Oasis International Waters, Inc. v. United States

In the United States Court of Federal Claims

No. 10-707C

Filed: August 31, 2016

Reissued: December 1, 20171

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

OASIS INTERNATIONAL WATERS, *

INC., *

*

Plaintiff, * Trial; Counterclaim; Fraud;

v. * False Claims Act; Special Plea

* in Fraud; Contract Disputes

UNITED STATES, * Act.

*

Defendant. *

*

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

OPINION

Laurence Schor, Asmar, Schor & McKenna, PLLC, Washington, D.C., for plaintiff.

With him were Susan L. Schor, Dennis C. Ehlers, David A. Edelstein, Robert D. Pratt,

and Allison G. Geewax, Asmar, Schor & McKenna, PLLC, Washington, D.C.

James P. Connor, Senior Trial Counsel, Commercial Litigation Branch, Civil

Division, United States Department of Justice, Washington, D.C., for defendant. With him

were Tanya B. Koenig, Trial Attorney, Commercial Litigation Branch, Stephen C. Tosini,

Senior Trial Counsel, Douglas K. Mickle, Assistant Director, Commercial Litigation

Branch, Robert E. Kirschman, Jr., Director, Commercial Litigation Branch, and

Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Civil Division,

Department of Justice.

HORN, J.

Plaintiff, Oasis International Waters, Inc. (Oasis), is a contractor which performed

a bottled water contract with the United States military in Iraq during the Iraq War. Oasis

is a Nevada corporation for which the principal place of business is in Utah. After the end

of contract performance, plaintiff filed a certified claim, which was denied in its entirety.

1 The court issued a series of opinions in the above captioned case on August 31, 2016,

April 7, 2017, and November 21, 2017. In response to the court’s November 21, 2017

Order, the parties agreed that all three opinions could be issued without redactions. After

reviewing the opinions, the court agrees with the parties and the original opinions are

hereby unsealed and reissued without redaction.

Plaintiff filed a complaint in the United States Court of Federal Claims, and, subsequently,

defendant filed fraud counterclaims against plaintiff. A trial was held regarding plaintiff’s

breach of contract claims, as well as defendant’s fraud counterclaims.

FINDINGS OF FACT

As stipulated by the parties, “[a]fter the start of the Iraq War but prior to the award

of the contract at issue in this case, the Army procured all of its Iraq bottled water

requirements from Turkey, Kuwait, and Jordan and shipped it by truck into Iraq and to the

various U.S. military bases in Iraq.” United States Air Force Colonel Renee M.

Richardson, who served as one of the contracting officers on the contract at issue in this

case from May 2006 until October 2006,2 explained at trial that “[t]he previous approach

was bringing bottled water in from Turkey, Jordan, and Kuwait, of course, which put

soldiers on the road for the transportation.” As noted in a draft Statement of Work for the

bottled water solicitation at issue in this case:

Up to the present time bottled water has been purchased from sources

outside of Iraq. This practice necessitates large numbers of convoys and

escorts to transport the bottled water from Kuwait, Jordan, and Turkey.

There are numerous complications and delays getting trucks across the

borders, particularly in Turkey. Producing bottled water locally would

significantly reduce the number of convoys required to transport water as

well as reduce the likelihood of battle related injuries.[3]

The parties have stipulated that:

On or about March 2, 2005, Maj. Vazquez, a contracting officer with Joint

Contracting Command-Iraq (JCC-I, later Joint Contracting Command-Iraq

Afghanistan – JCC-I/A), serving at Camp Victory, issued a Request for

Information (RFI) “to get information on contractors capable of providing the

following capabilities for construction of re-locatable water purifying and

bottling facilities for distribution at several locations in Iraq. Locations will be

identified at a later date and time. These facilities are to produce clean

drinkable bottled water per all USDA and FDA standards and requirements.”

2In 2006, Colonel Richardson was a Lieutenant Colonel. When she testified at trial,

Colonel Richardson was a full Colonel. The court refers to Colonel Richardson as a

Colonel in this opinion.

3The final version of the Statement of Work included in the awarded contract was the

same as the draft Statement of Work, except the final version removed the following

sentence: “There are numerous complications and delays getting trucks across the

borders, particularly in Turkey.”

2

The RFI generated interest from 71 vendors, and, on April 3, 2005, the government

posted Solicitation No. W27P4A-05-R-0002 (the solicitation).4 Proposals were due by

May 3, 2005, and the government received 22 bids in response to the solicitation, and

answered 145 questions. A sample of the questions and answers reveals the bidders

were uncertain about the pricing, capabilities, land in Iraq and the obligations of the

government, only some of the concerns were clearly answered by the government. For

example, one part of question 33 stated: “Is our offer to give the cost per liter with the

personnel built in, seperate [sic] to the cost of the plant and equipment?” The government

replied: “All Costs per liter are to be included.” Likewise, question 40 asked: “Start up

Cost: Since the bid is predicated upon the deliverables per litre bottle of water, can we

assume that all costs(inc personnel and equipment deployment to site) incurred between

contract award and water production will fall upon the successful bidder?” The

government replied: “Yes. It is up to you how you determine the cost per litre taking into

account all costs associated with this endeavor.”

There were a number of questions regarding the obligations of the government.

Question 2 asked, “[i]f projected demand falls short, what are the minimum volume

requirements? Is there a required minimum quantity the Government will procure?” The

government responded: “There are no minimums. The minimum is zero.” Additionally,

question 35, referring to question and answer 2, asked:

The answer to Question #2 states that there are no minimum purchase

quantities. This decision places an unreasonable amount of financial risk on

the contractor, and will likely severely limit the competition for this RFP

[Request for Proposals]. Request that the Government guarantee minimum

purchase quantities base [sic] on the estimated quantities that appear in the

RFP.

The government responded:

The levels of liters required are in the range. This is roughly the production

per day. You might have a day where your levels are lower, however, the

Government contract is a Firm Fixed Price not Indefinite Delivery / Indefinite

Quantity. The Government is entering into a one year contract with three

option years. The only thing that could prevent the basic year from occurring

is a Government decision to Terminate for Convenience or default of the

contractor to perform to the requirements and the Government would then

Terminate for Default.

One bidder questioned the potential for installment payments, asking: “Would the

Government authorize progress or installment payments recognizing 1) the significant

capital investment with establishing new capability and, 2) the ability to credit progress

payments with actual deliveries?” to which the government responded that: “The first

payment will be made once the contractor has the first plant operational and has had an

approved first article test accepted without conditions.”

4 The government issued 11 amendments to the solicitation.

3

In response to questions 44 and 89 regarding site conditions, the government

indicated that for the land provided, “[s]ite prep should be minimal,” and would be “as flat

land as possible.” In the answer to question 89, the government stated that “[t]he water

source has been identified and deemed to have sufficient amounts by the government to

support the operation.” The government also noted in answer to question 89, however,

“[i]t is up to you what you do in order to meet the Government’s requirements and

timeframe for delivery.”

One of the 22 bids was submitted by American AquaSource, Inc. (American

AquaSource), and signed by Max Wyeth, President of American AquaSource. Attached

with the American AquaSource proposal was a spreadsheet showing the volumes of

production and an estimate for when each site would begin water production. American

AquaSource’s bid assumed a price of $3.50 per case of water, or a total of

$50,225,000.00, based on the production of 14,350,000 cases.5 At trial, Mr. Wyeth

explained that he calculated the $50.225 million figure “using our average forecast of

demand, we came up with a case number that would be produced per year, and multiplied

that by the case cost.”6

Major Vazquez contacted Mr. Wyeth to clarify the proposal and to submit a “total

cost per year for all four years and the Grand total.” Mr. Wyeth provided Major Vazquez

with a base year price of $50,225,000.00 and three option year prices of

$186,000,000.00, totaling $608,225,000.00. Mr. Wyeth confirmed in his correspondence

“that the 3.50 price is the only price, regardless of the winter/summer/surge period, for all

years within the contract.”

After negotiations between Mr. Wyeth and Major Vazquez, in which Major Vazquez

asked Mr. Wyeth to reconsider the option year prices, on May 11, 2005, Mr. Wyeth

submitted an amendment to the American AquaSource proposal, which included a

revised “Summary of Pricing Schedule” with a proposed base year price of

$50,225,000.00 and three option year prices of $112,000,000.00, for a total contract price

of $386,225,000.00. The parties have stipulated that, “[o]ther than AquaSource’s

proposed price, all other offerors whose proposals were found technically acceptable

5 The court notes, however, for the basis of estimate in the American AquaSource

proposal, American AquaSource assumed annual production of 384 million bottles or 32

million cases of water.

6 Counsel for defendant emphasized during Mr. Wyeth’s testimony:

Q: So, just so the record is clear, the $50.225 [million] in your proposal is based

upon $3.50 per case?

A: Yes.

4

offered prices in excess of $1 Billion.”7 Major Vazquez awarded contract no. W27P4A-

05-C-0002 (the contract) to American AquaSource on May 25, 2005. The contract called

for base year price of $50,225,000.00 and three option year prices of $112,000,000.00,

for a total contract price of $386,225,000.00.8 Major Vazquez signed the contract on

behalf of the government. Mr. Wyeth signed on behalf of American AquaSource.

After the contract was awarded to American AquaSource, Paul Morrell contacted

Mr. Wyeth, and subsequently, Mr. Wyeth exchanged several emails with Phil Morrell and

Dan Petsche, then the Vice President for Contracts and Compliance for Al-Morrell

Development in June 2005 discussing the bottled water project.9 Paul Morrell testified

that “[o]ur original intent with American AquaSource was to sell our assets to him, as it

appeared that he didn't have the resources and the funding to acquire our assets, much

less build the factories. It morphed or migrated into a partnership between Max and Phil

and myself.” Paul Morrell explained that, initially:

Al-Morrell Development was essentially the performance arm of the

operation. We built the facilities. We financed them. All the employees were

employed by Al-Morrell Development. It was basically the part of the

organizations that really did all the performance. . . . Max's responsibility

was to provide water bottling expertise, because Phil and I were -- had

never built a water bottling plant prior to this.

The original arrangement changed, because as Paul Morrell testified:

Initially, Mr. Wyeth told us that he had the financing lined up, and he just

needed time. He didn't have time, because the first facility had to be up --

7 The military’s own Independent Government Cost Estimate, estimated a total base year

cost of $149,145,842.23, or almost three times American AquaSource’s proposal for the

base year, to construct and operate eight water bottling facilities in Iraq. Morrell

International, Inc., a corporation whose Chief Executive Officer was Phil Morrell, also

submitted a proposal which provided for a base year price of $899,725,000.00, option

year prices of $831,287,500.00 per year, for a contract total of $3,393,587,500.00. Phil

Morrell testified at trial, however, that that was a “bad bid,” and he had intended to bid at

$5.50 per case of bottled water. Phil Morrell indicated that the request “needed to be right

around $5.50 per case,” for “somewhere around the 32 million cases per year.”

8 The cover page to the contract stated the estimated dollar amount as “$386,225,000.00.”

At trial, Major Vazquez testified that this amount was in error and that the amount should

have been $50,225,000. Subsequently, on July 15, 2005, United States Air Force Major

Marc A. Lopez, who served as the contracting officer on the contract from June 2005 until

September 2005, executed modification P00002 on behalf of the government, which

changed the dollar amount from “$386,225,000.00” to “$50,225,000.00 (NTE),” because

“[o]nly the base year award should have been documented in the contract.”

9Mr. Wyeth testified that at the time he “signed this contract” he had no relationship with

Al-Morrell Development, Paul Morrell, Phil Morrell, or Paul Jeffries.

5

we're talking July, and we had basically 90 days to get the first facility up.

So, we really didn't have time. . . . So, our understanding was he would

continue to try to bring his financing option to the table, get money in the

bank. In the meantime, Phil and I would self-fund this first plant so that we

could meet the contractual deadlines. Over the course of the fall, it became

clear that Mr. Wyeth's options were not going to come to fruition, and AMD

[Al-Morrell Development] -- initially it was a parallel track. We were trying to

obtain financing on behalf of AMD while we were waiting for his financing to

come into place. Ultimately his financing failed, and the AMD financing did

come into place late in the year or early the next year.

Therefore, in July 2005, Phil Morrell, Al-Morrell Development, Mr. Wyeth, and American

AquaSource entered into a joint development and pre-incorporation agreement to form a

new corporation to fulfill the contract, with the agreement reflecting that the purpose of

American AquaSource’s contract was to “build up to six (6)[10] water bottling plants in the

country of Iraq.”11 Initially, the corporation was called Iraqua, Inc., but later changed its

name, on July 15, 2005, to Oasis.12 Subsequently, in the fall of 2005, Phil Morrell, Al-

Morrell Development, Mr. Wyeth, and American AquaSource signed an addendum to the

joint development and pre-incorporation agreement, assigning American AquaSource’s

contract to Oasis. The addendum required Mr. Wyeth, of American AquaSource, to

execute a novation agreement. The novation agreement was to be a modification to the

contract, and ultimately was modification P00005, discussed below. On December 5,

2005,13 “American Aqua Source, Inc.,” “Oasis International Water, Inc.,” and the “United

States of America” “enter[ed] into this Novation Agreement. . . as of August 1, 2005.”14

The modification stated that the “purpose of this modification” was to reflect the novation

10 As explained below, although the contract, as executed, required 8 water bottling

plants, the contract was modified by modification P00001 to require only 6 water bottling

plants.

11Paul Morrell testified that “Phil [Morrell] and Max [Wyeth] were owners in Oasis, and

Phil and I were owners in Al-Morrell Development, but we made a very -- Phil and I made

a very practical decision that if we were going to invest our funds into the business, that

our company was going to own the assets.”

12 Paul Morrell testified that “Oasis was originally called Iraqua. Everybody loved that

name except the bankers. The bankers wouldn't allow us [to] own a bank account with

that name Iraqua on it, literally, so we changed the name to Oasis.”

13Mr. Wyeth, then-president of Oasis and American AquaSource, signed the modification

on behalf of Oasis on December 2, 2005. Major Montler signed for the military on

December 5, 2005.

14 At the time of the novation, Mr. Wyeth testified he was “out of the loop” and his interest

in Oasis was eventually bought out by the Phil Morrell and Paul Morrell. Mr. Wyeth also

was not involved in the completion of the bottled water plants. Oasis accepted Mr. Wyeth’s

resignation as president of Oasis on January 5, 2006.

6

agreement transferring all rights and responsibilities of the bottled water contract from

American AquaSource to Oasis. The modification also stated that, “[a]ll other terms and

conditions of the contract remain unchanged.”

Paul Morrell was the Chief Executive Officer of Al-Morrell Development from

August 15, 2005 through January 2006, and, thereafter, has served as President of Al-

Morrell Development. Paul Morrell was also the Chief Executive Officer of Oasis from

August 15, 2005 through January 2006, and, thereafter, has served as President of Oasis.

Phil Morrell was Chairman of Oasis from July 2005 through December 2012. Paul Jeffries

served as both the Chief Executive Officer and Chief Financial Officer of Al-Morrell

Development and Oasis. Mr. Jeffries served as Chief Financial Officer of Al-Morrell

Development and Oasis from June 2005 through January 2006, and, subsequently,

served as Chief Executive Officer of Al-Morrell Development and Oasis from January

2006 through 2010. Mr. Jeffries was replaced as Chief Financial Officer of Al-Morrell

Development and Oasis by Neil Vos, who served as Chief Financial Officer from February

16, 2006 until June 2011. As noted above, Dan Petsche was the Vice President for

Contracts and Compliance for Al-Morrell Development when initially discussing the

contract with Max Wyeth, and he also was the Vice President for Contracts and

Compliance for Oasis from 2005 through October 31, 2011. At all times, Paul Morrell and

Phil Morrell15 had a controlling interest in Oasis, and after Mr. Wyeth was bought out and

resigned as president, Paul Morrell and Phil Morrell controlled 100% of Oasis.

The Contract

As noted above, Major Vazquez awarded contract no. W27P4A-05-C-0002 to

American AquaSource on May 25, 2005. Item no. 0001 of the contract was “NON-

PERSONAL SERVICS [sic]” (capitalization in original) and indicated:

The Contractor shall provide all labor, tools, supervision, personnel,

equipment, transportation, materials, facilities, and other essentials

necessary to perform and sustain 8 separate and independent purified

bottle water plants according to the 20 Mar 05 Statement of Objectives

(SOO). Period of Performance: 25 May 05 through 24 May 06.

The unit price was listed as “$3.50/case” for all amounts of water produced. Following the

item no. 0001 were three items for the three option years, item no. 1001, item no. 2001,

and item no. 3001, changing only the period of performance.16 After item nos. 0001, 1001,

2001, and 3001, there was a summary of the pricing schedule which stated:

15 Phil Morrell and Paul Morrell are brothers.

16The identical nature of the three options is reflected in the typographic error of “NON-

PERSONAL SERVICS” in each of the three option years. (capitalization in original).

