Raytheon Company

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of -- )

)

Raytheon Company ) ASBCA Nos. 60448, 60785

)

Under Contract No. FA8675-13-C-0003 )

APPEARANCES FOR THE APPELLANT: Donald G. Featherstun, Esq.

Giovanna A. Ferrari, Esq.

Seyfarth Shaw LLP

San Francisco, CA

APPEARANCES FOR THE GOVERNMENT: Jeffrey P. Hildebrant, Esq.

Air Force Deputy Chief Trial Attorney

Lawrence M. Anderson, Esq.

Maj Darren S. Gilkes, USAF

Jason R. Smith, Esq.

Caryl A. Potter III, Esq.

Colby L. Sullins, Esq.

Trial Attorneys

OPINION BY ADMINISTRATIVE JUDGE SCOTT

ON THE GOVERNMENT'S MOTION TO AMEND ANSWER

Raytheon Company has appealed from the contracting officer's (CO's) denial of its

$48,195,181 claim for extra Systems Engineering and Program Management (SEPM)

services under the subject "Lot 27" contract to provide missiles, telemetry units, other

deliverables and SEPM (ASBCA No. 60448), and from the CO's denial of its supplemental

$48,311,385 claim for additional SEPM services under the contract (ASBCA No. 60785).

On 20 February 2018, about two months before the hearing, which is set to commence on

24 April 2018, the government moved to amend its answer to add the following affirmative

defense:

"Unclean Hands" - The firm-fixed-price contract for

Lot 27 was the latest production contract in a "house of cards"

knowingly constructed by Raytheon to sell more missiles to

the United States than otherwise could be paid for by the fund

amount certified as available to the Air Force for the Lot 27

contract when signed. Raytheon's complicity in such

unfunded contract actions, prohibited by the Anti-Deficiency

Act (31 U.S.C. 1341) and FAR Subpart 32.7 (Contract

Funding), bars all of Raytheon's claims in this appeal under

the "unclean hands" doctrine.

(Mot. at 1) Briefing was complete on 2 April 2018, when the Board received appellant's

sur-reply in opposition to the motion.

THE PARTIES' CONTENTIONS

Appellant first contends that the Board does not have jurisdiction to entertain the

government's proposed affirmative defense because the government did not submit it, in

the form of a claim, to the CO. Appellant further alleges that the motion should be denied

as unjust because the government did not justify the defense or its delay in raising it.

Appellant avers that Air Force personnel have consistently claimed that the Lot 27

contract was fully funded. Appellant also alleges that it would be prejudiced if the

amendment were allowed because it has not had the opportunity to conduct discovery on

the defense; it would need to make complex funding and budget inquiries; and it would

require expert evidence on the new defense. However, appellant opposes any extension

of the hearing date or re-opening discovery. Appellant asserts that the prejudice to it

would carry over to multiple contracts and any subsequent proceedings involving the

Anti-Deficiency Act because the doctrine of res judicata would apply to any adverse fact

findings related to the new affirmative defense.

The government replies that it is not shifting from its consistent position that the

Lot 27 contract was fully funded when the parties entered into it. It alleges that the Board

has jurisdiction to consider the proposed affirmative defense because the government is

not seeking to void the contract or to adjust any of its terms or to obtain any monetary

relief. Rather, the latest round of government depositions of Raytheon personnel revealed

that it had an undisclosed pre-award plan to complete the Lot 27 contract work ·'with

future appropriated funds siphoned away from future missile production contracts that

Raytheon hoped to obtain on an annual basis" (gov't reply at 1-2). The government

alleges that it is seeking to apply its unclean hands defense to force Raytheon to honor the

contract instead of allowing it to implement its undisclosed plan. The government also

asserts that permitting it to amend its answer will not require any more discovery and no

expert evidence is needed. Like appellant, the government does not seek to extend the

hearing date, which has already been extended twice at one or both parties' requests.

In its sur-reply appellant asserts that the government has not justified its "eleventh

hour" motion, which it brought in bad faith, because the government's own documents,

dating back to 2013, and its own witnesses, in deposition testimony in June 2017,

demonstrate that the COs responsible for awarding the Lot 27 contract were well aware,

prior to contract award, of the bidding practices about which the government claims to

have learned only in late January 2018 (app. sur-reply at 1, 6). Appellant also contends

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that the Board should deny the government's motion to amend on the ground of "futility

of amendment" because the government has not demonstrated how its assertions satisfy

the "unclean hands" doctrine (id. at 10). Appellant alleges that it will be prejudiced by

the lack of discovery on the government's affirmative defense.

DISCUSSION

Jurisdiction

Appellant's contention that the Board lacks jurisdiction to consider the

government's motion to amend is mistaken because there is no need for the government

to submit a claim to the CO regarding its proposed affirmative defense if, like here, it is

not seeking money or an adjustment of the contract's terms. Securiforce International

America, LLC v. United States, 879 F .3d 13 54, 1362-63 (Fed. Cir. 2018); Laguna

Construction Co. v. Carter, 828 F.3d 1364, 1368 (Fed. Cir. 2016); Kellogg Brown & Root

Services, Inc., ASBCA No. 56358 et al., 17-1 BCA ,r 36,779 at 179,246-47.

