do not find this

argument persuasive.

As explained by Turner in its October 10, 1980 letter

. . . , its recommendation to deny the claim was beyond

its expertise and was the result of an erroneous view of

what was required of it under the terms of the contract.

We agree that the recommendation as to the ultimate

resolution of the claim was beyond its proper role. We

further agree with the board in [Turner Constr. Co. ex

rel. Industrotech Constructors, Inc., ASBCA No. 25447,

84-1 BCA ¶ 16,996 (Nov. 25, 1983)] that the

certification requirement requires not that the prime

contractor believe the subcontractor’s claim to be certain,

but that the prime contractor believe that there is good

ground for the claim. Thus, how the prime contractor

itself would resolve the dispute should not be relevant to

12

the certification issue; the prime contractor should not,

through the requirement that it certify subcontractor

claims, be used as a substitute for the contracting officer

or the board [of contract appeals] in the determination of

the merits of the submitted claims under the CDA.

The government does not dispute that Turner’s

certification of August 13, 1980, simultaneously

encompassed all of the statutory elements needed for

certification. It was unequivocal and replaced the

ineffective qualified certification submitted by Turner on

May 19, 1980. To require more by allowing the

contracting officer the discretion to look beyond

certification language which complies with the statute

would necessarily require an examination of the

underlying basis and merits of the claim in order to

determine the validity of the certification. Since a proper

certification is a precursor to jurisdiction under the CDA,

invalidating certifications as a result of such

examinations would prevent the contracting officer, the

board, or this court from employing the provisions of the

CDA on any aspect of the claim. This is contrary to the

overall goal of Congress that the CDA be used to resolve

all disputes and claims arising from contracts with

government agencies . . . .

Turner, 827 F.2d at 1561 (citation to legislative history omitted). The Federal

Circuit also opined at length on the topic of pass-through claims, and the role of

the sponsor of those claims:

As a result of the terms of the contract and the provisions

of the CDA, Turner found itself in an unexpected,

confusing, and potentially conflicting position with

respect to its subcontractors and the administration of its

duties toward the government under the contract. In

practical effect, Turner found itself in the position of

having to review and certify the data and legal theories

underlying the subcontractor’s claims while also

13

providing the data and basis for the government’s

defense of the same claims. We believe that Turner’s

actions under the facts of this case more than represent a

good faith effort to balance and comply with the

competing concerns confronting it.

Given the nature of this court’s day-to-day business, we

do not find it at all surprising for there to be at least

facially proper grounds factually and legally supporting

each side in a nonfrivolous dispute. Nor do we find

hopelessly irreconcilable the awkward requirement that

the prime contractor both certify the claims of its

subcontractors and provide the government with facts

and theories with which to defend those claims. In fact,

this accords with the government’s argument that the

contractor is now required under the CDA “to disclose

any facts which would undermine [its] claims.”

However, we believe that the resolution of the alternative

arguments presented in a claim arising out of a

government contract is properly made in accordance with

the provisions of the CDA, and should not be the

responsibility of the prime contractor as a prerequisite to

certification of its subcontractor’s claim.

Id. at 1559 (citation to legislative history omitted). Although Turner’s

certification, unlike MK’s October 22, 2010 certification in this case, contained all

of the required elements for a CDA certification, the Turner decision provides

several key insights into the certification of pass-through claims.

First, the CDA “certification requirement requires not that the prime

contractor believe the subcontractor’s claim to be certain, but that the prime

contractor believe that there is good ground for the claim.” Turner, 827 F.2d at

1561. Second, the Federal Circuit requires that the sponsor of a pass-through

claim make “a good faith effort to balance and comply with the competing

concerns confronting it.” Id. at 1559. Third, it is not the role of the prime

contractor to adjudicate the pass-through claim, but to certify and present the pass-

through claim to the contracting officer if good ground for the claim exists. Id. A

few years later, the Federal Circuit had another opportunity to examine a

14

certification of a pass-through claim in Transamerica Insurance Corp. ex rel.

Stroup Sheet Metal Works v. United States, 973 F.2d 1572 (Fed. Cir. 1992),

overruled in part on other grounds by Reflectone, Inc. v. Dalton, 60 F.3d 1572

(Fed. Cir. 1995) (en banc).

The prime contractor in Transamerica was Bodenhamer Building

Corporation (BBC). BBC sponsored a claim for its subcontractor Stroup,

providing a certification which complied with the language required by the CDA,

but also attaching a cover letter containing qualifying statements:

[T]his claim is being filed by our subcontractor and

inasmuch as they do not have contract privity with you,

we are acting as a conduit on their behalf in this matter.

We do not have access to their books and records and,

therefore, cannot make any statement with respect to the

amount of their claim. However, we have no reason to

believe that their cost figures and delay estimates are

incorrect.