7

SUMMARY OF PRICES FOR BASE YEAR AND THREE OPTION YEARS

TOTAL BASE YEAR $50,225,000.00

FIRST OPTION YEAR $112,000,000.00

SECOND OPTION YEAR $112,000,000.00

THIRD OPTION YEAR $112,000,000.00

GRAND TOTAL (Base Year and Three Option Years) $386,225,000.00

(capitalization and emphasis in original). The period of performance was listed in the

contract as:

BASIC PERIOD 25 May 2005 - 24 May 2006

OPTION PERIOD I 25 May 2006 - 24 May 2007

OPTION PERIOD II 25 May 2007 - 24 May 2008

OPTION PERIOD III 25 May 2008 - 24 May 2009

(capitalization in original). The statement of objectives for the “purified bottled water

services” contract explained:

The purpose of this contract is to provide re-locatable purified bottled water

capabilities at various locations throughout Iraq Area of Operations (AO).

Contractor shall produce the amounts of bottled water as outlined in Figure

1. Contractor shall ensure bottled water capability is able to relocate upon

notification by the Contracting Officer (CO) due to military operational

requirements. Bottled water capabilities shall be established in the order as

listed in Figure 1. Actual locations will be given to the contractor that wins

award. The contractor shall provide all the mechanical equipment required

to produce and prepare for shipment the required amounts of bottled water.

The first bottled water site shall be operational 120 days after the contract

is awarded. This includes military inspection and acceptance. After contract

award, additional bottled water sites shall be established within the

remainder of days from contract award. A full 365 days from contract award,

all sites will be fully operational.[17]

Figure 1, referenced in the statement of objectives, identified the production requirements

at each of the bottled water facilities at different points in the year.

17The objectives to the contract further indicated that “[t]he contractor shall ensure

purified bottled water capability is able to relocate upon notification by the CO.”

8

LOCATION TOTAL PRODUCTION REQUIREMENT/DAY in 1K

Liters (winter/summer/surge)

Location 1 75-100K liters / 101-150K liters / 151-200K liters

Location 2 65-100K liters / 101-135K liters / 136-170K liters

Location 3 35-55K liters / 56-75K liters / 76-100K liters

Location 4 60-110K liters / 111-160K liters / 161-210K liters

Location 5 60-110K liters / 111-160K liters / 161-210K liters

Location 6 200-300K liters / 301-400K liters / 401-450K liters

Location 7 80-120K liters / 121-160K liters / 161-200K liters

Location 8 75-110K liters / 111-150K liters / 151-190K liters

(capitalization in original). Figure 1 contemplated three different production requirements:

winter, summer, and “surge.” Colonel Richardson testified, explaining the different

requirements, as follows:

[D]uring the winter, the weather was a lot more reasonable in Iraq; the highs

were around the eighties, nineties. In the summer, temperatures got up to

135 degrees, requiring soldiers to drink more just to stay cool and to stay

hydrated. During surge, what that's really talking to is battle operations. Our

soldiers wind up wearing 60, 70, 80 pounds' worth of gear and then going

out into . . . tanks, which causes them to sweat and causes them to need

more water.

The tasks section of the contract instructed, in part: “The contractor shall provide

re-locatable purified water bottling capability for producing and packaging required

amounts of one liter bottles of water per day as outlined in Figure 1,” “Contractor shall

provide, operate, maintain, and repair all the mechanical equipment required to

accomplish the Government's objectives,” “Contractor shall ensure bottled water meets

or exceeds all US Government quality standards,” and “Contractor shall operate the

purified bottled water capabilities with enough personnel to meet the Government's

requirements.” Regarding payment to the contractor, the invoicing section of the contract

stated:

Invoicing shall occur monthly. The contractor shall invoice to the Contracting

Officer Representative (COR), by the 5th of each month, for the total of all

liters in [sic] produced, per location, for the entire previous month. The

9

CORs will prepare the DD250s and will submit them with the contractor's

invoice to the Contracting Officer (CO), no later than the 10th of each month.

Bottled Water Facilities

Although the original contract required eight bottled water facilities, on May 26,

2005, the day after contract award, United States Air Force Lieutenant Marion Knapp

executed a no-cost modification P00001 on behalf of the government reducing the

required number of water bottling facilities from eight to six, to which American

AquaSource agreed. The six bottled water facilities were: LSA Anaconda (Anaconda),

Camp Victory, Al Asad Airbase, Qayyarrah West (Q-West), Speicher, and Camp

Taqaddum (TQ). Major Vazquez indicated that land would be provided to the contractor

no later than 30 days after contract award. Although the answer to question number 44

regarding the solicitation indicated that “[s]ite prep should be minimal,” defendant had to

provide site preparation at every location except Al Asad.18

Anaconda, the first bottled water facility, was contractually required to be

operational by September 22, 2005. Major Lopez executed modification P00004 on

September 18, 2005, on behalf of the government, granting a 12-day extension of the

requirement for Anaconda’s certification until October 4, 2005. Although Anaconda began

producing water on October 10, 2005, Anaconda was not audited and certified operational

until December 14, 2005, after producing almost 2 million liters of water.

Camp Victory, the second bottled water facility, was initially required to be

operational by May 24, 2006. The military authorized land for Camp Victory on September

4, 2005. Camp Victory was certified operational on April 7, 2006, and began producing

bottled water on April 12, 2006. Al Asad, the third bottled water facility, was initially

required to be operational by May 24, 2006. The military authorized land for Al Asad on

August 22, 2005. The contractual deadline to complete Al Asad was extended to June

30, 2006, and Al Asad was certified operational on July 24, 2006.

Q-West, the fourth bottled water facility, was initially required to be operational by

May 24, 2006. The military authorized land for Q-West on September 11, 2005, but on

December 19, 2005, directed and authorized land at a different location for the Q-West

plant. The contractual deadline to complete Q-West was extended to June 30, 2006, and

Q-West was certified operational on July 9, 2006. Plaintiff indicated it encountered

challenges with the water source at Q-West. Alan Morrell19 testified that “we opened Q-

18 In the case of Al Asad, plaintiff claims that: “Defendant refused to provide site prep at

Al Asad, Oasis was forced in December 2005 to hire its own subcontractor to prep the

site, which included filling borrow pits dug by the military, at a cost of $224,100,” and

further spent “$158,110 to abate the flooding and repair the damage caused to the site,”

as a result of the work done by another contractor, Kellogg, Brown and Root, at an

adjacent site.

19Alan Morrell “was an Oasis consultant from late June 2005 through October 2005. He

was the Oasis Contract and Compliance Administrator from October 2005 through March

10

West and started drawing from that irrigation line, we started getting turbid water, water

so turbid that it was filled with mud and sand. And at that time, it was so significant that

we couldn’t purify it.” As a result, “what it did is it . . . immediately fouled all of our

[equipment] -- we didn't have an ultra filtration system there because it didn't call for one.”

Moreover, the “ROWPU [Reverse Osmosis Water Purification Unit] was immediately filled

with mud, and fouled. And each set of those membranes is $26,000. And they were

ruined. And we couldn't keep them clean and operational enough to operate and make

water there as a result.” In order to fix the problem, Alan Morrell testified that Oasis

“purchased a Pall Aria from northern New York and we also took an additional ROWPU

system that we had used at Balad and recommissioned it, repiped and replumbed the

lines at Q-West and solved the problem.”

Speicher, the fifth bottled water facility, was initially required to be operational by

May 24, 2006. The military authorized land for Speicher on August 13, 2005. The

contractual deadline to complete Speicher was extended twice, finally to June 30, 2006,

and Speicher was certified operational on June 20, 2006, and began producing bottled

water on June 24, 2006. Initially, Oasis believed they would receive water provided by the

government via a ROWPU. Alan Morrell testified, however, that “we opened the factory,

we start producing, and within 48 hours, KBR [Kellogg Brown & Root] came in and just

railed on us for consuming their ROWPU'd water. And they got -- they got their KBR

COTR [contracting officer’s technical representative] or contractor officer's representative

for that site involved and they shut down our water.” As a result, Alan Morrell testified that:

[t]hey’re [Oasis’ contracting officer and COSCOM (United States Corps

Support Command)] beating us up for delivering quantities, but they're

refusing to give us the water they're required to provide us. So, we're dealing

with that at Speicher, and we're dealing with a lack of water delivery at Q-

West to a level we can produce there, too, and we're all running for a

completed amount of or quantity of water, but we can't get to it.

As a solution, Oasis purchased from an American company a “BEV 9 reverse osmosis

system, and in the spring of 2007, installed it, commissioned it, and began to draw well

water.”

Camp Taqaddum, or TQ, the sixth bottled water facility, was initially required to be

operational by May 24, 2006. Although the military initially authorized the land for TQ on

August 24, 2005, the military directed Oasis to use land at different locations twice, the

second time in March 2006. The contractual deadline to complete TQ was likewise twice

extended, to June 30, 2006, and then to October 15, 2006. The site preparation for TQ

was completed by July 2, 2006, and on August 11, 2006, Colonel Richardson confirmed

for Oasis to construct the plant at TQ. TQ was completed on October 23, 2006, and

despite Oasis requesting 40.5 days of excusable delay on September 25, 2006, United

States Air Force Lieutenant Colonel Joel R. Fortenberry, who served as the contracting

2007. He was Director of Contracts and Compliance from March 2007 through November

2008. He was Project Management Director from November 2008 through December

2009.”

11

officer on the contract from October 2006 until early 2007, executed modification P00013

on behalf of the government, granting plaintiff only eight days of excusable delay for TQ.

TQ was certified operational on October 25, 2006.

Relevant Modifications

During contract performance there were a series of relevant modifications to the

contract. As noted above, after contract award, P00001 reduced the number of bottled

water facilities from eight to six, and on July 15, 2005, Major Lopez executed modification

P00002 on behalf of the government, which changed the dollar amount from

“386,225,000 (estimated)” to “50,225,000 (NTE).” Subsequently, on August 9, 2005,

Major Lopez and Mr. Wyeth executed P00003, which added a “NTE,” not to exceed,

limitation on the quantity of water produced at each plant, and did not require the

government to purchase any minimum number of cases produced by the contractor.

Pursuant to P00003, the not to exceed “case quantity was a total of 14,350,000 cases of

water,” and, as modified in P00002, the not to exceed price was $50,225,000.00. As

explained above, P00004 granted a twelve day extension of the requirement for the

certification of the Anaconda bottled water plant, and P00005 was the novation

agreement.

a. P00006

Prior to the execution of modification P00006, on March 27, 2006, United States

Air Force Major James E. Davis, who served as the contracting officer on the contract

from September 2005 until January 2006, sent Oasis a letter titled “Preliminary Notice of

Government Intent to Exercise Option CLINs 1001-5, Contract W27P4A-05-C-0002 for

$112M,” which stated: “The Government must withhold its intent to exercise the option,”

which meant the contract would come to an end. The letter informed Oasis that “[t]he

contracting office does not have assurance of adequate funding.”20 On April 3, 2006, Paul

Jefferies sent Major Davis a draft proposal, which would form the basis of modification

P00006, and included a way to include a base year amount of 14,350,000 cases of bottled

water at $3.50 per case for a total of $50,225,000.

Modification P00006, which was executed on April 14, 2006 by Major Davis and

Phil Morrell, extended the base year of the contract from May 24, 2006 to August 15,

2006, and required that the bottled water capability be established at the six sites by June

30, 2006. Therefore, modification P00006 extended the contractual deadline for bottled

water plants to be operational to June 30, 2006. According to P00006, the bottled water

plants were to be operational in the following order: (1) Anaconda, (2) Camp Victory, (3)

20 Phil Morrell testified that “I told them [the government] that would be a really bad thing

to get a letter like that, because that letter would put us in default with our banker. And

that letter did put us in default with our banker, and it cost us $3 million to pull our -- our

contract out of default.” Phil Morrell also testified that Oasis had “already been told that

by Colonel Hay, that they [the government] didn’t have the funding to continue on this.”

12

Speicher, (4) Q-West, (5) TQ, and (6) Al Asad.21 P00006 also required the production of

14.35 million cases of water during the base period of the contract, and removed the “Not

To Exceed” requirements established in modification P00003. Finally, the option years

were realigned to match the extension of the base year, so the first option period would

run from August 16, 2006 until January 15, 2007, the second option period would run

from January 16, 2007 until January 15, 2008, and the third option period would run from

January 16, 2008 until January 15, 2009. P00006 also added a fourth option period that

would run from January 16, 2009 until August 16, 2009. The amount of water in the base

period, the first option period, and the newly added fourth option period were different

than the second and third option years. After modification P00006 to the contract, the

periods of performance, quantities of water, and amounts due Oasis were:22

ITEM NO. SCHEDULE OF SUPPLIES/ QTY UNIT UNIT AMOUNT

SERVICES PRICE

0001 Purified bottled water (12 / 1 Liter CASE $3.50

bottles per case)

1001 BASE Period 14,350,000 $50,225,000.00

24 May 2005 to 15 August 2006

2001 OPTION ONE 14,285,715 $50,000,000.00

16 August 2006 to 15 January 2007

3001 OPTION TWO 32,000,000 $112,000,000.00

16 January 2007 to 15 January 2008

4001 OPTION THREE 32,000,000 $112,000,000.00

16 January 2008 to 15 January 2009

5001 OPTION FOUR 17,714,286 $62,000,000.00

16 January 2009 to 16 August 2009

(capitalization in original).

b. P00011

As noted above, United States Air Force Colonel Richardson served as the contracting

officer on the contract from May 2006 until October 2006. By June 2006, Oasis personnel,

including Paul Morrell, Phil Morrell, Alan Morrell, Mr. Jeffries and Mr. Petsche and Colonel

Richardson had begun negotiations to further modify the contract. Both parties had

financial challenges, defendant obtaining the funding to exercise the first option, and

plaintiff, which would be in default with its lenders if the contract was terminated for

convenience.23 Internally, Oasis considered the following proposal, as noted in an August

1, 2006 email from Paul Morrell:

21 At the time modification P00006 was executed, Anaconda and Camp Victory were

already operational.

22 Colonel Richardson testified, the modifications “changed the end date of option four

from 16 August 2009 to 16 July 2009. So, it actually decreased the period of performance

for the contractor.”

23As indicated in plaintiff’s post-trial brief, “[d]uring the P00011 discussions, Oasis had

an outstanding debt of over $70 million.”

13

I’ve tried a lot of complicated algorithms to try to make a solution that is

equitable to both the Military and US. I’ve concluded that the most equitable

approach for everyone is the following: We gat [sic] paid a flat

$112,000,000/year just as the contract states or $9,333,333/month (5/6th of

that until TQ comes online). We agree to deliver up to 32,000,000 cases per

year in aggregate with an annual reconciliation if the actual deliveries

exceed that amount.

The parties discussed several options for how to proceed moving forward, and

ultimately, on August 8, 2006, Oasis, at Colonel Richardson’s request, provided her a

draft proposal, which was consistent with the internal Oasis proposal.24 The draft proposal

indicated two options:25

24Paul Jefferies testified at trial that “we were still being asked for significant concessions,

beyond what was outlined that I've tried to outline here. . . . I mean to the tune of $30

million of concessions yet beyond what's on this page.” Mr. Jefferies also indicated that:

We didn't really make an offer. The negotiations began with Paul [Morrell]

and I sitting in a room with [Colonel] Renee [Richardson], and I believe her

assistant was there, and they told us that they were being pushed a

particular direction, that she would need concessions from us to pay out the

balance of the funds owed or she would have to move in this other direction.

25The first option contemplated modifying the contract to not build TQ, but the parties

decided to build the TQ plant.

14

On August 12, 2006, Paul Morrell and Colonel Richardson executed modification P00011,

which was generally consistent with the draft proposal26 and established a payment

structure by which Oasis would be paid $9,333,333.33 per month, independent of the

amount of water delivered, moving forward in the option periods. P00011 also modified

the fourth option period, ending on July 16, 2009.

The modification explained:

The purpose of this modification is to do the following:

1. Provide a revised CLIN structure to reflect monthly pricing based upon

water production capability.

2. Replace the Contract Statement of Objectives, with Performance Work

Statement, dated 12 August 2006, provided as Attachment 1 to this

modification.

3. Incorporate the contractor's Quality Assurance Plan into the contract

provided as Attachment 2 to this modification.

4. Incorporate the List of Critical Equipment into the contract, provided as

Attachment 3 to this modification.

5. Insert Special Clause, titled “Equipment Leased by the Government”, into

the Contract.