Thus, the Board has jurisdiction to entertain the government's proposed

affirmative defense.

Criteria for Amendment of Answer

Board Rule 6(d) provides that "[t]he Board may permit either party to amend its

pleading upon conditions fair to both parties." The Rule does not contain any time limit

for amendment of a pleading.* We may also look to the Federal Rules for guidance. FED.

R. Crv. P. 15(a)( 1) provides for pleading amendments as a matter of course before trial,

with various 21-day time limits. Under FED. R. Crv. P. 15(a)(2), when the time for

amending a pleading as a matter of course has passed, a party may amend its pleading

with the opposing party's consent or the court's leave. The Rule advises that "[t]he court

should freely give leave when justice so requires." The United States Supreme Court has

instructed that "this mandate is to be heeded." Foman v. Davis, 371 U.S. 178, 182

(1962). The Court elaborated:

In the absence of any apparent or declared reason - such as

undue delay, bad faith or dilatory motive on the part of the

movant, repeated failure to cure deficiencies by amendments

previously allowed, undue prejudice to the opposing party by

• Rule 6( d) also provides that, if a party objects to evidence at a hearing on the

ground that it is not within the issues raised by the pleadings, it may be admitted

within the proper scope of the appeal, provided that the objecting party may be

granted an opportunity to meet the evidence

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virtue of allowance of the amendment, futility of amendment,

etc. - the leave sought should, as the rules require, be "freely

given." Of course, the grant or denial of an opportunity to

amend is within the discretion of the [Court].

Id.

Undue Delay, Bad Faith, Futility of Amendment, Prejudice to Appellant

The parties dispute when the government had enough information to assert its

proposed affirmative defense. Although the government's motion to amend, regrettably,

comes close to the commencement of the hearing, there is insufficient information for the

Board to conclude that the government delayed unduly in raising the defense. There is

also insufficient evidence to establish bad faith on the part of the government, which

appellant bears the burden to prove. See Am-Pro Protective Agency, Inc. v. United States,

281 F.3d 1234, 1239 (Fed. Cir. 2002) (presumption that government officials act in good

faith may only be overcome by clear and convincing evidence).

Similarly, there is insufficient information for the Board to decide whether the

amendment would be futile on the ground that the government has not established a basis

for its assertion that appellant's claims are barred under the doctrine of unclean hands.

That doctrine arises in equity and has been described by the Board as follows:

"[O]ne who seeks equity must do equity." Shockley v. Arcan.

Inc., 248 F.3d 1349, 1361 (Fed. Cir. 2001) quoting

Manufacturer's Finance Co. v. McKey, 294 U.S. 442 (1935).

Thus, the unclean hands doctrine "closes the door of a court

of equity to one tainted with inequitableness or bad faith

relative to the matter in which he seeks relief." ABF Freight

System, Inc. v. NLRB, 510 U.S. 317,329 (1994).

Eurasia Heavy Industries. Inc., ASBCA No. 52878, 01-2 BCA ,i 31,574 at 155.916. In

other words, to prove '·unclean hands'· requires a showing of inequitable conduct involving

the subject matter of the claims at issue. Id. at 155.917 (citing Ciba-Geigy Corp. v. !Jolar

Pharmaceutical Co., 747 F.2d 844,855 (3d Cir. 1984). cert. denied, 471 U.S. 1137 (1985)).

Lastly, to resolve any prejudice to appellant due to its stated need for expert

evidence and more discovery in view of the government's new affirmative defense, while

the Board will not extend the hearing commencement date, it will afford appellant the

opportunity for further discovery and/or record submissions both before and after the

current scheduled hearing. At the conclusion of the hearing, if appellant requires more

discovery, the Board will keep the record open for both parties for a period of time upon

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which they agree, or which the Board sets, in order that they can conduct discovery on the

issues raised in the government's new affirmative defense. If further testimony is required

as a result of the discovery, the Board will set a date(s) and place for it to be heard.

DECISION

The government's motion to amend its answer is granted. The government is to

serve its amended answer upon appellant by email, and to file it with the Board, as

promptly as possible, but no later than 16 April 2018.

Dated: 9 April 2018

dministrative Judge

Armed Services Board

of Contract Appeals

I concur I concur

~KLEFORD J. REID PROUTY

Administrative Judge Administrative Judge

Acting Chairman Vice Chairman

Armed Services Board Armed Services Board

of Contract Appeals of Contract Appeals

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

Services Board of Contract Appeals in ASBCA Nos. 60448, 60785, Appeals of Raytheon

Company, rendered in conformance with the Board's Charter.

Dated:

JEFFREY D. GARDIN

Recorder, Armed Services

Board of Contract Appeals

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