Transamerica, 973 F.2d at 1580 (quotations removed). The United States Claims

Court deemed BBC’s certification to be defective because of the qualifying

language in the cover letter. Id. at 1579.

The Federal Circuit disagreed. Following Turner, the court stated that “the

language of BBC’s September 1, 1988 cover letter, which the Government alleges

[impermissibly] qualified BBC’s certification, is perfectly consistent with th[e]

standard set out in Turner.” Transamerica, 973 F.2d at 1580. The court

specifically relied on the “good ground” language in Turner which describes the

level of belief required for the sponsor of a pass-through claim, and also found that

BBC’s cover letter and enclosed certification were in substantial compliance with

the CDA. Id. at 1580-81. Transamerica thus reinforces the “good ground”

standard set forth in Turner, and also allows the prime contractor some leeway in

qualifying its support for a pass-through claim, at least in some circumstances.

See, e.g., George Hyman Constr. Co. v. United States, 30 Fed. Cl. 170, 176 n.11

(1993) (citing Transamerica, 973 F.2d at 1580, for the proposition that a prime

contractor “is permitted to qualify its certification of the claim under the CDA by

relying on the subcontractor’s representations”), aff’d, 39 F.3d 1197 (Fed. Cir.

1994).

15

Finally, the court turns to a contract appeals board decision, and the

subsequent reversal of that decision by the Federal Circuit, which concerned a

pass-through claim sponsored, at the insistence of a bankruptcy court, by a prime

contractor. Arnold M. Diamond, Inc., ASBCA No. 40885, 93-2 BCA ¶ 25,680,

1992 WL 398328 (Dec. 31, 1992) (Diamond I), rev’d, 25 F.3d 1006 (Fed. Cir.

1994) (Diamond II). The contracting agency was the United States Navy, the

prime contractor was Arnold M. Diamond, Inc. (Diamond), and the subcontractor

was Perth Amboy Iron Works, Inc. (PAI). The subcontractor’s claim against the

Navy was valued at approximately two million dollars, by PAI, although Diamond

communicated to PAI that the prime contractor believed the claim was only worth

$44,000 and warned PAI about procurement fraud:

On 13 January 1987, [Diamond] sent to PAI its analysis

of PAI’s claim. Of the total claim of $1,902,570,

[Diamond] concluded that PAI was entitled to recover

approximately $44,000. In whole sections of PAI’s

claim document [Diamond] added the notation ‘do not

concur.’ [Diamond] also advised PAI of the CDA

certification requirements and forwarded to PAI

educational treatises pertaining to the subject of

procurement fraud investigations.

Diamond I, 1992 WL 398328.

Diamond submitted PAI’s claim to the Navy two months later with no CDA

certification from Diamond and this language in Diamond’s cover letter:

We are submitting this claim to you because we are

obligated to honor the request of our Subcontractor,

Perth Amboy Iron Works, Inc. This claim is submitted

without comment, verification or mark up for [Diamond]

....

Id. The Navy rejected the pass-through claim because it was not certified by

Diamond. PAI went into bankruptcy, whereupon Diamond attempted to convince

the bankruptcy court that PAI’s two million dollar claim was abandoned because it

had not been properly certified (by PAI). Under orders from the bankruptcy court

to issue a proper CDA certification, PAI issued “a properly worded” CDA

16

certification of its claim, and continued to assert the same amount for that claim.

Diamond demanded a response from PAI to Diamond’s highly critical analysis of

PAI’s claim for approximately two million dollars, and requested “documentation

which would justify and support the claim.” Id. No documentation from PAI was

received by Diamond.

Diamond then renewed its request to the bankruptcy court that it find PAI’s

two million dollar claim to have been abandoned. The bankruptcy court held a

hearing. The colloquy between the bankruptcy judge, Mr. Christopher M.

Houlihan (Diamond’s counsel), and Mr. Samuel Z. Gdanski (Special Counsel

relied upon for his expertise in government contract law) is reproduced in relevant

part here:

Mr. Houlihan: There’s no problem with [PAI’s]

certification [language], your Honor. The problem is

with the amount. When the claim was originally

certified back in December of 1986 it contained a

qualification. At that time Diamond asked PAI to certify

the claim without qualification. A response came back

in January of ’87 saying we can’t certify it exactly that

way, to do so would be perjury. At that time in June, on

June 13th of 1987 . . . Diamond did a very lengthy

analysis of the PAI claim. It stated that the value of the

claim was about $44,000, substantially less than the

million nine. We’ve asked for a response to that and we

have never received a response to that. In response to

the Court’s order of October 24th of 1988, PAI gave us a

certification for the exact same amount of $1.9 million.