26 Alan Morrell who earlier had testified about the water issues at the various plants

indicated that regarding the lack of water at Speicher, “on P00011, because this was such

a hot issue, again, part of the negotiation was a concession that we would sort this

problem out,” and Oasis “bought another BEV 9 reverse osmosis system.” Alan Morrell

also testified that “[p]art of the concessions that were demanded from us in P00011 were

two site improvements to solve water issues. One was Speicher, and the other was Q-

West.”

15

6. Insert clause DFARS 252.232-7007, “Limitation of Government's

Obligation” (May 2006) into the Contract.

7. Replace Contract Section J, List of Documents, Exhibits and Other

Attachments.

8. Decrease the contract amount by $11,604,166.45 from $386,225,000.00

to $374,620,833.55.

9. Decrease the contract funded amount by $5,604,166.35 from

$100,225,000.00 to $94,620,833.65.

10. Change the end date of Option 4 from 16 August 2009 to 16 July 2009.

On August 15, 2006, as part of P00011, Oasis submitted a final invoice to close

out the base year in the amount of $24,542,387.00. The total amount of water produced

in the base year was 8,705,992 cases, which translated to $30,470,972.00 at $3.50 per

case. In addition, from the time the contract was awarded to the end of the base year,

Oasis submitted nine invoices for payment at $3.50 per case, totaling approximately $23

million, which the government paid.27

The contract ended on July 16, 2009, and Oasis performed on the contract until

that date. Subsequently, Oasis and the government entered into a separate, follow-on

contract regarding bottled water in Iraq. The issues in this opinion relate solely to the base

year of the original contract.

27 As reflected in the joint stipulations, and as agreed to by the parties regarding invoices

for the base year of the contract: On December 31, 2005, Oasis submitted an invoice to

the Government for 293,160 cases of water from Anaconda at 3.50 per case, for a total

of $1,026,060. On January 31, 2006, Oasis submitted an invoice for 356,400 cases of

water from Anaconda at $3.50 per case for a total of $1,247,400.00, and on February 28,

2006, Oasis submitted an invoice for 508,680 cases of water from Anaconda at $3.50 a

case, for a total of $1,780,380.00. On March 31, 2006, Oasis submitted an invoice for

664,320 cases of water from Anaconda at $3.50 per case, for a total of $2,325,120.00.

One month later, on April 30, 2006, Oasis submitted an invoice for 910,020 cases of water

from Anaconda and Camp Victory at $3.50 a case, for a total of $3,185,070.00. On May

31, 2006, Oasis submitted an invoice for 1,126,920 cases of water from Anaconda and

Camp Victory at $3.50 a case, for a total of $3,944,220.00. On June 15, 2006, Oasis

submitted an invoice for 1,381,140 cases of water from Anaconda and Camp Victory at

$3.50 a case, for a total of $4,833,990.00. On July 1, 2006, Oasis submitted an invoice

for 297,540 cases of water from Anaconda and Speicher at $3.50 a case, for a total of

$1,041,390.00. Finally, on July 31, 2006, Oasis submitted an invoice for 1,150,900 cases

of water from Anaconda, Q-West, Speicher, and Camp Victory, for a total of

$4,028,150.00.

16

Certified Claim

Prior to the filing of the certified claim, Phil Morrell sent an email to Paul Morrell

and Paul Jeffries on August 4, 2006, with his thoughts on the contract, as follows:

Capabilities for Time Period not Quantity

 Funding was received for purchase of water, but it [sic] the contract

was a capabilities contract

 Should have 2 Contracts

o Capabilities Contract

o Product Procurement Contract

 Funding was received for Contact# _____

 Contract#____ is a capabilities contract not a procurement contract

 $50 million on the table is for capability not water procurement

The general assumption from everybody is that the price of water in the

CLIN is somehow associated with the price of capabilities.

(emphasis in original). At trial, Phil Morrell explained his view of the contract:

When I studied the contract, including when I talked to -- told Max [Wyeth]

that he could get a progress payment, which I did tell Max, way back in the

early days, probably a week into the -- two weeks into the contract, that he

could get a progress payment. Based on all the historic contracting that I

had done, and the way that I submitted my bid, the anticipation that was

there would be, you know, progress payment capabilities, or -- in the

contract. So, looking at Max’s bid, he had put $58 million in for what

appeared to be the construction capabilities, and then out of the $58 million,

based on -- and I read this somewhere, I think it was in the FAR firm fixed

price area -- it says that you -- if it’s for equipment, then you have to deduct

the salvage value of the equipment, and then you could bill for whatever

that was. So, that -- I didn’t actually sit down and do the numbers because

that’s just not what I do, but I – I suggested that we bill against the $52.25

million or $50.225 million as capabilities.

Paul Morrell stated at trial that he agreed with Phil Morrell about the contract being

a capabilities contract after executing P00011 and considering Colonel Richardson

correspondence,

she's commenting on the proposal . . . specifically, the 9.33 million per

month for capabilities going forward, and she's saying she thinks that's a

reasonable approach, but this is one of the first times where I hear a contract

officer say the same thing that Phil has been saying for most of the year,

that this is a water production capability contract. And Colonel Richardson

goes on, through the -- post-P00011, and she's very clear that it's a water

17

production capability contract and it has been all along. They've just been

administering it as if it weren't.

On June 20, 2008, Paul Morrell signed the certified claim, and on July 4, 2008,

Oasis submitted its certified claim to the government. At the beginning of the certified

claim, Paul Morrell, as President of Oasis, stated: “I certify that the claims stated herein

are 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.” During his

testimony at trial, Paul Morrell reaffirmed these statements. On direct examination, Paul

Morrell testified about the certified claim:

Q. Did you read and review the entire claim and its parts before you signed

the certification?

A. Yes.

Q. You also submitted a signed affidavit as a part of this claim, correct?

A. Yes.

Q. Did you have any involvement in putting together the damages claimed

in the claim that was submitted?

A. Yes.

...

Q. Did you review the amount of the claim before you signed the

certification?

A. Yes.

Q. Did you believe that the amount claimed accurately reflected the

amounts which the Government of the United States owed Oasis at the time

you signed the claim?

A. Yes.

Q. Do you believe today that the amounts included in the claim are owed to

Oasis?

A. Yes.

Q. Did anyone from the military ever inform you that he or she thought that

the claim was fraudulent or false in any way?

18

A. No.

Paul Morrell also submitted a sworn affidavit in support of Oasis’ certified claim at the time

he submitted the certified claim, in which he stated:

During the period May 2005 to the present, I was responsible for the day-

to-day management of Contract W27P4A-05-C-0002 (the “Contract”) and

had responsibility for all aspects of Oasis' performance of the Contract I also

had overall responsibility for the cost and accounting issues involving Oasis'

performance of the Contract. This Affidavit is based on my first-hand

knowledge, the collective corporate knowledge of Oasis and the corporate

records of Oasis maintained in the ordinary course of business.

Mr. Vos, the then-Chief Financial Officer of Oasis, also submitted a sworn affidavit in

support of Oasis’ certified claim, in which he indicated: “I am responsible for all aspects

of finance, bookkeeping and accounting. Along with my staff I supervised the accounting

for construction, cost projections, purchase orders, purchase order approvals, accounting

classification, weekly, monthly and annual reconciliations.”28

The certified claim identified eight claims for which plaintiff sought payment: Claim

129 was a “Claim for all bottled water supplied in the Contract base year, as extended to

August 15, 2006, excluding bottled water supplied from Camp Anaconda through May,

2006 (5,605,020 cases of bottled water),” and plaintiff sought $19,617,570.00. Claim 2

was a “Claim for penalty wrongfully assessed for failure to open Camp TQ on time,” which

plaintiff ascribed “solely as a result of Government-caused delays and disruptions,” and

for which plaintiff sought $2,270,833.00. The certified claim indicated that Claim 3 was a

“Claim for reduction in Contract consideration for first option period (August 15, 2006

through January 15, 2007) resulting from P00011,” and for which plaintiff sought

$3,333,333.00. Claim 4 was a “Claim for water bottling capabilities services provided

through extension of Contract base year,” and plaintiff valued Claim 4 at $11,175,063.00.

Claim 5 sought $808,423.00 as a “Claim for cost of site improvements required,”

specifically at Anaconda, Camp Victory, Al Asad, and TQ. Claim 6 was a “Claim for cost

of water supply improvements at Camp Speicher and Camp Qwest,” and plaintiff sought

$600,000.00.30 Claim 7 was a “Claim for other penalties assessed re: Government delays

28 In addition to Paul Morrell and Mr. Vos, Lawrence Schwartz, a certified public

accountant, and Alan Morrell also submitted a sworn affidavit in support of the certified

claim.

29Although plaintiff and defendant typically refer to the claims in the certified claims as

“counts,” unless quoting from the parties, the court refers to the claims as claims, and the

counts filed in plaintiff’s complaint in this court as counts.

30In Claim 6, the water supply improvements, as alleged by plaintiff, refer to “the need to

purify the non-compliant source water supplied by Defendant at Speicher and Q-West.”

19

of TQ opening,” related to the “44 days of TQ AQL[31] penalties erroneously assessed to

Oasis due to Government-caused delays in establishing TQ in the first Option Period”

and was valued by plaintiff at $2,053,333.00. The plaintiff’s certified claim reflected a total

amount claimed for the first seven claims of “$39,858,555.” Below the total for the first

seven claims, plaintiff’s certified claim indicated: “Alternative additional claim for water

supplied from Camp Anaconda during initial Contract base year ending May 2006,

3,100,972 cases of bottled water: $10,853,402.”32

The certified claim restated the claims and the dollar figures at the end of the

certified claim in the “Summary of Claims,” and also stated:

As set above, the same base claim amount results from calculations based

on breach of contract principles, as follows:

a. The Contract provides for a firm, fixed-fee, Contract base-year

payment to the contractor of $50,225,000.

b. Oasis was entitled to the entire firm, fixed-fee, Contract base-year

payment of $50,225,000, plus $3.50 per case for each case of water

produced, from all sites through August 15, 2006, less, at most, the

amount of water delivered from Camp Anaconda through May 24,

2006. Oasis produced 5,605,020 cases of water (excluding water

produced at Camp Anaconda in the Contract base year ending May

24, 2006) at a contract price of $3.50 per case and is entitled to

payment of $19,617,570.

c. Oasis provided water-bottling capability services for an additional

2.67 months when the Contract base year was extended to August

15, 2006, due to Government delays and breaches of contract.

(internal citations omitted). The certified claim indicated the plaintiff’s view that:

The Contract is not a model of clarity. The amount payable in the Contract

base year is a firm, fixed-price amount of $50,225,000. . . . However, the

Contract, as written, does not require delivery of any bottled water in the

31 The parties have stipulated that “AQL” is an acronym for Acceptable Quality Level.

32 As referenced below, the defendant refers to Claim 1 and Claim 8 together under its

claim for “Fraudulent Double Billing For $30 Million In Bottled Water.” In summarizing its

certified claim in this court, plaintiff also referred to the Claim 1 and Claim 8 together,

stating: “Counts 1 and 8 – Recovery of $30,470,972 for the cost of the cases of water that

was offset against the Base Year firm-fixed price, as well as the non-invoiced water

Defendant also took at the time of P00011.” The figure of $30,470,972.00 reflects the

combined value of Claims 1 and 8 in the certified claim. The court notes that the parties

consider the “Alternative additional claim for water supplied from Camp Anaconda” as

“count 8.” The court refers to the alternative additional claim as Claim 8.

20

Contract base year. In the Contract base year, Oasis was entitled to a firm,

fixed-fee payment of $50,225,000. The Contract provides that the entire

payment is for water purification and water-bottling capabilities. Under the

Contract, bottled water was a separately priced commodity to be paid for by

the Government at the price of $3.50 per case under a separate CLN.

(internal citations omitted). The certified claim also indicated:

While Oasis delivered some bottled water during the Contract base year,

Oasis invoiced the Government for that water and the Government paid

those invoices. The primary deliverable item in the Contract base year is

water purification and water-bottling capabilities, as specified in CLN 00001,

as follows: The Contractor shall provide all labor, tools, supervision,

personnel, equipment transportation, materials, facilities, and other

essentials necessary to perform and sustain 8 separate and independent

purified bottle water plants. The Government made it very clear in the pre-

award documentation that the Government was not obligated to purchase

any bottled water under the Contract. In response to a pre-award question

of whether the Government would guarantee purchase of any minimum

quantity of water, the Government stated emphatically that it was obligated

to purchase “zero” bottled water through the Contract. The only reasonable

interpretation of the statement that the Government was not required to

purchase any water is that the entire Contract base-year, fixed-fee payment

of $50,225,000 was a mobilization payment for delivering water-bottling

capabilities. Stated otherwise, if the Government was required to purchase

“zero” water, it logically follows that “zero” water was included in the firm

fixed fee of $50,225,000. The Contract price of $3.50 per case thus applies

to all water delivered in the base year.

(internal citations omitted; emphasis in original).

The government did not issue a decision on Oasis’ certified claim for over 15

months after it was submitted, and the claim was passed between, and considered by, a

number of contracting officers and personnel, including United States Navy Lieutenant

Commander Klingenberg, who was the contracting officer when Oasis submitted its

certified claim on July 4, 2008, United States Air Force Major Jamie Rhone, who served

as the contracting officer from July 2008 until January 2009, and Dean Carsello, a Joint

Contracting Command Iraq Afghanistan (JCC-I/A) policy analyst, who was involved in

reviewing the claim in 2008 and 2009. Ultimately, United States Air Force Major Hobbs

denied Oasis’ certified claim in its entirety when he issued the Contracting Officer’s Final

Decision on October 18, 2009.

One year later, on October 18, 2010, plaintiff filed its complaint in the United States

Court of Federal Claims. Plaintiff’s complaint alleged eight counts, and the complaint

mostly tracks the claims raised in the certified claim, with the same dollar amounts, albeit

framed as breaches of contract in the complaint. The first count, “Breach of Contract,

21

and Breach of the Duty of Good Faith and Fair Dealing, for Failure to Pay for water

TakenFrom [sic] Sites other than LSA Anaconda” seeks damages in the amount of

$19,617,570.00, plus interest. (emphasis in original). The second count, “Breach of

Contract For Improper Assessment of a Liquidated Damages Penalty Against Oasis

for Failing to Have All Six Facilities Open by the End of the Base Year, or

Alternatively, for Reducing the Base Year Contract Price Without Consideration,”

seeks damages in the amount of $2,270,833.00, plus interest. (emphasis in original). The

third count, “Breach of Contract For Improper Reduction of the Option Period One

Price Without Consideration” seeks damages in the amount of $3,333,333.00, plus

interest. (emphasis in original). The fourth count of the complaint, “Breach of Contract

Resulting from Government Acts and Omissions Impacting and Damaging Oasis

During the Base Year, as Extended” seeks damages in the amount of $11,175,063.00,

plus interest. (emphasis in original). The fifth count, “Breach of Contract Resulting

From Government Failure to Provide Suitable Construction Sites,” seeks damages

in the amount of $808,423.00, plus interest. (emphasis in original). Oasis’ sixth count,

“Breach of Contract and/or Constructive Change for Failure to Provide Suitable

Water at the Purification Facilities as Required by the Contract” seeks $600,000.00,

plus interest. (emphasis in original). The seventh count of the complaint, “Breach of

Contract For Unjustified Imposition of Penalties for Late Opening of TQ and/or

Wrongful Reduction in Contract Price,” seeks $2,053,333.20 plus interest. (emphasis

in original). Finally, the eighth count of the complaint, “Breach of Contract, and Breach

of the Duty of Good Faith and Fair Dealing, for Failure to Pay for Water TakenFrom

[sic] Site LSA Anaconda,” seeks damages in the amount of $10,853,402.00, plus

interest. (emphasis in original).

Defendant filed an answer to Oasis’ complaint on February 15, 2011, and, more

than a year later, on April 12, 2012, filed a motion to amend the pleadings and include

fraud counterclaims. In its post-trial brief plaintiff argues that “[e]ssentially, no Government

personnel who reviewed the Claim ever reported, suggested, or even mentioned that the

Claim was false or fraudulent prior to the Department of Justice’s involvement in this

litigation.” As discussed below, the defendant indicates that the “Department of Justice

possesses sole authority to assert fraud counterclaims.” (citing 28 U.S.C. §§ 516 (2012),

2508 (2012); 31 U.S.C § 3730(a) (2012); and Hernandez, Kroone, & Assocs. v. United

States, 110 Fed. Cl. 496, 528 (2012), recons. denied, 2013 WL 3199299 (Fed. Cl. Mar.

29, 2013)). Plaintiff is correct that none of the government personnel called at trial stated

a belief that Oasis’ certified claim was fraudulent at the time they considered the claim.

Oasis responded to the amended answer and counterclaims on May 10, 2012,

however, on June 6, 2014, defendant moved to again amend its pleadings and filed a

second amended answer and counterclaim. In the interim, during highly contested, and

at times uncooperative, discovery the parties filed numerous motions related to discovery,

the production of documents, how documents were maintained, how documents were to

be produced, and in what format, and who would bear the costs, spoliation, whether or

not various privileges applied to various documents, as well as motions to compel,

motions to strike, and motions to quash. The court held numerous status conferences

and hearings to try and resolve the varying disputes between the parties, issued

22

numerous orders, including publishing one substantive, lengthy opinion on attorney-client

privilege and work product. See Oasis Int’l Waters, Inc. v. United States, 110 Fed. Cl. 87

(2013).

The parties also filed motions for summary judgment and motions in limine in

advance of the trial, and after trial, filed lengthy post-trial briefing materials. The effect of

the discovery disputes, and difficult relationships, resulted in discovery deadlines being

repeatedly pushed back, and trial dates repeatedly postponed. After defendant’s motion

to file a second amended answer and counterclaim was filed, a six week trial was held.

Initially, this opinion addresses the fraud counterclaims raised by defendant. Next, the

court will unscramble the issues of contract interpretation, duress, and damages, if any,

raised by the case. The court also will separately address plaintiff’s allegation of

spoliation.

DISCUSSION

Fraud Counterclaims

In defendant’s second amended answer and counterclaim, “[d]efendant asserts

counterclaims pursuant to the False Claims Act, 31 U.S.C. §§ 3729-3733, the Forfeiture

of Fraudulent Claims Act (also known as the Special Plea in Fraud), 28 U.S.C. § 2514,

and the anti-fraud provision of the Contract Disputes Act, 41 U.S.C. § 7103.” Defendant

alleges in the counterclaim that Oasis submitted a certified claim to the contracting officer,

seeking an additional roughly $50 million in July 2008 and that in the certified claim:

Oasis sought $44,516,868 million under a novel claim that the original

contract provided for both: (1) a $50,225,000 payment for “mobilization,”

even though the $50,225,000 contract grand total for the base year required

the sale of 14,350,000 cases; and (2) an additional $3.50 for each case of

bottled water during the base year. The certified claim also requested

$600,000 for the improvements at Speicher and QW, despite the fact that

the Army had already reimbursed those costs as part of the August 2006

modification (P00011).

In its post-trial brief, defendant argues that “Oasis executives in Utah embarked on a plan

to gouge the military for as much money as possible before war’s end,” and claims that

“Oasis’s fraud took an extremely simple and classic form. Oasis would submit a certified

claim seeking, among other things, payment for more than $30 million for bottled water

and for $600,000 in other expenses for which it had already been paid. This attempt to

get paid a second time is fraud.”

The court notes that plaintiff expressed frustration about how and when the

defendant’s amended the answer and the counterclaim. In its post-trial briefs plaintiff

explained:

23

In advance of trial, Defendant made a last minute request to amend its

counterclaim. Defendant made this request because Defendant’s original

Amended Answer was unclear as to which counts it alleged were fraudulent.

Instead of clarifying the issue, Defendant further muddied the waters

regarding its counterclaim (days before trial) by filing a series of pleadings

between June 6, 2014 and July 7, 2014, which alleged inconsistent theories

of fraud and multiple different combinations of counterclaims Defendant

alleged were fraudulent.[33]

(internal citations omitted).

Plaintiff states that “[t]he Government advances its counterclaim under three

statutory bases: the False Claims Act, the Forfeiture of Fraudulent Claims Act / Special

Plea in Fraud statute, and fraudulent claims provision of the Contract Disputes Act,” and

contends that “[a]lthough these statutes differ in wording and remedy, each has two

primary requirements that are relevant to this action: (1) the Government must

demonstrate that the claim is actually false, and (2) the Government must demonstrate

that the contractor acted knowingly.” Plaintiff argues that “[t]he Government’s

counterclaim fails on each element. Oasis’s claim can’t be fraudulent, because it is not

false. Oasis did not submit it ‘knowing’ that it was false or with intent to deceive, either,”

and “Oasis’ full and honest explanation in the claim itself of the factual assertions and

legal theories underpinning it belie any assertion that Oasis was trying to deceive the

Government.” Plaintiff requests that the court “find that no part of Oasis’ Claim is false or

otherwise fraudulent.” Plaintiff also states that “the actual evidence that goes to the merits

of the case shows that Oasis’ contractual interpretation is correct . . . and that there is no

fraud.” (emphasis in original). Plaintiff further argues that “[t]o recover on a fraud theory,

33 As plaintiff correctly cites, in the June 6, 2014 motion to amend, defendant requested:

We respectfully request that the Court allow us to change the phrase

“counts 1, 3, 4, and 8 of Oasis’s complaint,” to “counts 1, 2, 4, and 8 of

Oasis’s complaint” at paragraphs 318 and 139 of the amended counterclaim

because “we are seeking fraud penalties with respect to those counts of the

complaint in regard to Oasis’s contention that it is entitled to a lump-sum

base period annual payment of $50,225,000, plus $3.50 per case for any

water delivered during the base period.

But in defendant’s July 2, 2014, pre-trial brief, defendant argued that “Counts 1, 3, 4, 6,

7, and 8, of the complaint all hinge on Oasis's novel theory concocted solely for its certified

claim that Oasis is entitled to payment of a flat fee of $50,225,000 plus $3.50 per case of

water delivered during the contract base period.” Defendant, by contrast, notes that

“Oasis now complains that this was a ‘last-minute’ request, but fails to mention that it did

not oppose the Government’s motion to amend,” and argues “[i]nstead of responding to

the substance of several of the Government’s fraud arguments, Oasis attempts to re-

litigate the Court’s grant of our motion to amend the fraud counterclaim for a clerical error.”

It appears, therefore, that defendant is now only pursuing fraud counterclaims for claims

1, 2, 4, 6, and 8.

24

the Government must prove that Oasis’ claim is actually false. But the Government has

not – and cannot – prove this, because Oasis’ claim is not false. The Court should reach

this conclusion even if it ultimately disagrees with Oasis’s claim, since there is a wide gap

between ‘incorrect’ and ‘fraudulent.’” The court initially considers the fraud counterclaims

for the purposes of this opinion, as if, hypothetically, defendant, and not plaintiff, has the

correct interpretation of the contract, and, the court must determine if the plaintiff, even

potentially having an incorrect interpretation of the contract, intended to commit fraud in

its certified claim, had actual knowledge of the falsity of the claim or acted with reckless

disregard of the truth or falsity of the claim.

The court notes that for the majority of the parties’ briefing, the parties do not

differentiate between the various statutes and generally only discuss “fraud.” Indeed, as

noted above, plaintiff contends that “[a]lthough these statutes differ in wording and

remedy, each has two primary requirements that are relevant to this action . . . .” By

contrast, although defendant clearly identifies the standards for each of the

counterclaims, after discussing fraud in considerable detail for the Special Plea in Fraud

statute, it generally refers to its rationale in the Special Plea in Fraud section for support

for its False Claims Act and Contract Disputes Act arguments.34

a. Special Plea in Fraud

In defendant’s second amended answer and counterclaim, defendant asserts that:

Oasis attempted to practice fraud against the United States in the proof,

statement, establishment, or allowance of the portions of the claim identified

in the paragraphs above [in the defendant’s second amended answer and

counterclaim]. In particular, Oasis submitted at least one certified claim with

the intent to cause the Government to pay Oasis amounts to which it knows

it is not entitled.

According to defendant, “Oasis, therefore, is liable for the forfeiture of its certified claim

for $50,711,957, in its entirety pursuant to 28 U.S.C. § 2514.”

In its post-trial brief defendant contends that “Oasis’s Entire Claim Is Forfeited

Under The Special Plea In Fraud.” Most directly, defendant claims that “Oasis’s

intentional attempt to be paid twice for the same water constitutes fraud.” Plaintiff

responds that “[a]t an absolute minimum, the frank and open nature of the claim alone

negates the Government’s arguments under the Special Plea in Fraud and CDA [Contract

Disputes Act] fraudulent claims provision, both of which require an intent to deceive the

Government.” (emphasis in original).

The Special Plea in Fraud statute provides:

34 For example, as noted below, in its post-trial brief regarding the False Claims Act

defendant states: “Oasis is liable under the False Claims Act for the same reasons that

its claim must be rejected under the Special Plea in Fraud.”

25

A claim against the United States shall be forfeited to the United States by

any person who corruptly practices or attempts to practice any fraud against

the United States in the proof, statement, establishment, or allowance

thereof.

In such cases the United States Court of Federal Claims shall specifically

find such fraud or attempt and render judgment of forfeiture.

28 U.S.C. § 2514; see also Kellogg Brown & Root Servs., Inc. v. United States, 728 F.3d

1348, 1365 (Fed. Cir. 2013), reh’g denied, 563 F. App’x 769 (Fed. Cir.), cert. denied, 135

S. Ct. 167 (2014). In Kellogg Brown & Root, the United States Court of Appeals for the

Federal Circuit unequivocally held that “[o]n its face, the statute is limited to those

circumstances where the Government proves fraud ‘in the proof, statement,

establishment or allowance’ of a claim not in the execution of a contract.” Id. at 1366

(footnote omitted).

Previous decisions by Judges of the United States Court of Federal Claims have

indicated that:

[t]he statutory forfeiture contemplated by 28 U.S.C. § 2514 is broad. Earlier,

the Court of Claims held that, upon a finding that claims are based on “a

contract under which [a contractor] practiced fraud against the

Government,” as defined by this statute, “all of his claims under that contract

will be forfeited pursuant to 28 U.S.C. § 2514.” Little v. United States, 138

Ct. Cl. 773, [778,] 152 F. Supp. 84, 88 (1957).

Veridyne Corp. v. United States, 83 Fed. Cl. 575, 586 (2008); see also Kellogg Brown &

Root Servs., Inc. v. United States, 99 Fed. Cl. 488, 496 (2011), aff’d, 728 F.3d 1348 (Fed.

Cir. 2013), reh’g denied, 563 F. App’x 769 (Fed. Cir.), cert. denied, 135 S. Ct. 167 (2014).

In AEY, Inc. v. United States, the court noted that Little has served as the basis for

decisions in this court holding that fraud in the performance of a contract leads to forfeiture

of all claims arising out of the contract.” AEY, Inc. v. United States, 114 Fed. Cl. 619, 628

(2014).

As articulated by a Judge of the United States Court of Federal Claims:

In order to satisfy § 2514, however, the fraud alleged must be related to the

contract at issue. Little v. United States, 138 Ct. Cl. 773, 152 F. Supp. 84,

87-88 (1957). Fraud in an unrelated transaction will not lead to forfeiture

under this statute. However, when fraud is committed in regard to the very

contract upon which the suit is brought, the court will not divide the contract

and allow recovery on part of it. Id.; UMC Electronics v. United States, 43

Fed. Cl. 776, 791 (1999), aff’d, 249 F.3d at 1340 ([Fed. Cir.] 2001).

26

In order to prevail in its defense of fraud under 28 U.S.C. § 2514, the

“burden is on the government to establish by clear and convincing evidence

that the claimant has committed the fraud alleged.” Glendale [Federal Bank,

FBS v. United States], 239 F.3d at 1379; UMC Electronics, 43 Fed. Cl. at

791 (internal citation omitted). This requirement has more specifically been

rendered in the following way: “in order that a misrepresentation be

fraudulent . . . it must be both consciously false and intended to mislead.”

E. Allan Farnsworth, Farnsworth on Contracts, § 4.12 (2d Ed.1998). Thus,

for the purposes of § 2514, the government must show: 1) that the plaintiff

made a false statement to the government knowing that it was false; and 2)

that this statement was intended to deceive the government. Glendale, 239

F.3d at 1379.

Am. Heritage Bancorp v. United States, 61 Fed. Cl. 376, 385-86 (2004). In Brown

Construction Trades, Inc. v. United States, 23 Cl. Ct. 214, 216 (1991), the court explained

the breadth of the statutory intent in 28 U.S.C. § 2514:

This statute has been held to require the forfeiture of any claim affected by

fraud, whether intrinsic to the claim or in the presentment of the claim.

Kamen Soap Prods. Co. v. United States, 129 Ct. Cl. 619, 641, 124 F. Supp.

608, 620 (1954) (“this statute goes further than merely banning fraudulent

claims. It provides for a forfeiture of the claim if any fraud is practiced or

attempted to be practiced in proving, establishing or allowing a claim.”).

The Court of Claims has ruled that where fraud is committed in the course

of a contract to which the suit pertains, it may not isolate the affected part

and allow suit to proceed on the remainder. The practice of a fraud on part

of a contract condemns the whole. The rule is set out in Little v. United

States, 138 Ct. Cl. 773, 778, 152 F. Supp. 84, 87-88 (1957):

It is true that the forfeiture statute [28 U.S.C. § 2514] was not

intended to forfeit an otherwise valid claim of a claimant

merely because, in some other unrelated transaction, he had

defrauded the Government. But where, as in the present

case, fraud was committed in regard to the very contract upon

which the suit is brought, this court does not have the right to

divide the contract and allow recovery on part of it. Since

plaintiff’s claims are based entirely upon contract V3020V-

241, a contract under which he practiced fraud against the

Government, all of his claims under that contract will be

forfeited pursuant to 28 U.S.C. § 2514.

Thus, 28 U.S.C. § 2514 requires the forfeiture of all claims arising under a

contract tainted by fraud against the Government. See also New York Mkt.

Gardeners’ Ass’n v. United States, 43 Ct. Cl. 114, 136, 1907 WL 832 (1908).

27

Brown Constr. Trades, Inc. v. United States, 23 Cl. Ct. at 216; see also Ab-Tech Constr.,

Inc. v. United States, 31 Fed. Cl. 429, 435-36 (1994), aff’d, 57 F.3d 1084 (Fed. Cir. 1995).

But see Kellogg Brown & Root Servs., Inc. v. United States, 99 Fed. Cl. at 499.35

As noted above, in an appeal from the trial court, in Kellogg Brown & Root, the

United States Court of Appeals for the Federal Circuit noted that the government had

argued for “a finding of fraud, supporting forfeiture, ‘when fraud in the contract

performance undermined the legitimacy of the contract upon which the plaintiff sought

compensation.’” Kellogg Brown & Root Servs., Inc. v. United States, 728 F.3d at 1365-

66. The Federal Circuit, in Kellogg Brown & Root, quoting from the trial court decision

regarding the Brown Construction decision, indicated that:

This is an impermissibly broad reading of the law. The Court of Federal

Claims correctly limited the statute:

A valid cause of action under [the Forfeiture Statute] must be

tied to the submission of a claim, whether in producing false

proof to support a claim, see, e.g., [Kamen Soap Prods. Co.

v. United States, 124 F. Supp. 608, 622 (Ct. Cl. 1954)]

35In Kellogg Brown & Root Services, Inc. v. United States, the Court of Federal Claims

questioned the holding in Brown:

Several decisions have seized upon this language as justification that all

claims must be forfeited by a contract that is “tainted” by fraud, without

regard to the alleged fraud's connection to a submitted claim. See, e.g.,

Brown Constr. Trades, Inc. v. United States, 23 Cl. Ct. 214, 216 (1991). In

doing so, these cases overlook Little's predicate factual finding that false

proof had been submitted in a related claim under the contract.

...

In analyzing the applicability of the forfeiture statute, the Brown Construction

court expanded the scope of the targeted conduct under the statute, while

somehow relying on Little, 152 F. Supp. at 87–88, Kamen Soap, 124 F.

Supp. at 620, and New York Market, 43 Ct. Cl. at 114, by stating that “28

U.S.C. § 2514 requires the forfeiture of all claims arising under a contract

tainted by fraud against the Government.” Id. (emphasis added). As a

consequence, the court effectively read out of the law the requirement that

the fraud relate to the “proof, statement, establishment, or allowance” of

claim, a hallmark of every precedential Court of Claims case analyzing

claims under the forfeiture statute. See also Ab–Tech Constr., Inc. v. United

States, 31 Fed. Cl. 429, 435–36 (1994) (repeating that forfeiture statute

requires forfeiture of all claims tainted by fraud without requiring such fraud

relate to “proof, statement, establishment, or allowance” of a claim), aff'd,

57 F.3d 1084 (Fed. Cir. 1995) (unpublished table decision) (per curiam).

Kellogg Brown & Root Servs., Inc. v. United States, 99 Fed. Cl. at 500.