Now, your Honor, as you’re aware Diamond as the

contractor is the one who has to certify the claim to the

Navy.

....

The Court: Are you suggesting to me that you have the

authority and the right to decide what claim is going to

be submitted by [PAI] to the Government?

Mr. Houlihan: No, your Honor. I’m not suggesting that.

What I am saying is that we face criminal and personal

rather, civil penalties if we certify a claim which is false

17

and if we believe and we have put in writing that we

believe a claim is worth $44,000 and we certify a million

nine claim, I think it’s going to raise some serious

questions and put us in jeopardy. [We’d] be happy to

certify the million nine claim, your Honor, if we could

get some back up on it. . . .

....

The Court: Well, what would you suggest I do, Mr.

Gdanski?

Mr. Gdanski: That you order –

The Court: That I order [Diamond] to certify something

that they don’t feel in good faith they can certify?

Mr. Gdanski: Yes. They’ve got the caveat. They’ve got

the defense, the explanation. It’s on the record that they

dispute the merits of the claim. If they want to do that

with a cover letter, they can do that. Or in the absence,

your Honor, of your office ruling substantively on the

issue we could elevate this to the Armed Services Board

of Contract Appeals and let them rule on this.

....

Mr. Houlihan: . . . If the Court ordered Diamond to

certify the claim, Diamond would do it and we could go

to the Navy and say that we have been ordered by the

United States Bankruptcy Court to certify this claim for a

million nine and we would do that.

The Court: You think I have a right to order you to

certify something that you don’t feel that you can do in

good faith?

Mr. Houlihan: Well, your Honor, it is an asset of the

bankrupt’s estate and it would be in the interest of the

creditors to pursue this claim, if it is a valid claim and we

would have the security of a court order. We have

brought to the Court’s attention our difficulties with the

claim and if your Honor decided that we should proceed,

we would follow your order immediately.

The Court: It is so ordered. The motion for an order

declaring the claim abandoned is denied and Arnold M.

Diamond, Inc. is hereby ordered to submit the -- to

18

certify the claim of PAI, together with Diamond’s other

claim or claims and submit same to the Government for

review. I’m satisfied that on a basis of the review of the

statute and the pleadings it appears to me that there is a

basis, a good faith basis for certifying the claim and I’m

going to order and direct Diamond to do so.

Diamond I, 1992 WL 398328. Diamond then complied with the court’s order and

certified PAI’s claim for approximately two million dollars, and included the

prime contractor’s mark-up on that claim. Id. Diamond did not mention within its

certification that its CDA certification of the pass-through claim was submitted in

compliance with the order of the bankruptcy court.

The Navy denied the pass-through claim in its entirety, and Diamond sought

review of that decision before the Armed Services Board of Contract Appeals

(ASBCA or board). The board acknowledged that Diamond’s certification of the

pass-through claim “contain[ed] the language required by the CDA.” Diamond I,

1992 WL 398328. The board cited Turner, but noted that, unlike the

circumstances of Turner, “[i]n this appeal[] we confront the unique, undisputed

factual situation in which the prime contractor has itself attacked the claim it later

certified, and certified the claim only after receiving a court order to do so.”

Diamond I, 1992 WL 398328.

In the face of strong evidence that Diamond did not believe in the validity

of PAI’s two million dollar claim, the ASBCA held that Diamond’s certification

was not valid. The board stated that:

Honesty with a subcontractor or the baring of one’s soul

to the Bankruptcy Court is not the good faith envisioned

by the CDA certification requirement. The claim must

be submitted to the Government in good faith. There is

more than ample evidence that was not done in this case.

Diamond I, 1992 WL 398328. The ASBCA also commented that the board was

“unprepared to attach unwarranted importance to a [bankruptcy] court order which

is violative of a statute [(the CDA)] over which we have province.” Id. After

Diamond’s motion for reconsideration was denied, Diamond appealed the board’s

decision to the Federal Circuit.

19

The Federal Circuit largely adopted the board’s factual findings, but noted

that Diamond’s CDA certification of PAI’s claim had been accompanied by a

letter notifying the Navy of the bankruptcy court’s order, and that a copy of the

court order was attached to that letter. Diamond II, 25 F.3d at 1009. The court

then proceeded to rule upon Diamond’s CDA certification. The court’s thorough

discussion of pass-through claims, bankruptcy court orders and the effect of such

orders on CDA certification is instructive. The Federal Circuit first noted that

Diamond met its obligations as a prime contractor under the CDA:

The Board’s findings of fact demonstrate that Diamond

complied fully with the congressional mandate to review

and manage the claim of its subcontractor. Ironically,

however, the data that Diamond developed in its analysis

of PAI’s claim, as well as Diamond’s representations to

the Bankruptcy Court, were used by the Government in

persuading the Board to dismiss Diamond’s appeal. The

Board concluded that Diamond did not consider that

there was good ground for the claim it had submitted

[o]n behalf of its subcontractor and consequently, that

the claim was not submitted in good faith.