28

(forfeiting claim because falsified documentation was

submitted in presentation of claim), or in falsely establishing

the claim, see, e.g., [N.Y. Mkt. Gardeners' Ass'n v. United

States, 43 Ct. Cl. 114, 136 (1908)] (Government's objection to

claim based on contractor's not fulfilling contract specification,

i.e., “establishment” of a false claim).

Kellogg Brown & Root Servs., Inc. v. United States, 728 F.3d at 1366 (quoting Kellogg

Brown & Root Servs., Inc. v. United States, 99 Fed. Cl. at 501) (alterations in original);

see also Liquidating Trustee Ester Du Val of KI Liquidation, Inc. v. United States, 116

Fed. Cl. 338, 379 (2014); AEY, Inc. v. United States, 114 Fed. Cl. at 628-29;36 Ulysses,

Inc. v. United States, 110 Fed. Cl. 618, 649 (2013) (“[S]uch an expansive reading of the

FFCA [Forfeiture of Fraudulent Claims Act] is not warranted by the language of the

statute.”).

Under the Special Plea in Fraud statute, “the government must ‘establish by clear

and convincing evidence that the contractor knew that its submitted claims were false,

and that it intended to defraud the government by submitting those claims.’”37 Daewoo

Eng’g & Constr. Co. v. United States, 557 F.3d 1332, 1341 (Fed. Cir.) (quoting

Commercial Contractors, Inc. v. United States, 154 F.3d 1357, 1362 (Fed. Cir.), reh’g

denied (Fed. Cir. 1998)), reh’g and reh’g en banc denied (Fed. Cir.), cert. denied, 558

U.S. 990 (2009); see also Veridyne Corp. v. United States, 758 F.3d 1371, 1376-77 (Fed.

Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2014); Kellogg Brown & Root Servs., Inc.

v. United States, 728 F.3d at 1365 (“To prevail, the Government must prove its allegations

by clear and convincing evidence.”). In Glendale Federal Bank, FSB v. United States, the

United States Court of Appeals for the Federal Circuit “explained that ‘[t]o prevail under

[28 U.S.C. § 2514] the government is required to establish by clear and convincing

evidence that the contractor knew that its submitted claims were false, and that it intended

36As noted in AEY, “[i]n upholding the trial court's decision in KBR I, the Federal Circuit

did not address that court's interpretation of the continuing validity of Little. The Federal

Circuit only confirmed the invalidity of much of its progeny.” AEY, Inc. v. United States,

114 Fed. Cl. at 629.

37 Defendant argues “[a]lthough the prevailing standard in the Federal Circuit is clear and

convincing evidence, the United States respectfully submits that the proper standard is

preponderance of the evidence,” arguing that the United States Supreme Court has

“‘[d]eclined to depart from the preponderance-of-the-evidence standard generally

applicable in civil actions.’” (quoting Herman & MacLean v. Huddleston, 459 U.S. 375,

390 (1983)). Even if the court were to agree with defendant, the Federal Circuit’s binding

precedent has made it clear that this court is to apply the “clear and convincing” standard

of proof under the Special Plea in Fraud statute. See Daewoo Eng’g & Constr. Co. v.

United States, 557 F.3d at 1341; Kellogg Brown & Root Servs., Inc. v. United States, 728

F.3d at 1365.

29

to defraud the government by submitting those claims.’”38 Glendale Fed. Bank, FSB v.

United States, 239 F.3d 1374, 1379 (Fed. Cir. 2001) (brackets in original) (quoting

Commercial Contractors, Inc. v. United States, 154 F.3d at 1362); see also Young-

Montenay, Inc. v. United States, 15 F.3d 1040, 1042 (Fed. Cir. 1994) (“Under 28 U.S.C.

§ 2514, the government bears the burden of proving that the claimant (1) knew the claim

was false and (2) intended to deceive the government by submitting it.” (citing McCarthy

v. United States, 670 F.2d 996, 1004, 229 Ct. Cl. 361, 373 (1982), abrogated on other

grounds by Slattery v. United States, 635 F.3d 1298 (Fed. Cir. 2011))); Veridyne Corp. v.

United States, 105 Fed. Cl. 769, 808, modified, 107 Fed. Cl. 762 (2012), aff’d in part,

rev’d in part, 758 F.3d 1371 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2014);39

Daewoo Eng’g & Constr. Co. v. United States, 73 Fed. Cl. 547, 584 (2006) (“The

contractor must knowingly present the false claim with the intention of being paid for it.”),

aff’d, 557 F.3d 1332 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir.), cert. denied,

558 U.S. 990 (2009); O’Brien Gear & Mach. Co. v. United States, 219 Ct. Cl. 187, 199,

591 F.2d 666, 672 (1979); Miller v. United States, 213 Ct. Cl. 59, 68, 550 F.2d 17, 22

(1977); Kamen Soap Prods. Co. v. United States, 129 Ct. Cl. 619, 641, 124 F. Supp. 608,

620 (1954).

Mere negligence, inconsistency, or discrepancies are not actionable under the

Special Plea in Fraud statute. See Daewoo Eng’g & Constr. Co. v. United States, 73 Fed.

Cl. at 584; Veridyne Corp. v. United States, 105 Fed. Cl. at 801; Grand Acadian, Inc. v.

United States, 105 Fed. Cl. 447, 458 (“‘Proof of negligence or ineptitude does not meet

the standard of clear and convincing evidence; rather, “[a]n intent to deceive the

Government must be proved.”’” (quoting Alcatec, LLC v. United States, 100 Fed. Cl. 502,

517 (2011) (quoting Miller v. United States, 213 Ct. Cl. at 68, 550 F.2d at 22), aff’d, 471

F. App’x 899 (Fed. Cir. 2012))), appeal dismissed (Fed. Cir. 2012). The United States

Court of Appeals for the Federal Circuit has described the clear and convincing evidence

standard as follows:

“A requirement of proof by clear and convincing evidence imposes a heavier

burden upon a litigant than that imposed by requiring proof by preponderant

evidence but a somewhat lighter burden than that imposed by requiring

proof beyond a reasonable doubt. Clear and convincing evidence has been

38 The “clear and convincing” standard applies to proof under the Special Plea in Fraud

statute, 28 U.S.C. § 2514, as opposed to the preponderance of the evidence standard

applicable to the False Claims Act, 31 U.S.C. § 3729, and the Contract Disputes Act, 41

U.S.C. § 604. See UMC Elecs. Co. v. United States, 249 F.3d 1337, 1338-39 (Fed. Cir.

2001) (“The government must prove a violation of the Contract Disputes Act and False

Claims Act by a preponderance of the evidence. Under the Special Plea in Fraud, the

government must prove its allegations by clear and convincing evidence.” (citing

Commercial Contractors, Inc. v. United States, 154 F.3d at 1362)).

39The trial court in Veridyne also indicated that, regarding 28 U.S.C. § 2514, “[a] predicate

for forfeiture under this statute is the establishment of fraud, although the statute itself

does not articulate the elements of fraud.” Veridyne Corp. v. United States, 105 Fed. Cl.

at 801.

30

described as evidence which produces in the mind of the trier of fact an

abiding conviction that the truth of a factual contention is ‘highly probable.’”

Am-Pro Prot. Agency, Inc. v. United States, 281 F.3d 1234, 1240 (Fed. Cir. 2002) (quoting

Price v. Symsek, 988 F.2d 1187, 1191 (Fed. Cir. 1993)) (emphasis in original); see also

Hernandez, Kroone & Assocs., Inc. v. United States, 110 Fed. Cl. at 525 (citing Am-Pro

Prot. Agency, Inc. v. United States, 281 F.3d at 1239–40 (other citation omitted)).

“The court may . . . consider circumstantial evidence in making its determination.”

Alcatec, LLC v. United States, 100 Fed. Cl. at 517 (citing Kamen Soap Prods. Co. v.

United States, 129 Ct. Cl. at 642, 124 F. Supp. at 620). With respect to the court’s

analysis of circumstantial evidence to demonstrate clear and convincing evidence of

fraud, the United States Court of Claims explained:

About the only way a just conclusion can be reached is by placing the

questioned documents and statements alongside well-known and

established facts. Every event in the universe is linked to every other event.

One cause produces an effect, and that effect in turn becomes a cause thus

all events from the beginning of time are woven into one complete pattern.

It is difficult, therefore, to make up a story that is not part of this one

continuous design. It is like a patch on a suit of clothes—it may be made

out of the same cloth, may look the same in the middle, but will show around

the edges, because it is not a part of the original garment. Likewise a made-

up story will not fit into the scheme of events, because it is not a part of it.

It will not, therefore, stand close examination. One made-up story calls for

another and the last fabrication will not tally with the next fact.

Kamen Soap Prods. Co. v. United States, 129 Ct. Cl. at 642, 124 F. Supp. at 620.

Once fraud is established, “[t]he use of the word ‘shall’ [in 28 U.S.C. § 2514] makes

the judgment of forfeiture obligatory on the court; the court has no discretion to turn a

blind eye to an attempt, whether successful or not, to commit fraud in the statement of a

claim against the United States.” Am. Heritage Bancorp v. United States, 61 Fed. Cl. at

385; see also Farkas v. United States, 57 Fed. Cl. 134, 146 (2003) (quoting Miller v.

United States, 213 Ct. Cl. at 68, 550 F.2d at 22), aff’d, 95 F. App’x 355 (Fed. Cir. 2004)

(“Section 2514 amounts to a ‘silver bullet’ which, in the present case, would require that

[plaintiff’s] claim be forfeited if it is shown by clear and convincing evidence that [plaintiff]

acted or made false or misleading statements with the ‘intent to deceive the

Government.’”). Forfeiture under the Special Plea in Fraud statute “carries no monetary

penalties other than the forfeiture itself.” Daewoo Eng’g & Constr. Co. v. United States,

73 Fed. Cl. at 584. “The forfeiture counterclaim carries no monetary penalties other than

the forfeiture itself.” Id.; see also Barren Island Marina, Inc. v. United States, 44 Fed. Cl.

252, 257 (1999) (“The plain meaning of the statute [28 U.S.C. § 2514] is that the value of

the forfeiture is not restricted or even linked to the value of the loss sustained by the

government. For this reason, the forfeiture is not, strictly speaking, a remedy. Additionally,

because forfeiture under § 2514 requires demonstration of fraud-intentional conduct-the

31

forfeiture is more akin to punishment.”), appeal dismissed, 54 F. App’x 329 (Fed. Cir.),

vacated by 57 F. App’x 427 (Fed. Cir.), and appeal dismissed, 66 F. App’x 878 (Fed. Cir.

2003).

Although the Special Plea in Fraud Statute does not require the court to render a

judgment of forfeiture when a contractor practices fraud against the government “in some

other unrelated transaction,” when a contractor commits fraud “in regard to the very

contract upon which the suit is brought, this court does not have the right to divide the

contract and allow recovery on part of it.” Little v. United States, 138 Ct. Cl. 773, 778, 152

F. Supp. 84, 88 (1957). The claims that a contractor asserts in court, therefore, may be

forfeited as long as the fraudulent conduct that serves as the basis for the forfeiture is

related to the contract from which the claims are derived. See Daff v. United States, 31

Fed. Cl. 682, 697 (1994) (“Although . . . fraud does not have to occur in the court

proceeding itself, it plainly has to be relevant to the present assertion of a claim in court,

arising out of the same transaction or contract.” (citing Little v. United States, 138 Ct. Cl.

at 778, 152 F. Supp. at 87–88), aff’d, 78 F.3d 1566 (Fed. Cir.), reh’g denied, reh’g en

banc suggestion declined (Fed. Cir. 1996); see also Veridyne Corp. v. United States, 105

Fed. Cl. at 806 (“A plaintiff’s claim will be forfeited under 28 U.S.C. § 2514 even if only

part of its claims is [sic] false.” (citing Daewoo Eng’g & Constr. Co. v. United States, 557

F.3d at 1341)); Barren Island Marina, Inc. v. United States, 44 Fed. Cl. at 256 (“Based on

the Little case, there is no question that all claims arising under the contract are subject

to forfeiture.”). A fraudulent invoice submitted to a contracting officer during the

performance of the same contract that is the subject of a contractor’s claims, therefore,

may result in the forfeiture of the contractor’s claims under the Special Plea in Fraud

statute. See Tyger Constr. Co. v. United States, 28 Fed. Cl. 35, 61 (1993) (“The statute

does not specify where such claims must be presented in order to invoke the

statute. Claims for payment before a contracting officer are as subject to ‘proof,

statement, establishment, or allowance’ as are claims before the Court of Federal

Claims.”); see also Jerman v. United States, 96 Ct. Cl. 540, 552 (1942).

As a starting point, for defendant’s counterclaim to be successful, defendant must

demonstrate that the counterclaim is “tied to the submission of a claim, whether in

producing false proof to support a claim, . . . or in falsely establishing the claim.” Kellogg

Brown & Root Servs., Inc. v. United States, 728 F.3d at 1366 (citations omitted). The

defendant has alleged that the Special Plea in Fraud counterclaim is related to the

demand of an “additional $50 million” in Oasis’ July 2008 certified claim, which, if proven

would satisfy this requirement. As indicated above, in its post-trial briefs defendant

continues to pursue its counterclaims for 5 of Oasis’ claims in the certified claim: Claims

1, 2, 4, 6, and 8.40

40As noted above, although defendant’s positions changed shortly before trial regarding

which claims the government believed were fraudulent, in its post-trial briefs, defendant

stated that “in June 2014, the Government moved to amend its fraud counterclaim to

make clear that our counterclaims addressed counts one, two, four, six, and eight of

Oasis’s counterclaim, and not count three.”

32

Claim 2

The court first addresses Claim 2. Claim 2 in the certified claim was a “Claim for

penalty wrongfully assessed for failure to open Camp TQ [Camp Taqaddum] on time,”

which plaintiff states was “solely as a result of Government-caused delays and

disruptions,” and for which plaintiff sought $2,270,833.00. [JX 549, p. 00004172]

Defendant argues that “because Oasis’s contract interpretation is implausible in light of

the unambiguous terms of the contract and all extrinsic evidence, count two constitutes

fraud.” Defendant contends that:

Count two, which seeks $2.2 million relating to TQ, stems entirely from

Oasis’s attempts to invalidate P00011 through a claim of economic duress.

As part of P00011, the Government paid Oasis $24 million, which included

$5.5 million for TQ, a plant that Oasis still had not yet completed by August

2006. The claimed $2.2 million corresponds to one-sixth of the $50.225

million, minus the $5.5 million that the Government paid to Oasis for TQ as

part of the P00011 negotiations. Even though Oasis voluntarily agreed to

P00011, which closed out the base year, Oasis seeks an additional $2.2

million for TQ in its certified claim.

(internal citations omitted). Plaintiff argues that “the Court should disregard Defendant’s

‘fraudulent duress’ interpretation,” arguing that “[w]ith regard to Defendant’s new

‘fraudulent duress’ argument related to Count 2, Defendant argues that fraudulent duress

is not a new theory, but instead additional evidence to support its claim that Oasis’

contractual interpretation is frivolous.” Because the court has deferred the issues of

contract interpretation and economic duress, the court likewise, at this time, defers the

resolution of the counterclaim pursuant to the Special Plea in Fraud for Claim 2.

Claim 1 and Claim 841

Claim 1 of the certified claim is a “Claim for all bottled water supplied in the Contract

base year, as extended to August 15, 2006, excluding bottled water supplied from Camp

Anaconda through May, 2006 (5,605,020 cases of bottled water),” for which plaintiff

sought $19,617,570.00. Claim 8 was for “water supplied from Camp Anaconda during

initial Contract base year ending May 2006, 3,100,972 cases of bottled water:

$10,853,402.” Defendant, in its post-trial brief, claims that “Oasis’s Double Billing For $30

Million In Bottled Water Is Fraudulent On Its Face,” and explains that “Oasis invoiced the

Government for all bottled water delivered during the base period of the contract, and the

United States paid each and every one of those invoices.” Defendant argues that “Oasis

sought payment for the exact same bottled water a second time in counts one and eight

of its certified claim.” Defendant insists that “Oasis devised its convoluted contractual

interpretation as a fig leaf for its double-billing. It did so to sow confusion with the

41 As indicated above, the defendant refers to Claim 1 and Claim 8 together under its

claim for its theory of “Fraudulent Double Billing For $30 Million In Bottled Water.” Plaintiff

responds to defendant’s allegations in a similar way, and, therefore, the court considers

Claim 1 and Claim 8 together.

33

successor contracting officers assigned to the claim years after contract award and the

underlying events.” Defendant also argues:

Counts one and eight of Oasis’s certified claim demand payment of

$30,470,942 for 8,705,992 cases of water, at $3.50 per case. Oasis

concedes that it was paid $23,411,780 of this amount, at $3.50 per case.

Oasis’s contention that it is entitled to be paid twice for the same water

cannot withstand any reading of the contract or the record . . . .

(internal citations omitted).

In its post-trial brief, plaintiff responds that regarding any allegation of double-

billing, “i.e. claiming for money that has already been paid to Oasis. The Court heard the

evidence and measured the credibility of the Oasis witnesses and should find the

Defendant’s allegations contrived, baseless, and not true.” Plaintiff argues that, from

Oasis’ perspective, “Defendant [is] ignoring matters of record with the Base Year

payments in order to create a ‘double billing’ counterclaim that does not actually exist and

that no one but Defendant’s counsel ever thought was the case.”

Plaintiff notes that:

[w]ith respect to Counts 1 and 8, the Defendant asserts these counts seek

payment for $30,470,942 worth of water that the Government already paid

for during contract performance. Oasis agrees with the Government that,

during the base year, Oasis invoiced and was paid for some water -although

the facts demonstrate that this was actually $23,411,780, not the full amount

of Counts 1 and 8. In fact, Oasis said as much in its Claim.

Plaintiff argues in its post-trial briefs that:

In its simplest form, Oasis’ argument is that, due to the increase in scope of

work directed by Defendant, Oasis is entitled to a total of $80,695,942 for

the original Base Year capability and the water produced in the Base Year

($50,225,000 for capability plus $30,470,942 for water). Defendant only

paid Oasis $47,954,167 for the expanded Base Year. The total amount of

Counts 1, 2 and 8 seek, in their entirety is $32,741,775, i.e., the difference

between $80,695,942 and $47,954,167.

(footnote omitted). Moreover, plaintiff states:

Defendant’s argument that these counts are “double billing” elevates

semantics over reality, as its entire “double billing” allegation basically boils

down to a question of whether Oasis identified correctly which pot of money

each dollar paid should have been allocated to. Since it was the Defendant

who paid the money, Oasis based its claim calculations on its best

34

understanding of the facts and documents that identified what was being

paid; since money is fungible, this distinction makes no difference in reality.

At closing argument, counsel for plaintiff stated that:

any double billing argument, Your Honor, is an exercise in semantics. Oasis'

argument is that due to the increase in scope of work directed by defendant,

Oasis is entitled to a total of $80,695,942 in the original base year. For

capability and water produced, it's the $50,225,000, plus the total $30

million in water, Your Honor. That's how much we think counts 1, 2 and 8

should add up to.42

Plaintiff’s view is that:

After P00011, the water payments were converted to the firm-fixed

capability payment for capability that it always should have been. Prior to

P00011, Oasis invoiced for water (as directed by the Government) and was

paid a total of $23,411,780. When P00011 was signed, the amount of the

base year capability fee was reduced (wrongfully, Oasis contends) from

$50,225,000 by $2,270,833 (Count 2) to $47,954,167. But, rather than

submit an invoice for $47,954,167, Oasis submitted an invoice in the

amount of $24,542,387, i.e. the exact difference between the $47,954,167

(reduced) capability fee and the $23,411,780 that Oasis had already been

paid. The only way that P00011’s $47,954,167 capability fee can be

considered fully paid is by converting the Government’s prior payments from

being payments for “water at $3.50/case” and into being payments of

P00011’s firm-fixed-price capability Base Year fee. Therefore, as of the

Defendant’s payment of Oasis’s P00011 invoice, Oasis was paid exactly

$47,954,167 for “0001 Purified Bottled Water Production Service…” and

exactly $0 for “water at $3.50/case” during the base year or base year

extension. Under this rubric, the amounts stated by Oasis for Count 2

($2,270,833) and Counts 1 and 8 (collectively, $30,470,942) are correctly

stated. In the aggregate, counts 1, 2, and 8 add up in to $32,741,775.

42 Plaintiff’s counsel elaborated that:

Counts 1, 2 and 8 seek the difference between capability and water and

what the government actually paid us in the base year, which is

$47,954,167. We tried to allocate the difference, which is $32 million and

change, amongst counts 1, 2 and 8, which are the things that we believe

were taken from us. Counts 1 and 8 seek water payments. Count 2 seeks

the difference between $50 million and $47 million. We thought the $47

million was capability, which is why count 2 is $2 million and counts 1 and

8 are $30 million.

35

(emphasis in original). Plaintiff contends, even if the government’s interpretation is

correct, “if Oasis was wrong about what happened to the pre-P00011 payments, the only

effect is that approximately $23 million of Oasis’s claim gets moved from Counts 1 and 8

to Count 2.” Moreover, plaintiff argues:

Absent the conversion of Government payments from “water” to “capability,”

the only payment made by the Government against this firm fixed price was

the $24,542,387 payment made after P00011. So, the correct amount of

Count 2 would have been $25,682,613 ($50,225,000-$24,542,387). This is

an increase of exactly $23,411,780 – i.e. a dollar-for-dollar offset of the

reduction in Counts 1 and 8.

(emphasis in original). Therefore, plaintiff concludes that “[u]nder no reasonable

interpretation of the facts can Oasis be accused of intentionally and fraudulently double

billing for money it was already paid.” Although the cases plaintiff cites for its argument

that money is fungible, i.e., Mack v. Secretary of Department of Health & Human Services,

No. 90-1427V, 1995 WL 507581, at *3 (Fed. Cl. 1995) (“Money is fungible.”) and United

States v. Karam, 201 F.3d 320, 327 n.8 (4th Cir. 1999), are not cases on fraudulent

counterclaims, or even government contract claims, the court accepts plaintiff’s

reasoning. Even if the rationale behind the plaintiff’s theory is incorrect, the court agrees

that, within the framework articulated by plaintiff in the certified claim, and as testified to

at trial by Phil Morrell, and especially, Paul Morrell, who signed the certified claim, the

certified claim was not an attempt to double bill the government; the certified claim was

an attempt to recover on plaintiff’s capabilities theory of the contract. The court had

considerable opportunity to hear testimony, and observe, Paul Morrell, in particular,

during the trial. Although there are two differing theories of contract interpretation before

the court, which will be addressed in a following opinion, the court is convinced, after

sitting through the trial and reviewing the evidence in the record, that the certified claim

was presented in good faith and without the requisite intent to defraud.

Defendant protests plaintiff’s fungible argument, arguing that:

Oasis is mistaken on many levels. First, it is undisputed that Oasis (1)

invoiced the military for tens of millions of dollars of water at $3.50 per case,

(2) was paid those invoices at $3.50 per case, and (3) asks to be paid again

for those same cases of water at $3.50 per case. Oasis cannot obfuscate

its clear double-billing simply by suggesting that earlier payments were

“convert[ed]” to payment for something else and came from a different “pot

of money.”

Defendant further takes issue with plaintiff’s characterization of the certified claim, namely

that plaintiff is seeking to be paid for its capabilities, and, then, the produced water. The

defendant repeatedly cites to Veridyne Corp. v. United States, 758 F.3d 1371, for the

proposition that “[a]ttempts to obtain double-payment are fraudulent.” Defendant points

to language by the Federal Circuit that “Veridyne’s invoice could have induced the

government to pay twice for the same expenses. Veridyne's invoicing violated the

36

statute.” Veridyne Corp. v. United States, 758 F.3d at 1381. Defendant argues that Oasis

attempted to “obfuscate its double-billing by advancing a convoluted contract

interpretation under which it argues that Oasis was entitled to be paid $50.225 million to

produce no water.”

In Veridyne, the contract at issue was a contract award by the Small Business

Administration’s (SBA’s) small business set-aside program, and the Federal Circuit noted

“the SBA has delegated the authority to negotiate with the SBA-qualified contractor to the

Department of Transportation, and by extension, the Maritime Administration (‘MARAD’),

‘the SBA is responsible for approving the resulting contract before award,’ and the formal

contract is between the SBA and the SBA-qualified contractor.” Id. at 1374. The Federal

Circuit noted that “[i]n March 1995, MARAD awarded to the SBA an indefinite delivery,

indefinite quantity cost-plus-award-fee contract for services related to MARAD's logistics

program. Later that month, the SBA awarded a subcontract containing the same terms

as its contract with MARAD to Veridyne for one base year and up to four option years.”

Id. Subsequently,

[i]n March 1998, Veridyne submitted a proposal to MARAD for a new

indefinite delivery, indefinite quantity, cost-plus-award-fee contract.

Correspondence between Veridyne and MARAD before the submission

specified that estimates for the new contract would not exceed “$3,000,000

in the aggregate.” As a result, the “proposed” cost specified in the proposal,

including the five additional option years, was $2,999,949.00.

Id. The new contract was awarded to Veridyne, but eventually, due, in part, to MARAD’s

cost overruns, the new contract was investigated, including whether the new contract had

been fraudulently awarded, and MARAD's Chief Counsel instructed MARAD officials that

MARAD was not to make payments to Veridyne on any contract. See id. “At the time of

the December stop order, invoices numbered 260–264 were outstanding to MARAD and

had not been paid. After the stop order, Veridyne continued to do work for MARAD and

submitted three additional invoices, numbered 265–267. MARAD never paid Veridyne the

amounts invoiced in 260–267.” Id. Veridyne, thereafter, submitted invoices 260–267 as

certified claims. In the Court of Federal Claims, the government alleged fraud

counterclaims of the Special Plea in Fraud, the False Claims Act, and under the antifraud

provision of the Contract Disputes Act. The Federal Circuit determined, in part:

In invoice 267, Veridyne had rebilled MARAD for previously unpaid

expenses. But instead of making clear that the expenses were rebilled

expenses, Veridyne included the rebilled lease expenses as part of

overhead, making it difficult to identify these as twice-billed items.

Therefore, while it is not unsupported to rebill for unpaid expenses,

Veridyne's invoice could have induced the government to pay twice for the

same expenses. Veridyne's invoicing violated the statute.

37

Veridyne Corp. v. United States, 758 F.3d at 1381.43 Defendant contends that “[t]he same

is true here, as Oasis filed a certified claim seeking to be paid for $30 million in water

already paid for by the military.” Plaintiff argues that

the essence of Veridyne’s fraud was its attempt to hide from the

Government its plan to be paid twice. Here, by contrast, Oasis’ certified

claim explicitly acknowledged that invoices were submitted for “water”

during the base year, and that payments were made by Defendant on these

invoices; the Claim then explains in detail why Oasis believes those

payments cover only the water bottling capability and not the water actual

[sic] produced, and why Oasis believes it is entitled to additional payment

for water.

Although plaintiff does not address if double-billing on its face would be fraudulent, which

this court believes would be the case, the court agrees with plaintiff that Oasis’ theory and

position was clear in its certified claim. Oasis stated in the certified claim that, “[w]hile

Oasis delivered some bottled water during the Contract base year, Oasis invoiced the

Government for that water and the Government paid those invoices. The primary

deliverable item in the Contract base year is water purification and water-bottling

capabilities.” (emphasis in original). The certified claim made plain plaintiff’s view that:

Oasis provided water-bottling capability services for an additional 2.67

months when the Contract base year was extended to August 15, 2006,

due to Government delays and breaches of contract. As explained in 6.0

paragraph 33, Oasis is entitled to a payment of $11,175,063 for the water-

bottling capability services provided during the extended Contract base-

year performance.

(emphasis added). In discussing modification P00011, the certified claim stated:

Through P00011, Oasis was paid $23,411,780 for the 6,689,080 cases of

bottled water delivered through July 2006 and $24,542,387 for delivery of

water-bottling capabilities in the Contract base year. Accordingly, Oasis

submitted an invoice in the amount of $24,542,387 for delivering water-

bottling capabilities to the Government on August 15, 2006, and the invoice

was paid. The net effect of P00011 was: 1) to reduce the Contract

consideration for delivering purified water-bottling capability by $25,682,613

from $50,225,000 to $24,542,387; 2) to provide the Government all water

produced, on hold and deliverable as of August 15, 2006, without paying

Oasis any consideration, thereby damaging Oasis in the amount of

$7,059,192 (2,016,912 cases x $3.50); and 3) to pay nothing for water-

43 On appeal, the Federal Circuit noted that the United States Court of Federal Claims

had decided that the plaintiff in Veridyne forfeited its claims against the United States

pursuant to the Special Plea in Fraud Statute and plaintiff did not appeal that forfeiture

finding. The Federal Circuit affirmed the lower court’s finding that Veridyne violated the

Contract Disputes Act. See Veridyne Corp. v. United States, 758 F.3d at 1376, 1381.

38

bottling capabilities for the period May 26, 2006, through August 15, 2006,

which cost Oasis $11,170,061.

(internal citations omitted). In sum, the Oasis certified claim, and the affidavits of the Oasis

personnel, including Paul Morrell, articulate a clear theory of plaintiff’s claims. The

certified claim alone is over fifty pages and provides specific calculations and details of

how Oasis formed its views of the contract. This is significant, because as demonstrated

at the trial and in the record before this court, defendant’s witnesses and even some of

plaintiff’s witnesses, did not all share plaintiff’s contractual view included in the certified

claim. It was, therefore, incumbent upon Oasis to clearly articulate its theory of recovery

in its certified claim. The court agrees with plaintiff that “Oasis’ claim clearly and openly

stated the basis for the claim, including the contractual interpretation that the Government

now alleges to be fraudulent.”

As indicated above, the court is convinced, whether correct or incorrect, plaintiff

articulated its theory of its claims in the certified claim with specificity, and Paul Morrell,

the certified claim signatory, convincingly testified in support of his intent in crafting and

certifying the certified claim in a way that does not support a finding of fraudulent intent.

The novation of the contract and the many modifications to the contract, including some

after difficult negotiations, allowed for sufficient room for differing interpretations in good

faith. Whichever, plaintiff’s or defendant’s interpretation of the contract is found to be the

prevailing one will direct whether plaintiff can recover damages, but the court rejects

defendant’s allegations of fraud, as it relates to the allegation of double billing for the

Special Plea in Fraud counterclaims.

Claim 6

Claim 6 was a “Claim for cost of water supply improvements at Camp Speicher

and Camp Qwest,” namely, “the need to purify the non-compliant source water supplied

by Defendant at Speicher and Q-West,” and for which plaintiff sought $600,000.00.

Defendant contends that “Count six, like counts one and eight, also explicitly seeks to

double-dip and is reason enough for forfeiture of Oasis’s entire claim,” and notes that

“Count six also seeks payment of the same $600,000 a second time.” Defendant

reiterates that, “[a]s with the bottled water already paid for and billed a second time in the

certified claim, Oasis also sought the same $600,000 a second time in its certified claim.”

Defendant further argues that “[r]ather, and despite Alan Morrell’s unequivocal

representation that in his declaration accompanying the certified claim that Oasis, in fact,

incurred $600,000 in costs for the improvements at issue, Oasis has admitted that this

figure is merely an ‘estimate.’ Accordingly, count six is fraudulent and unsupported for

this reason as well.” Indeed, defendant alleges that “Oasis thus certified a claim to recover

$600,000 that it not only was already paid, but that it also may have never even

incurred.”44

44 Whether plaintiff actually incurred the costs was not fully addressed at trial, although

plaintiff contends in its post-trial briefs that it did incur the costs. In its post-trial briefs,

plaintiff points to the contracting officer’s final decision which addressed the Speicher and

Q-West fixes:

39

Plaintiff argues that “Defendant’s fraud allegations with respect to Count 6 rest only

on an allegation of double billing. Like its double-billing allegation on counts 1 and 8,

Defendant’s fraud argument on Count 6 is a thin veneer of semantics that seeks to

obscure the facts. It is also contradicted by the Defendants’ [sic] own documents and

witnesses.” (emphasis in original). Plaintiff also contends that “[t]he Government’s

allegation of double-billing with respect to Count 6 is also remarkably similar to the

semantic trick that it attempted with respects to Counts 1 and 8. It should be rejected for

the same reason; i.e. it ignores fungibility of money which would result (even if the

Government is right) in claim amounts merely shifting between counts.” Plaintiff notes

that “[d]efendant cites to the fact that Oasis used part of the $24M to pay for the fixes at

Speicher and Q-West as evidence that Oasis was paid for those fixes. This is a senseless

argument as it ignores the fact that money is fungible and that things must be paid for

when purchased,” and argues that “[t]his is [sic] should be rejected.” Finally, plaintiff

argues that “[i]n order to demonstrate fraud, Defendant must prove not only that Oasis

was already paid $600,000 for those fixes, but also that Oasis had the requisite intent

necessary to support a finding of fraud. Defendant has proven neither.”