Id. (footnoted omitted).

The Federal Circuit then discussed bankruptcy proceedings and the

authority of bankruptcy courts, and concluded that a bankruptcy court’s orders are

entitled to significant deference in government contract disputes when the prime

contractor and subcontractor are within the bankruptcy court’s jurisdiction.

Diamond II, 25 F.3d at 1010. The court then applied that deference to the issue of

the “good faith” of the sponsor of a pass-through claim, noting, first, that the “term

‘good faith’ is not defined in the CDA.” Id. The Federal Circuit borrowed a

definition of good faith from an en banc decision of the Supreme Court of

California:

The phrase “good faith” in common usage has a

well-defined and generally understood meaning, being

ordinarily used to describe that state of mind denoting

honesty of purpose, freedom from intention to defraud,

and, generally speaking, means being faithful to one’s

20

duty or obligation.

Id. (quoting People v. Nunn, 46 Cal. 2d 460, 468, 296 P.2d 813, 818 (1956) (en

banc)).

Applying deference and this definition of good faith, the Federal Circuit

approved of Diamond’s CDA certification:

It is clear from the record in this case that Diamond had

no intention either to defraud or deceive the Navy. To

the contrary, the Board’s findings of fact show that in its

direct dealing with PAI and in the Bankruptcy Court,

Diamond took every measure that could reasonably have

been expected of a prime contractor, under the

circumstances, to obtain PAI’s support and justification

for its claim in an amount which Diamond felt it could

conscientiously certify. Alternatively, Diamond

petitioned the Bankruptcy Court to relieve Diamond of

its obligation to certify PAI’s claim. Instead of obtaining

the relief it sought, Diamond was ordered to certify the

claim by the Bankruptcy Court. Diamond complied with

the order and notified the contracting officer that it had

certified the claim because it was required to do so by

order of the Bankruptcy Court. When one contrasts the

Board’s conclusion of law with its findings of fact, the

question that arises is: “What other course could a

reasonable contractor have taken in the circumstances to

show that it acted in good faith?” Significantly, the

Board in its opinion stated: “We agree that appellant’s

actions, for the most part, demonstrate a conscientious

effort to meet its ethical, contractual, and statutory

obligations.” Nevertheless, the Board held that Diamond

had not acted in good faith.

This court agrees with Diamond’s contention that it acted

in the reasonable belief that there was no viable

alternative to the course of action it followed in this case.

First, Diamond’s efforts to file its own properly certified

21

claim came to naught. Second, Diamond was obligated

both by . . . the CDA and the Order of the Bankruptcy

Court to certify the subcontractor’s claim. If it had

refused to do so, Diamond would have exposed itself to a

suit for damages by PAI without any right of

reimbursement. Third, there was a possibility that if it

had disobeyed the order of the Bankruptcy Court,

Diamond would have been cited by that court for civil

contempt.

Diamond II, 25 F.3d at 1010-11 (footnote omitted). Finding good faith in

Diamond’s CDA certification, the court reversed the ASBCA and remanded for

further proceedings.

It is important to note that the Diamond II decision distinguished Turner,

not because the “good ground” standard of belief in the validity of a

subcontractor’s claim is too low for the factual scenario of Diamond II, but

because “good ground” may actually be too high a standard of belief for a court-

ordered CDA certification:

We recognize that in [Turner], this court held that while

the certification provision does not require the prime

contractor to believe that the subcontractor is entitled to

recover on the claim, it is necessary that the prime

believe that there is good ground for the subcontractor’s

claim. However, that case is factually distinguishable,

because in Turner, unlike the situation in this case, the

prime contractor was not required by a court of

competent jurisdiction to certify the subcontractor’s

claim in spite of the prime’s belief that there was not

good ground for most of the amount claimed by the

subcontractor.

Diamond II, 25 F.3d at 1009 n.2. Thus, Diamond II considers the CDA

certification of a pass-through claim which results from a bankruptcy court order

to be a special type of CDA certification, and one which may, in certain

circumstances, be held to less-stringent standards than those set forth in Turner

22

and Transamerica, for example. Compliance with a bankruptcy court order

appears to be enough to satisfy the good faith requirement, in the circumstances of

Diamond II, which are very similar to the circumstances of MK’s October 22,

2010 certification of GIT’s claim.