Despite plaintiff’s arguments, Claim 6 involves different issues than Claim 1 and

Claim 8. Claim 6 specifically addresses water fixes at two of the bottled water plants,

Speicher and Q-West. As noted above, according to Alan Morrell, the water source at Q-

West was “filled with mud and sand. And at that time, it was so significant that we couldn't

purify it,” and the result was the “ROWPU [Reverse Osmosis Water Purification Unit] was

immediately filled with mud, and fouled. And each set of those membranes is $26,000.

And they were ruined. And we couldn't keep them clean and operational enough to

operate and make water there as a result.” In order to fix the problem, Alan Morrell

testified that Oasis “purchased a Pall Aria from northern New York and we also took an

additional ROWPU system that we had used at Balad and recommissioned it, repiped

and replumbed the lines at Q-West and solved the problem.” By contrast, at Speicher,

plaintiff testified that another contractor, Kellogg Brown & Root, disrupted their water

source, and given the demands to produce water, plaintiff was forced to purchase a “BEV

9 reverse osmosis system, and in the spring of 2007, installed it, commissioned it, and

began to draw well water.” In his affidavit that accompanied the certified claim, Alan

Morrell further explained that:

The contractor and the USG mutually agreed as part of P00011 that Oasis

would cover the costs of water supply improvements. Oasis had the right to

request for equitable adjustment for the cost to improve the water supply at

Camp Speicher and Camp Qwest and chose not to do so. Not requesting

this equitable adjustment is an indication that P00011 was agreed to by both

parties in good faith. This claim element is denied.

Defendant argues that the final decision is not relevant because “Oasis was already paid

$600,000 for those improvements as part of P00011.” (emphasis in original).

40

In Speicher (because of the Governments choice to deliver ROPU water

from a KBR facility) Oasis was asked to solve the problem by re-engineering

the plant for a raw water supply source that Oasis could take directly from

the wells in Speicher. The cost was set at $300,000 to deliver that fix which

consisted of a new ROPU skid capable of delivering purified water from the

raw source. It is interesting to note that after the money was spent and the

equipment placed, the KBR facility (that had limited water) then asked to

deliver again as we were first in line for the raw source. We now get ROPU

water in Speicher again. In Qwest, we were asked to solve the water quality

problem as our water often looked like chocolate milk because it was so

muddy. That fix required another $300,000 to deliver and install a Pall Aria

pre-filtration system; we now use this system in advance of our ROPU units.

These two “fixes” required an additional $600,000 dollars worth of

concessions and cost to P00011.

The steps that plaintiff took to address water fixes at Speicher and Q-West were

addressed in the negotiations during the modification for P00011. Alan Morrell testified

regarding the lack of water at Speicher, “on P00011, because this was such a hot issue,

again, part of the negotiation was a concession that we would sort this problem out,” and

“[s]o, we, again, went back to Minnetonka, Minnesota, and were forced to re-engineer

that factory” and “bought another BEV 9 reverse osmosis system.” He also testified that

“[p]art of the concessions that were demanded from us in P00011 were two site

improvements to solve water issues. One was Speicher, and the other was Q-West.”

The draft proposal requested by Colonel Richardson and submitted by Oasis

indicated:

41

The final version of modification P00011 provided for Oasis to be paid

$9,333,333.33 per month, independent of the amount of water delivered, and explained:

The purpose of this modification [P00011] is to do the following:

1. Provide a revised CLIN structure to reflect monthly pricing based upon

water production capability.

2. Replace the Contract Statement of Objectives, with Performance Work

Statement, dated 12 August 2006, provided as Attachment 1 to this

modification.

3. Incorporate the contractor's Quality Assurance Plan into the contract

provided as Attachment 2 to this modification.

4. Incorporate the List of Critical Equipment into the contract, provided as

Attachment 3 to this modification.

5. Insert Special Clause, titled “Equipment Leased by the Government”, into

the Contract.

6. Insert clause DFARS 252.232-7007, “Limitation of Government's

Obligation” (May 2006) into the Contract.

7. Replace Contract Section J, List of Documents, Exhibits and Other

Attachments.

8. Decrease the contract amount by $11,604,166.45 from $386,225,000.00

to $374,620,833.55.

42

9. Decrease the contract funded amount by $5,604,166.35 from

$100,225,000 00 to $94,620,833.65.

10. Change the end date of Option 4 from 16 August 2009 to 16 July 2009.

Although the court referred to the draft version submitted by Oasis to Colonel

Richardson above, plaintiff contends that regarding the defendant’s citation to the draft

version:45

It is telling that Defendant does not actually cite P00011 to support its

argument that Oasis was paid $600,000 for the source water fixes at

Speicher and Q-West. Nor can Defendant, as P00011 – despite allocating

responsibility for the source water fixes at Speicher and Q-West to Oasis –

includes no reference to any compensation being paid to Oasis for those

fixes. Similarly, Defendant does not cite to a single post-P00011 document

to support its argument that Oasis was paid $600,000 for the source water

fixes at Speicher and Q-West. This is because Col. Richardson’s post-

modification documents demonstrate that Oasis was not compensated for

the source water fixes at Speicher and Q-West.

(internal citations omitted).

Plaintiff also correctly notes that the memorandum for record which Colonel

Richardson drafted for her superiors stated that the water fixes were resolved “at no

additional cost.” Defendant argues that “[t]he memorandum does not support Oasis’s

position, as it states that ‘[a]s part of the negotiations, the Contractor, at no additional

cost, agreed to provide a solution to the water problems at Q-West.’ The ‘no additional

cost’ language refers to ‘no additional cost’ beyond the total base year figure provided

earlier in the memorandum.” (emphasis added by defendant; internal citations omitted).

The entirety of the section of the memorandum of record devoted to Q-West states:

A 16-mile long pipe transports water from the source to the base including

supply to the bottled water facility—locals have been “tapping” into the pipe.

In addition, Q-West Camp demands have outstripped the supply of “raw”

water. At the time of the subject negotiations (July 2006), the water source

was [sic] to the bottled water facility was inadequate and the water quality

extremely poor. It required Contractor to provide twice the amount of

purification equipment to produce purified water. This site condition was not

anticipated when the Contractor conducted his site visit to assess the water

supply. The Contractor anticipated a $300K cost to upgrade equipment to

enable successful processing of the water (Tab B).

45Paul Jefferies testified regarding the draft version, “there were a number of other items

that weren't here and this draft doesn't reflect our final agreement, which is we provided

that Pall Aria and that RO [reverse osmosis] for free and installed them accordingly.”

43

As part of the negotiations, the Contractor, at no additional cost, agreed to

provide a solution to the water problems at Q-West.

The court believes the document could have been clearer if Colonel Richardson

had intended for her superiors to understand that it meant no additional cost in the

addition to the amount in the base year. Colonel Richardson testified at trial, that, in her

view, Oasis seeking $300,000.00 for Q-West “constitutes fraud in my mind,” and testified

“Speicher, once again, that $300,000 was what Oasis -- the price tag Oasis put on what

it would cost them to rectify the situation we had at Speicher, to fix it,” and claimed that

seeking payment for the water fixes was the same as “[c]harging us twice for the same

service or supply constitutes fraud, and that was paid for under P00011. So, for them to

come back and say they want to be paid for it again is a foul.” Regardless, plaintiff’s view

is that “Oasis was paid $47,954,167 in the base year, against a contractual firm fixed

price of $50,225,000. It was paid $0 dollars as compensation for the Speicher and Q-

West water fixes, which the parties agreed cost $600,000.”

Alternatively, plaintiff argues that:

the Court could believe the Government that Oasis was actually “paid”

$600,000 for the Speicher and Q-West water fixes. Under this scenario, the

correct amount of Count 6 would have been $0. But, again, what about

Count 2? Count 2 seeks the difference between the contract’s firm fixed

price for capability of $50,225,000 and the amount that Oasis was actually

paid for capability in the base year. Oasis was paid a total of $47,954,167

in the base year. If $600,000 of that was compensation actually paid for

additional work (the water fixes), then only $47,354,167 was the capability

fee. The correct amount of Count 2 would have been $2,870,833

($50,225,000 - $47,354,167). In the aggregate, Counts 2 and 8 still total

$2,870,833.

Regarding the comparison to Claim 2, defendant argues that “Count two has nothing to

do with water filtration equipment, or even Camp Speicher or Camp Q-West, the plants

for which Oasis claims it purchased that equipment. Rather, count two relates to alleged

‘penalties’ as a result of Oasis’s delay in building Plant TQ,” and argues that Oasis’s

double-billing for water filtration equipment at Camp Speicher and Camp Q-West could

not have been a “reasonable misunderstanding.” The court, however, understands the

calculations by plaintiff to be reasonable and defensible, as plaintiff was trying to calculate

its damages in the aggregate when it certified its claim. The plaintiff’s understanding of

the contract as a capabilities contract which entitled them to the payment of approximately

50 million dollars in the base year, regardless of water production, also lead to their

approach in calculating the claim submitted. Therefore, the court agrees with plaintiff that,

“[a]t best, Defendant has proven that the negotiating parties had a different understanding

about whether that [sic] fixes were compensated, which does not constitute fraud.” (citing

Ulysses, Inc. v. United States, 110 Fed. Cl. at 645).

44

Claim 4

Claim 4 was a “Claim for water bottling capabilities services provided through

extension of Contract base year,” and plaintiff valued Claim 4 at $11,175,063.00. The

certified claim for Claim 4 indicates:

Oasis provided water-bottling capability services for an additional 2.67

months when the Contract base year was extended to August 15, 2006,

due to Government delays and breaches of contract. As explained in 6.0

paragraph 33, Oasis is entitled to a payment of $11,175,063 for the water-

bottling capability services provided during the extended Contract base-

year performance.

Defendant alleges that Oasis “Fraudulently Seeks Costs Never Incurred” in Claim 4.

Defendant contends that:

Oasis also seeks millions more stemming from its knowingly baseless

interpretation of the contract. Specifically, count four further inflates Oasis’s

baseless attempt to recover a $50.225 million “mobilization” fee by

extrapolating from that amount to claim an additional $11 million “monthly

capabilities fee” resulting from the extended base year. In addition to being

fraudulent due to Oasis’ frivolous contract interpretation, Commercial

Contractors, 154 F.3d at 1366, this count seeks damages for delay when

Oasis admitted that it did not incur any additional mobilization costs due to

the extension of the base period.[46]

Defendant argues that “Paul Morrell admitted that the $11 million that Oasis seeks in

count four is not for increased construction costs incurred by Oasis during the extended

base period,”47 and states, “[y]et Oasis seeks an additional $11 million as a monthly

46 Regarding defendant’s argument that plaintiff’s claims are for costs it did not incur,

plaintiff argues that “[t]his is the new theory that Oasis objects to Defendant advancing.

Defendant’s only response – that it is additional evidence in support of its argument that

Count 4 is fraudulent – is unavailing, because that would mean it was entitled to add, after

trial, any new basis for fraud because it had alleged fraud generally.” In response,

defendant argues that “Oasis takes issue with the fact that the Government supported its

fraud claims with trial evidence that Oasis apparently did not anticipate. This action by the

Government is not only appropriate, but also necessary to ensure that the fraud

counterclaims conform with the trial evidence.” (internal citation omitted).

47 On cross-examination, defendant’s counsel asked Paul Morrell:

Q: Let’s turn to Count (d), which is also Count 4 of the complaint, and that's

entitled “Claim for extension of base year period.”

45

capability fee despite this fact. In sum, there were no increased mobilization costs, yet

that is exactly what Oasis seeks. Therefore, Oasis admits that it seeks to recover

damages that it admits it never incurred. That is fraud.” Defendant also argues that, “[i]t

is clear that Oasis knew that the contract did not provide payment of a penny more than

$3.50 per case of bottled water,” and its claim was an attempt to provide plaintiff tens of

millions of dollars “to which Oasis knew it was not entitled under the contract.” In

response, plaintiff argues:

Defendant’s new theory, that Count 4 is fraudulent because it seeks costs

never incurred, is without merit, as Defendant apparently does not

understand the basis of Count 4. Count 4 does not seek any specific

construction or delay costs. Instead, as Oasis alleged from the very

beginning, it was entitled to additional compensation because Defendant

forced Oasis to perform the Base Year “service” of the Contract for an

additional period of time without consideration or cause. . . .

As noted above, this court can “consider circumstantial evidence in making its

determination.” Alcatec, LLC v. United States, 100 Fed. Cl. at 517 (citing Kamen Soap

Prods. Co. v. United States, 129 Ct. Cl. at 642, 124 F. Supp. at 620 (noting that intent

can be determined “by placing the questioned documents and statements alongside well-

known and established facts”)). For support of circumstantial evidence, defendant points

to the “uniform” testimony of the contracting officers that “Oasis also never told any

military contracting officer that it believed it was due $50.225 million to make the facilities

operational, plus $3.50 per case for water delivered to the military.” 48 Defendant also

argues, citing Daewoo Engineering & Construction Co. v. United States, 73 Fed. Cl. 547,

that “[t]he extent to which Oasis’s corporate officers disavowed Oasis’s certified claim is

further evidence of an intent to defraud.” It is undisputed that some of Oasis’ officers had

a different view of the contract than the Paul Morrell and Phil Morrell. Mr. Jeffries, the

Chief Financial Officer of Oasis during the period when the contract was novated to Oasis,

So, you contend that the base year performance involved the Government

paying the contractor $50,225,000 in a mobilization payment for the

construction of the sites, right?

A: That’s correct.

Q: And the contractor would own the sites after they were completed.

A: That’s correct.

Q: And this $11 million claim, just to be clear, is not for increased

construction costs incurred by Oasis during the extended base period,

correct?

A. That’s correct.

48 As discussed below, the court notes that Phil Morrell testified that he explained his view

of the contract to multiple Army officials, most specifically, Colonel Hay.

46

testified that he viewed the contract as providing a cap of the $50.225 million figure in the

base year. He also testified that:

For my purpose, the way I operated was that we would have $50 million

that we would draw down at $3.50 a case and we would submit an invoice

at the end and get that money, and there was a disagreement at corporate,

Phil, Paul, about the rest of the contract interpretation. So, those two

dichotomies existed throughout, one of which I operationalized by drawing

down the water and submitting an invoice, and one they operationalized by

executing this proceeding because they and counsel believe that, you know,

that it should be slightly different.

Mr. Jeffries also testified, however, that “ultimately it was what Paul [Morrell] and Phil

[Morrell] and legal counsel believed were the appropriate things to include in the claim.”

Mr. Neil Vos, Oasis’ Chief Financial Officer, testified that it was his “understanding” for

“the contract to allow only payments of $3.50 per case.” Defendant claims that “[j]ust like

Mr. Jeffries’s testimony, Mr. Vos’s testimony alone is also more than sufficient to show an

intent to defraud.” Furthermore, Max Wyeth, the president of American AquaSource when

it was awarded the original contract, testified that he based the $50,225,000.00 figure in

the base year by “using our average forecast of demand, we came up with a case number

that would be produced per year, and multiplied that by the case cost,” which was “[t]he

number of cases times $3.50.” Mr. Wyeth further testified the $50,225,000.00 was a

“gross revenue figure,” calculated on the cases to be produced and sold at $3.50 per

case. As noted above, Mr. Wyeth was also briefly president of Oasis in 2005, although

he admitted to being “out of the loop” after the novation agreement was executed, and

was at odds with Paul Morrell and Phil Morrell when he left Oasis. Even years later, at

the trial, it was apparent to the court in observing the parties that tension still existed

between Mr. Wyeth and Paul Morrell and Phil Morrell.

Based on the foregoing, defendant contends that, “every Oasis witness, including

its CEO (Paul Jeffries), CFO (Neil Vos), former President (Max Wyeth), as well as Paul

Morrell, Alan Morrell, and Phil Morrell, testified that the contract did not allow for the $50

million that Oasis seeks in its certified claim, including the $30 million in water that Oasis

was already paid for by the military.” Plaintiff responds that “[t]his assertion is

demonstrably false. At best, some of Oasis’ witnesses (Paul Jeffries and Neil Vos) who

did not have final authority on contract matters, did not agree with the interpretation

underlying the Claim,” and “Neither of the Morrell’s [sic] testified that they did not believe

in the contract interpretation underlying the Claim.”

As noted above, plaintiff does not challenge that officers of Oasis did not agree

with Paul Morrell and Phil Morrell on the type of contract Oasis was performing. Instead,

plaintiff argues that “Oasis, like any corporation, is made up of a number of individuals,

with different titles and different responsibilities. Ultimately, the decision-making authority

for Oasis rested in the hands of Paul Morrell and Phil Morrell.” It was Paul Morrell who

signed the certified claim, and it was Phil Morrell and Paul Morrell who made the business

decision to, through the joint development and pre-incorporation agreement, form the

47

entity that would ultimately perform the contract, and, then as the majority owners of

Oasis, to direct Oasis to assume the contract upon novation from American AquaSource.

Plaintiff correctly notes that “[m]ost of the case law in the fraud arena focuses on the

beliefs of the person who signed the claim,” citing to Daewoo Engineering & Construction

Co. v. United States, 73 Fed. Cl. 547, as well as to two recent decisions of the

undersigned.49 Paul Morrell, the signatory to the certified claim, testified at trial that he

believed in the claim when he signed it and believed in the same during his testimony in

this case. At trial, Paul Morrell testified as follows:

Q: Did you review the amount of the claim before you signed the

certification?

A: Yes.

Q: Did you believe that the amount claimed accurately reflected the

amounts which the Government of the United States owed Oasis at the time

you signed the claim?

A: Yes.

Q: Do you believe today that the amounts included in the claim are owed to

Oasis?

A: Yes.

Q: Did anyone from the military ever inform you that he or she thought that

the claim was fraudulent or false in any way?

A: No.

The court accepts plaintiff’s statements that, in contrast to Daewoo’s project manager,

J.W. Kim, the certifying official in Daewoo, “Paul Morrell did not certify an inflated claim

for the purposes of settling lower but rather certified a claim for the correct amount he

believed should be paid but he concluded he would probably recover less.”

The court believes that the most relevant individual regarding a determination on

whether or not fraud was committed is the signatory of the certified claim, in this case

Paul Morrell. Although plaintiff’s parade of horribles, i.e., “Defendant’s position would

essentially require any company (no matter how large) to confirm that every influential

officer (both past and present) who is in any way connected to a potential claim agrees

with the claim,” is extreme, the court understands how the plaintiff can contend that “[a]

contractor who does not risks a counterclaim from the overzealous Government attorney.

Defendant’s position would also elevate a reasonable disagreement among board

49Plaintiff cites to the undersigned’s decisions in Gulf Group General Enterprises Co.

W.L.L. v. United States, 114 Fed. Cl. 258 (2013) and Chapman Law Firm, LPA v. United

States, 113 Fed. Cl. 555 (2013), aff’d, 583 F. App’x 915 (Fed. Cir. 2014).

48

members to an admission of fraud.” Disagreement among non-signatories, alone, cannot

be proof of fraud. As indicated above, the court found Paul Morrell to be a truthful witness,

and sincere in his belief in the validity of the certified claim he signed. The court also

found Phil Morrell, and his explanation for the terms of Oasis’ contract with the

government, and his understanding of the type of contract Oasis was to perform, to be

believable. The court is sympathetic with plaintiff that “Defendant provides nothing to

contradict Paul Morrell’s sworn testimony that his opinion and understanding evolved and

he changed his mind, and that the right amount was claimed.”50 Nor can the defendant

rely on the testimony of Mr. Wyeth, the originally signatory for the contract, to prove the

intent of the certified claim. As plaintiff contends, Mr. Wyeth “left the company more than

two years before the Claim was filed, and was actively in dispute with both Morrell

brothers from late 2005 until he left the company. Even assuming his understanding of

the Contract is relevant to contract interpretation, it is irrelevant to the question of whether

Oasis submitted a fraudulent claim.”51 Furthermore, Oasis did not exist as a corporation

when Mr. Wyeth was awarded the contract on behalf of American AquaSource. Mr. Wyeth

testified that when he signed the American AquaSource contract he had no relationship

with Al-Morrell Development or with Paul Morrell or Phil Morrell. Given the evolution of

the contract, including fundamental changes to the contract, especially after modifications

P00006 and P00011, the reduction from the number of bottled water plants from eight to

six, and on site difficulties encountered during contract performance, the court does not

afford Max Wyeth’s views as to whether or not Oasis submitted a fraudulent claim in the

2008 certified claim much weight.

Plaintiff also argues that “[t]he law does not require a contractor to hold a belief in

the validity of its claim from the beginning of time,” citing to Hernandez, Kroone &

Associates, Inc. v. United States, 110 Fed. Cl. at 525, and noting that in Hernandez,

Kroone & Associates the court found an element “of the Plaintiff’s claim was not valid,

[but] it also found that it was not fraudulent.” (emphasis in original). Defendant takes issue

with Oasis’ characterization of Hernandez, Kroone & Associates: “Oasis cannot twist itself

into the framework of Hernandez, Kroone & Assocs., Inc. v. United States, 110 Fed. Cl.

496, 525 (2013) to escape its fraud.” (internal reference omitted).

50 Plaintiff concedes that “Paul Morrell testified that during the Base Year, he operated

the company as if the Contract was for the sale of water at $3.50 per case, but that over

time, he became convinced that Phil Morrell’s interpretation, which underlies the claim,

was correct.”

51 Plaintiff also argues that:

the absurdity of the Defendant’s position is highlighted by its reliance on the

beliefs of Max Wyeth. Mr. Wyeth ceased to have any involvement in Oasis

as of early 2006 at the latest; and in fact, was locked in a payment dispute

with the Morrell brothers for much of that time. Yet Defendant would have

the court believe that “Oasis” does not believe in its 2008 claim because Mr.

Wyeth says it is wrong.

49

In Hernandez, Kroone & Associates, plaintiff entered into a contract with the United

States Army Corps of Engineers (COE) to construct a modular building, as well as too

deliver and install the building for use as a Border Patrol Station by the United States

Department of Homeland Security, in Indio, California. Initially, the corporation General

Modular Corporation (GMC) was to be the prime contractor and plaintiff would have been

a subcontractor, however, “[i]nstead of proceeding further with GMC's proposal, the COE

informed Mr. Bennett that it had been decided that the contract for the Indio Border Patrol

project would be awarded to an 8(a) contractor,” and the president and chief executive

officer of GMC informed “the COE that in the process of developing GMC's proposal he

learned that HKA [Hernandez, Kroone & Associates] was in the SBA 8(a) program;

accordingly, Mr. Bennett proposed that HKA become the prime contractor for the Indio

project and that GMC would endeavor to serve as a subcontractor to HKA for the modular

building and site fencing portions.” Hernandez, Kroone & Assocs., Inc. v. United States,

110 Fed. Cl. at 501. On January 28, 2005, COE commenced the process to initiate the

award of a sole source [SBA] 8(a) contract for the Indio Border Patrol Station to plaintiff.

Subsequently, the court noted that:

On October 21, 2005, HKA (Anne Hernandez) addressed a letter to COE

(Joseph Flynn) asserting, in part, that “I signed a contract on February 15,

2005. This contract did not include the statement of work from the January

25, 2005 proposal nor from the March 11, 2005 statement of work.” The

letter also asserted that with respect to on-site lighting and security cameras

from their January 25, 2005 proposal that were included in the Schedule of

Values for the first invoice HKA submitted to COE, “We were required to

show these items on the schedule of values in order to get paid.”

Id. at 511 (internal citations omitted). After a letter from plaintiff to “the local California

office of the congressman representing the 41st District,” “[t]he COE commenced internal

discussions to organize a response to the congressional inquiries which resulted from

HKA's request for assistance and to schedule a meeting with HKA to discuss the

applicable contractual scope of work.” Id. at 511-12. Subsequently, the COE and plaintiff

met to reach an agreement, however, “[u]pon review, HKA notified the COE that they did

not agree with items 1 and 2 in the proposed modification and would not sign it. The

Modification No. R00003, dated November 14, 2005, was then issued on a unilateral

basis.” Id. at 513. Thereafter,

[o]n December 13, 2005, HKA submitted a certified claim to Patricia Bonilla,

contracting officer, regarding Unilateral Contract Modification No. R00003,

dated November 14, 2005. The claim primarily addressed HKA's contention

that the January 25, 2005 proposal cited in Modification No. R00003 was

an additional scope of work added to the February 2nd solicitation and the

estimated costs cited were for this future additional work.

Id. (internal citation omitted). “The HKA December 13, 2005 claim purports to detail the

estimated cost of adding the January 25, 2005 proposal to the scope of work HKA was to

perform together with the resulting time extension.” Id. at 525.

50

After the plaintiff in Hernandez, Kroone & Associates filed a Contract Disputes Act

claim in the United States Court of Federal Claims, defendant filed an answer, and an

amended answer asserting fraud counterclaims for the Special Plea in Fraud statute, the

False Claims Act, and the antifraud provision on the Contract Disputes Act. As bases for

its counterclaims, the defendant in Hernandez, Kroone & Associates set forth a number

of asserted “falsities” in the Contract Disputes Act claims Hernandez, Kroone &

Associates “submitted to the contracting officer, predominantly in the December 13, 2005

claim for an equitable adjustment based on the assertion that Modification No. R00003

comprised a change in the contract scope of work by adding HKA's January 25, 2005

proposal.” Id.

The Court of Federal Claims determined that:

Defendant asserts that [plaintiff] HKA's claim that Modification No. R00003

comprised a change in the contract scope of work was a “falsity.” As

discussed previously, the rejection of HKA's claim for an equitable

adjustment based on Modification No. R00003 relies on the conduct of the

parties before this dispute arose. However, the somewhat unorthodox

manner in which the contract was negotiated initially with GMC and

subsequently with HKA to satisfy an 8(a) award obligation, left ample room

for argument as to the scope of work involved. The preponderant record

evidence shows that after the review triggered by the COE's erroneous

assertion that the modular building, as built, did not conform to the contract

specifications, HKA evolved to the view that its January 25, 2005 proposal

was not part of the awarded contract. This view was seriously researched

by COE and debated at a COE–HKA meeting on November 9, 2005. A

purported settlement then failed, and unilateral Modification No. R00003

was issued. Based upon full consideration of the record evidence, including

the testimony of all witnesses, it is concluded there exists no viable

evidence to support defendant’s assertion that HKA did not, after October

of 2005, believe that the contract, as awarded, did not include HKA's

January 25, 2005 proposal. Rather the evidence supports HKA's sincerity

in this regard, if not its validity, and HKA did not knowingly present a false

or fraudulent claim on December 13, 2005 or thereafter by asserting that

their January 25, 2005 proposal was not part of the scope of work in the

awarded contract.

Id. at 525 (internal citations omitted).

The facts of the above captioned case are different from those in Hernandez,

Kroone & Associates, as the contract at issue in the above captioned case went through

numerous and structural changes from the time that it was awarded until the end of the

base year. As catalogued above, as a result of modifications to the contract in the base

year, the number of bottled water facilities was reduced and a not to exceed limitation on

the quantity of water produced at each plant that did not require the government to

51

purchase any minimum number of cases produced by the contractor was added.

Moreover, as a result of the contract being novated from American AquaSource to Oasis,

and the deadline for the facilities and the period and obligations in the base period being

altered in P00006, the nature of the base year contract was changed. Perhaps most

importantly, in P00011, the contract was fundamentally altered and P00011 established

a payment structure moving forward in the option periods by which Oasis would be paid

$9,333,333.33 per month, independent of the amount of water delivered. Even if the

original intent of the contract was for the payment for cases of bottled water produced, as

the government has alleged, P00011 dramatically reshaped the terms of the contract. It

cannot be a surprise to the government that plaintiff’s views may have changed over the

course of the base year regarding the contract as a whole. Plaintiff conceded that “Paul

Morrell testified that during the Base Year, he operated the company as if the Contract

was for the sale of water at $3.50 per case, but that over time, he became convinced that

Phil Morrell’s interpretation, which underlies the claim, was correct.” As noted above, Paul

Morrell offered an affidavit in support of his certified claim when he submitted it and also

credibly testify at trial that he sincerely believed that the plaintiff was entitled to the monies

it sought. The court suggests that same principles that guided the court’s decision in

Hernandez, Kroone & Associates apply here as well. See id.

Defendant also cites to Daewoo Engineering & Construction Co. v. United States,

557 F.3d at 1339, for the proposition that “the certified claim was simply a ‘negotiating

ploy,’” and Oasis “did not honestly believe that the Government owed it the various

amounts stated when it certified the claim,” because “Paul Morrell contemporaneously

estimated the value of Oasis’s $50 million certified claim to be well below that amount.”

The court believes the facts in Daewoo are sufficiently different from the facts in the above

captioned case. In Daewoo, the United States Army Corps of Engineers solicited bids for

the construction of a road in the Republic of Palau in 1998. See Daewoo Eng’g & Constr.

Co. v. United States, 73 Fed. Cl. at 550. The contract was awarded to Daewoo

Engineering and Construction Co., Ltd. (Daewoo), which submitted the lowest bid.

Construction began in 2000 and was scheduled to be completed within 1,080 days, but

was subject to delays. See id. at 550 n.31. Daewoo subsequently submitted a certified

claim for an equitable adjustment, requesting $13,348,793.07 in “additional costs as of

December 31, 2001” and listed $50,629,855.88 in “costs January 1, 2002 & Forward,” for

a total of approximately $64 million. Daewoo Eng'g & Constr. Co. v. United States, 557

F.3d at 1336. Daewoo also sought additional time to perform the contract, and alleged

that the contract had used defective specifications, the government had breached its

duties to cooperate and to disclose superior knowledge, and that it was impossible to

complete the contract within the specified time period. The contracting officer denied the

claim.52 See id. at 1338. Daewoo then filed a complaint with the United States Court of

Federal Claims, seeking an increase in “compensable and non-compensable contract

performance time,” damages in the amount of $13,348,793.07 for damages suffered

through December 31, 2001, and $50,629,855.88 for damages suffered from January 1,

52 In a footnote, the Court of Federal Claims also indicated that the revised claim amount

that was discussed at trial in Daewoo was never certified and submitted to a contracting

officer. Daewoo Eng’g & Constr. Co. v. United States, 73 Fed. Cl. at 560 n.19; id. at 573.

52

2002 through contract completion, for a total of approximately $64 million. Id. at 1335-36.

The government counterclaimed, alleging fraud and sought forfeiture of Daewoo’s

claims.53 Finding that the government had demonstrated by “clear and convincing

evidence” that Daewoo “knowingly presented a false claim with the intention of being paid

for it,” the Court of Federal Claims dismissed plaintiff’s claims, assessed a penalty of

$50.6 million under the antifraud provision of the Contract Disputes Act, $10,000.00 under

the False Claims Act, and forfeited Daewoo’s claims under the Special Plea in Fraud.

Daewoo Eng’g & Constr. Co. v. United States, 73 Fed. Cl. at 584. The Court of Federal

Claims also found that Daewoo’s certified claim was simply a “negotiating ploy.” Id. at

585. Moreover, the Court of Federal Claims noted that Daewoo had submitted an inflated

claim to get the government to “pay attention.” Id. The Court of Federal Claims stated:

The Project Manager testified at one point that Daewoo filed at least $50

million of the claim to indicate “the seriousness of the situation” and to get

the Government to “pay attention” so it would agree to a cheaper method of

constructing embankments. If so, this is further evidence of bad faith. It

means that Daewoo submitted a certified claim as a negotiating ploy; that

is, for a reason other than an attempt to recover money for which Daewoo

believed the Government is liable.

Id. (citations and footnote omitted).

Daewoo appealed to the United States Court of Appeals for the Federal Circuit.

See, generally, Daewoo Eng’g & Constr. Co. v. United States, 557 F.3d 1332. Daewoo

first argued that it had not made a claim for $64 million, but, rather, that its certified claim

was for $13 million and the $50.6 million requested was in the nature of future costs

offered as estimates to encourage the government to adjust the contract specifications.

As noted by the Court of Federal Claims:

We suspect that Daewoo's entire claim is fraudulent. However, plaintiff's

apparent incompetence in putting together its claim, along with the

unwillingness of its witnesses to explain the process, provides it an ironic

benefit. That is, we found it difficult to locate the line between fraud and

mere failure of proof in this case.

It is theoretically possible that plaintiff's $13 million claim represents an

amount that it could have incurred because of defective specifications, had

such a theory been applicable, but plaintiff could not prove it because it

employed the wrong legal theories and its witnesses were not credible. For

these reasons, we limited findings of fraud to the $50 million claim that

clearly is fraudulent

Daewoo Eng’g & Constr. Co. v. United States, 73 Fed. Cl. at 595-96. Therefore, the

Federal Circuit noted that the Court of Federal Claims had found no support for Daewoo’s

53As in the above captioned case, defendant also sought penalties under the False

Claims Act and under the antifraud provision of the Contract Disputes Act.

53

calculation of the $50.6 million in future costs, and that at trial Daewoo, had “made no

real effort to justify the accuracy of the claim for future costs or even to explain how it was

prepared.” Daewoo Eng’g & Constr. Co. v. United States, 557 F.3d 1338. The Federal

Circuit also noted that, even on appeal, Daewoo did not attempt to factually dispute the

Court of Federal Claims’ finding of fraud, but, rather, argued that the penalty should be

set aside because

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