5. MK’s October 22, 2010 Certification Constitutes a

Defective Certification, Not a Failure to Certify

Having considered Diamond II, the precedential case most on point, and the

holdings of Turner and Transamerica, the court notes first that in each of these

three cases, the prime contractor provided a certification with language containing

the elements required by the CDA, along with the pass-through claim. Here,

MK’s conforming certification was not delivered to the contracting officer until

December 22, 2015, after plaintiffs’ amended complaint was filed in this court. In

addition, none of these precedential decisions applied the 1992 amendment to the

CDA to the cases before them. Acknowledging these distinctions, the court does

not believe the holdings of these precedential cases can be extended to find that

MK’s October 22, 2010 certification, by itself, was a valid certification under the

CDA.

Nevertheless, the court does consider these three precedential cases to

controvert the “failure to certify” challenge raised by defendant. Defendant argues

that MK’s October 22, 2010 certification is fatally undermined by MK’s

representations to the bankruptcy court that MK had legitimate concerns as to the

amount claimed by GIT. Def.’s Reply at 7. The holding in Diamond II, however,

shows that compliance with a bankruptcy court’s order can be sufficient to show

that, despite expressed reservations, the prime contractor’s sponsorship is made in

good faith. The holding in Turner shows that certainty as to a subcontractor’s

claim is not required, just a belief that the claim has “good ground.” The

Transamerica holding permits the prime contractor to express qualified support

for a pass-through claim. In light of these authorities, the court cannot conclude

that MK’s October 22, 2010 certification was a complete failure to certify GIT’s

claim. Instead, under Diamond II, Turner and Transamerica, it was a defective

certification, and that defective certification was cured on December 22, 2015.

This court is not deprived of jurisdiction, nor does plaintiffs’ amended complaint

fail to state a claim upon which relief may be granted because of the manner of

MK’s certification of GIT’s claim.

23

B. MK Remains Liable to GIT as a Result of the MK Bankruptcy

Litigation

The court turns now to the government’s argument which relies on the

Severin doctrine, a doctrine named for a 1943 opinion issued by the Court of

Claims. According to this doctrine, a prime contractor may not sponsor a pass-

through claim unless it remains liable to its subcontractor on the underlying claim.

See Severin, 99 Ct. Cl. at 443 (“If [the prime contractor] plaintiffs had proved that

they, in the performance of their contract with the Government became liable to

their subcontractor for the damages which the latter suffered, that liability, though

not yet satisfied by payment, might well constitute actual damages to plaintiffs,

and sustain their suit.”). In this case, defendant argues that because “MK obtained

a discharge of its liability to GIT in bankruptcy, . . . MK is not liable to GIT or the

secured parties for the claims asserted in this litigation [and MK] cannot sponsor

the secured parties’ claims under the Severin doctrine.” Def.’s Mot. at 25-26.

The Severin doctrine has evolved since 1943. See, e.g., United States v.

Johnson Controls, Inc., 713 F.2d 1541, 1552 n.8 (Fed. Cir. 1983) (“In subsequent

cases, the application of the Severin doctrine has been narrowly construed.”)

(citation omitted); Seger v. United States, 469 F.2d 292, 300 (Ct. Cl. 1972) (“It is

time to put the Severin rule to rest insofar as subcontractor claims are asserted as

an equitable adjustment under the provisions of a prime contract with the

Government.”) (footnote omitted). Among the limitations on the modern Severin

doctrine are two that are applicable in this case: (1) the burden is on the

government to prove that the prime contractor is no longer liable to its

subcontractor on the pass-through claim; and (2) the Severin doctrine generally

requires an “‘an iron-bound release or contract provision immunizing the prime

contractor completely from any liability to the sub.’” E.R. Mitchell Constr. Co. v.

Danzig, 175 F.3d 1369, 1370-71 (Fed. Cir. 1999) (citations omitted).

The parties have not cited to any cases providing precedent binding on this

court which analyze the liability of a bankrupt prime to its subcontractors for

purposes of applying the modern Severin doctrine to pass-through claims. Both

parties rely on J. L. Simmons Co. v. United States, 304 F.2d 886 (Ct. Cl. 1962), as

providing some guidance. The court agrees that J. L. Simmons is helpful because

it shows that anything less effective than an “iron-bound release or contract

provision” is insufficient for the Severin doctrine to block a pass-through suit.

The analysis in J. L. Simmons also provides an analytical framework which, in the

24

court’s view, compels a rejection of the government’s Severin doctrine challenge

to the amended complaint in this case.

The subcontracts between J. L. Simmons and its subcontractors contained

“releases” which permitted two means for resolving the subcontractors’ claims

against the prime contractor. J. L. Simmons, 304 F.2d at 888. If the prime’s pass-

through suit was successful, the prime would pay out the proceeds to its

subcontractors. Id. If, however, the pass-through suit failed, the prime’s liability

was extinguished. Id. The court described this arrangement as falling into a

middle ground between liability and no liability: “Lying between these extremes

are those cases involving situations wherein the prime contractor has agreed to

reimburse its subcontractor for damages it has suffered at the hands of the

Government, but only as and when the former receives payment for them from the

Government.” Id. at 889. The court noted that this middle ground of liability was

enough to escape dismissal of a pass-through claim under the Severin doctrine. Id.

(citing cases). Ruling for J. L. Simmons, the court provided an analytical

framework for deciding when a prime contractor retains at least an “implicit”

liability to its subcontractors:

In our view, defendant . . . misconceives the over-all

tenor of the releases. Although the language used may

be somewhat inartistic, we think that, taken as a whole,

the releases do recognize an existing liability on the part

of plaintiff for these claims. We have indicated that

plaintiff’s liability is not expressly negated in any event.

Rather, the releases simply purport to set forth the

manner in which plaintiff’s liability is to be

extinguished. Certainly implicit, at least, in these

provisions would seem to be a recognition on the part of

the parties that plaintiff is liable for these claims.

Otherwise, there would be no reason for the parties to go

to the trouble of providing a method for extinguishing a

nonexisting liability. Consequently, we have here a

situation where plaintiff’s liability for these claims was

recognized and expressly preserved at the time the

releases were entered into.

Moreover, it is apparent that, insofar as they relate to

25

these particular claims, the releases are clearly

conditional or contingent in nature. They become

operable only if and when plaintiff prosecutes these very

claims against the Government to a final judgment.

Even then, if the claims are found meritorious, plaintiff’s

liability is not extinguished until actual payment is made

to the subcontractors. Thus, the releases neither

exonerate plaintiff from liability ab initio nor

subsequently, but do impose certain obligations on

plaintiff which it must fulfill before its duty to reimburse

these subcontractors for the damage allegedly caused by

the Government is extinguished. It is apparent, then, that

plaintiff is presently subject to liability on these claims

and will continue to be so until liability is extinguished

in accord with the method agreed to by the parties.

Id. at 890.

The court must follow J. L. Simmons, and finds a strong parallelism between

the implicit liability described in that case and the implicit liability of MK in the

MK bankruptcy litigation. Instead of releases written into its subcontracts, MK’s

liability is established by the bankruptcy court’s jurisdiction over MK and that

court’s order requiring MK to submit a CDA certification. Even though post-

bankruptcy MK, just like J.L. Simmons, may not be required to pay anything to

satisfy its subcontractor’s claim, MK still has “certain obligations . . . which it

must fulfill before its duty to reimburse [its] subcontractor[] . . . is extinguished.”

J.L. Simmons, 304 F.2d at 890. As was the case for J.L. Simmons, if MK prevails

in this suit, the proceeds must be paid by post-bankruptcy MK to the owners of

GIT’s claim.6 Under this authority, the court finds that defendant failed to meet its

burden to prove that MK is not liable to GIT and that the Severin doctrine bars

MK’s pass-through claim.

The parties also dispute whether this case should be distinguished from or

6

/ MK is only a nominal plaintiff for the benefit of the assignees of GIT’s claim. See

Def.’s App. at 71 (noting that defendant’s counsel wishes to ensure that MK is correctly

identified by its current corporate name so that it can receive any monetary judgment issued in

this case).

26

governed by the analysis set forth in Brazier Forest Products, Inc. v. United

States, 11 Cl. Ct. 468 (1987). The court relies on Brazier for the limited purpose

of establishing that a bankrupt prime may, in certain circumstances, sponsor a

pass-through claim despite the Severin doctrine. For the same limited purpose, the

court notes that a bankrupt prime contractor was nonetheless able to sponsor a

pass-through claim in International Technology Corp., ASBCA No. 54136, 04-1

BCA ¶ 32,607 (Apr. 27, 2004). That pass-through claim eventually failed on the

merits, but it did not fall prey to the Severin doctrine. See id. n.1; see also Int’l

Tech. Corp. v. Winter, 523 F.3d 1341, 1344 n.1 (Fed. Cir. 2008). The court must

reject defendant’s Severin doctrine challenge to the amended complaint because

the government has not met its burden to prove that the modern Severin doctrine

bars MK’s pass-through claim.

C. GIT’s Claim is Plausibly an Allowable Cost under the DOE

Contract

Having confirmed its jurisdiction over this suit, and having rejected

defendant’s arguments regarding the certification of MK’s pass-through claim and

MK’s liability for that claim, the court turns to the government’s RCFC 12(b)(6)

argument disputing the “allowability” of the cost of the pass-through claim under

MK’s contract with DOE. The government contends that “the claimed costs [in

GIT’s claim] are not allocable or allowable under the contract between MK and

DOE because MK never incurred the costs, and has no liability for the costs.”

Def.’s Mot. at 2; see also Def.’s Reply at 12 (arguing that any lingering liability

from MK’s bankruptcy “does not establish that MK has incurred or will incur the

cost of [GIT’s] claim”). This argument relies on two authorities, a FAR provision

alleged in the amended complaint to be part of MK’s contract with DOE, and an

inapposite citation from a decision of the Civilian Board of Contract Appeals

adjudicating DOE’s reimbursement liability for another aspect of the litigation

between MK and GIT. Neither of these authorities convinces the court that MK’s

pass-through claim is not plausible.

The FAR provision cited by defendant is FAR 31.201-1, 48 C.F.R.

§ 31.201-1 (1984).7 In relevant part, it states:

7

/ Defendant cites to the “1983” version of the FAR for the language quoted here. Def.’s

Mot. at 27. To the extent that there was a 1983 version of the FAR, it did not take effect until

(continued...)

27

The total cost of a contract is the sum of the allowable

direct and indirect costs allocable to the contract,

incurred or to be incurred . . . .

Id. The government focuses on the “incurred or to be incurred” language of the

regulation, and again argues, just as it did in its Severin doctrine argument, that

MK has not incurred and will never incur the costs of the pass-through claim

because of its discharge of GIT’s claim in the MK bankruptcy litigation. For this

reason, the government argues that “MK’s liability for the GIT judgment . . .

[cannot] be charged to the [DOE] contract as an allowable cost.” Def.’s Mot. at

29.

The government fails to cite a single case which interprets the scope and

meaning of FAR 31.201-1, in general, or which interprets this regulation

specifically in terms of a bankruptcy discharge. The court thus has nothing more

than the government’s ipse dixit assertion that an unsatisfied judgment that is part

of a prime contractor’s bankruptcy estate cannot be allowable to a cost

reimbursement contract under FAR 31.201-1.8 Under the standard of review

required by RCFC 12(b)(6), and in the face of such a lack of persuasive authority,

the court cannot conclude that MK’s pass-through claim is not at least plausibly

allowable under MK’s contract with DOE.

The government fares no better with its reliance on URS Energy &

Construction, Inc., CBCA No. 2260,12-2 BCA ¶ 35,094 (June 29, 2012). The

decision in URS Energy focused on a liability of MK that was not discharged in

the MK bankruptcy litigation, i.e., MK’s liability to its surety “Federal”:

7

(...continued)

April 1, 1984. See Establishing the Federal Acquisition Regulation, 48 Fed. Reg. 42,102, 42,102

(Sept. 19, 1983). The contract between MK and DOE was entered into in 1983. Am. Compl.

¶ 7. The text of FAR 31.201-1 is available in the 1984 edition of the Code of Federal

Regulations.

8

/ The contract provisions governing allowable costs actually set forth in MK’s contract

with DOE are not before the court. Although the government may be correct that MK’s contract

included essentially the same language as FAR 31.201-1, as alleged in plaintiffs’ amended

complaint, the foundation for defendant’s “allowable costs” argument is far from solid. See

supra note 7.

28

In this appeal, [MK] seeks reimbursement only for the

amount it was obligated to pay Federal, as surety, as part

of its indemnity obligation. Because [MK]’s

indemnification obligation was not discharged during the

bankruptcy, the bankruptcy does not, in any way, affect

the outcome of the case.

Id. The board of contract appeals in URS Energy nowhere discusses the

allowability of a claim that was discharged in bankruptcy, under FAR 31.201-1 or

any other regulation. Simply put, the board did not discuss or make any findings

as to the effect of a bankruptcy discharge on the allowability of contract costs.

The government’s contention that MK’s pass-through claim is not plausible under

FAR 31.201-1 and URS Energy is not persuasive.

D. Remand for a Contracting Officer’s Decision on the Merits of

MK’s Pass-Through Claim

The court raises an issue sua sponte regarding further proceedings in this

case. Normally, having dismissed all of the government’s challenges to a

complaint, the court would require an answer to the complaint. Here, however, the

DOE contracting officer never reached the merits of MK’s pass-through claim due

to a defective certification that was only corrected very recently. In somewhat

analogous circumstances, this court remanded a CDA claim to a federal agency for

a decision on the merits of that claim:

Once the court determines that a case is within its

jurisdiction, it has juridical power to enter an order

remanding the case to another body, either at the request

of a party or on its own motion. The Tucker Act grants

this court “the power to remand appropriate matters to

any administrative or executive body or official with

such direction as it may deem proper and just.” 28

U.S.C. § 1491(a)(2). When the factual record before the

court is incomplete or additional agency proceedings or

action are necessary, a remand may be appropriate. Both

deficiencies exist here. [The agency] did not act on a

number of Rollock’s claims, and, when it did act, it left

salient matters unresolved. [The agency] should further

29

develop the factual record and definitively act on

Rollock’s claims.

Rollock Co. v. United States, 115 Fed. Cl. 317, 334 (2014) (citations omitted).

In another recent case, a contracting officer delayed the issuance of his final

decision on a CDA claim too long and the contractor brought suit in this court

under a “deemed denial” theory. Rudolph & Sletten, Inc. v. United States, 120

Fed. Cl. 137 (2015). This court found that it had jurisdiction over the cause, but

remanded the claim to the contracting officer for a final decision on the merits. Id.

at 143. The court cited 41 U.S.C. § 7103(f)(5) for its authority to do so. Under

the same statutory authority the boards of contract appeals also will stay

proceedings, in some circumstances, to allow a contracting officer’s decision to

issue on the merits of a CDA claim. See, e.g., Brad West & Assocs., Inc., CBCA

No. 3879, 14-1 BCA ¶ 35,744 (Sept. 18, 2014) (noting in the procedural history of

that case that the board had “directed [the agency] to issue a [contracting officer’s]

decision within thirty days, or advise the Board as to why such a decision could

not be issued”); Lobar, Inc., ASBCA No. 59178, 14-1 BCA ¶ 35,584 (Apr. 18,

2014) (“We conclude that the issuance of a CO’s decision will better enable the

parties to potentially settle this appeal and therefore grant the motion to stay

proceedings until 12 May 2014 to issue a CO’s decision.”).

The court believes that there is ample reason for a remand to DOE in this

case. First, the defective certification has been cured, thus removing the reason

the contracting officer gave for refusing to consider MK’s pass-through claim.

Am. Compl. ¶ 24. Second, the factual underpinnings of the pass-through claim are

interwoven with proceedings before a number of federal courts and the Civilian

Board for Contract Appeals. These complex facts need to be analyzed in the

context of the DOE project and contract documents. The DOE contracting officer

is best situated to undertake this review in the first instance. Third, the type of

underlying claim presented here is rather unusual, in that it is founded on a

partially-satisfied judgment issued by a district court. DOE must render a decision

on this unusual claim in light of its own interpretation of relevant law and relevant

contract provisions.

For all of the above reasons, the court will remand MK’s pass-through claim

to DOE. In order for this process to function smoothly, the court solicits the

parties’ input into an appropriate remand order. The instructions to DOE cannot

30

dictate any particular outcome, as such an order would exceed this court’s remand

authority. See, e.g., Todd Constr., L.P. v. United States, 88 Fed. Cl. 235, 245

(2009) (“The common theme running through these [remand] cases is that the

remand does not mandate a particular factual determination, but directs the

agency’s attention to matters the court believes require further action to create an

adequate record for the agency’s decision.”). However, the parties may be able to

suggest the appropriate period of time for such a remand and other requirements

that would help this litigation proceed more efficiently from this point forward.

Once the court has received a jointly-drafted proposed remand order from the

parties, the court will remand MK’s pass-through claim to DOE’s contracting

officer for the issuance of a final decision on that claim.

CONCLUSION

For the foregoing reasons, defendant’s motion to dismiss is denied. The

court agrees with defendant, however, that the caption of this case should be

modified to reflect the correct corporate name of the current prime contractor with

DOE, URS Energy & Construction, Inc., the successor to MK and the sponsor of

the claim set forth in the amended complaint. See Def.’s Mot. at 3. The parties

should substitute “URS Energy & Construction, Inc.” for “M.K. Ferguson

Company” in the caption of this case from this point going forward. The next

procedural step in this case will be to remand plaintiffs’ claim to DOE. The court

stays all other proceedings in this case until further order of the court.

Accordingly, it is hereby ORDERED that

(1) Defendant’s Motion to Dismiss the First Amended Complaint,

filed November 16, 2015, is DENIED;

(2) The Clerk’s Office is directed to CORRECT the docket to

show the following four named plaintiffs and ALL FUTURE

FILINGS by the parties shall reflect this change: URS

ENERGY & CONSTRUCTION, INC., for the use and benefit

of the secured creditors of GROUND IMPROVEMENT

TECHNIQUES, INC.; PNC BANK, N.A.; FIREMAN’S FUND

INSURANCE COMPANY; and, R.N. ROBINSON & SONS,

INC.;

31

(3) The Clerk’s Office is directed to SUSPEND all proceedings in

this case until further order of the court; and,

(4) Defendant shall FILE a Notice containing the parties’

proposed remand order to DOE on or before May 6, 2016.

/s/Lynn J. Bush

LYNN J. BUSH

Senior Judge

32