MOTION TO DISMISS FOR LACK OF JURISDICTION DENIED;

Agency decision

Ask Donna

What actually matters in this document.

Text

DISMISSED IN PART FOR FAILURE TO STATE A CLAIM: October 16, 2007

CBCA 582

CHARLES ENGINEERING CO.,

Appellant,

DEPARTMENT OF VETERANS AFFAIRS,

Respondent.

Paul L. Charles, President of Charles Engineering Co., Fairfax, VA, appearing for

Appellant.

Tracy Downing, Office of the General Counsel, Department of Veterans Affairs,

Augusta, GA; and Charlma J. Quarles and Phillipa L. Anderson, Office of the General

Counsel, Department of Veterans Affairs, Washington, DC, counsel for Respondent.

Before Board Judges DANIELS (Chairman), PARKER, and SHERIDAN.

SHERIDAN, Board Judge.

This appeal involves two claims by the appellant, Charles Engineering Company

(CEC), seeking $361,144.93 from the respondent, the Department of Veterans Affairs (VA).

The claims arise out of contract V786C-472, awarded to CEC by the VA National Cemetery

Administration (NCA) on September 25, 2002. In one claim, CEC seeks $106,383.93 for

costs it incurred during litigation and arbitration with its subcontractor. CEC also seeks

CBCA 582

$254,761 for lost income as a result of the VA’s alleged verbal “constructive stop work

order” and breach of the contract.

The respondent has submitted a motion to dismiss the appeal, arguing that the Board

lacks jurisdiction to entertain the appellant’s claim for costs associated with the litigation and

arbitration with its subcontractor, and that the claim in which CEC seeks lost income should

be dismissed because the appellant has failed to state a claim upon which relief can be

granted. CEC opposes the respondent’s motion.

We deny the respondent’s motion to dismiss the appellant’s claim of $106,383.93 for

costs incurred during its litigation and arbitration with its subcontractor. We grant the

respondent’s motion to dismiss the appellant’s claim of $254,761 for lost income.

In considering the respondent’s motion to dismiss for lack of jurisdiction, we may

look beyond the pleadings to decide the facts, even in dispute, which are necessary for a

determination of the jurisdictional merits. Detroit Housing Corp. v. United States, 55 Fed.

Cl. 410, 412 (2003) (citing Pride v. United States, 40 Fed. Cl. 730, 732 (1998)); see also

Cedars-Sinai Medical Center v. Watkins, 11 F.3d 1573, 1584 (Fed. Cir. 1993) (when

jurisdiction is at issue, the tribunal is not limited to the pleadings). We have looked to the

documents submitted with the motions to evaluate the jurisdictional issues presented by this

appeal.

Background

On September 25, 2002, CEC was awarded contract V786C-472, in the amount of

$2,524,625, to provide “Design/Build Gravesite Development” at the Culpeper National

Cemetery, Culpeper, Virginia. As part of the contract work, CEC was required to build a

new public information building, maintenance building, and communal shelter on the site.

Mr. Robert Lee Capers, Jr., was the contracting officer. Mr. Mike Mersky was the project

manager and designated the contracting officer’s technical representative (COTR).

During construction, issues arose regarding possible defects in the roofs being laid on

all three buildings, but particularly the maintenance building. A VA inspector noted that the

VA would not accept the roof with undulation (waves). CEC wrote to MBI, its roofing

subcontractor, stating: “[f]urther research has indicated that [the roof] is neither 22 gauge

galvanized steel nor 0.040” aluminum. We know that roofing is a critical path [item] and this

is brought to your attention in order that MBI can start fixing it before 2/25/04.”

The VA resident engineer’s logs show that CEC was informed that all roof work was

“to cease until all problems are resolved and all damaged roof panels have been replaced.”

CBCA 582

CEC took the position with MBI that it had received “a formal order from the COTR to stop

working on the roof and change all panels in need of replacement due to poor workmanship

and/or physical damage.” Mr. Dana Ivey, who had replaced Mr. Capers as the contracting

officer, wrote CEC on April 6, 2004:

The project manager, Mike Mersky[,] and the VA inspector, Hunter Kidd,

have documented an ongoing pattern of deficient subcontractor workmanship

and materials at the job site. For example, there have been deviations from

approved submittals concerning the installation of roof flashing and the

thickness of the standing seam metal roofing panels installed on the new

buildings.

The VA is concerned and request[s] your written proposal [for] solving these

issues and eliminating their occurrence in the future. Your response is due in

my office within 7 days after receipt of this notice.

On April 19, 2004, CEC wrote Mr. Ivey, assuring him that all deficiencies in the roof

would be corrected, but that “[t]his work will be limited to temporary correction until you

notify us to proceed with the roof. We are awaiting the report you commissioned and will

provide you with a complete plan of action regarding the balance of the roofing issues once

we receive it.” MBI took the position with CEC that the roof was compliant and that it

would not act on an “owner directive, or other . . . unless it is supported by a report from a

professional engineer articulating any alleged deficiencies.”

Meanwhile, the VA retained an engineering consultant, MACTEC Engineering and

Consulting, Inc. (MACTEC), to inspect the roofs. MACTEC provided its report to Mr.

Mersky on April 26, 2004, stating: “In our opinion, the material currently in place, while not

meeting the project specified thicknesses, does fall within acceptable industry standards.”

As to concerns about the panels’ “oil-canning” or waviness, MACTEC noted that some

amount of waviness was observed on all three buildings, but was not excessive given the

material and seam spacing used. Problems were found with the gutter attachment not being

installed in conformance with the manufacturer’s standard gutter installation detail, and

MACTEC recommended that the gutters be removed and reinstalled with a means of

attachment that precluded the use of exposed fasteners. MACTEC also made note of various

other items that needed to be fixed, including screws penetrating through gutter sides and the

step flashing.

On April 29, 2004, without turning the MACTEC report over to CEC, the VA offered

not to pursue the roof thickness and oil-canning issues if CEC repaired and finished certain

items associated with the roof installation. A no-cost supplemental agreement was entered

CBCA 582

into between the VA and CEC on June 8, 2004, granting CEC a forty-five calendar-day time

extension and changing the contract completion date to July 29, 2004. The supplemental

agreement also provided that “[t]he consideration represents full and complete compensation

for all costs, direct and indirect, associated with the work and time agreed to herein,

including but not limited to, all costs incurred for extended overhead, supervision, disruption

or suspension of work, labor inefficiencies, and this change’s impact on unchanged work.”

A final inspection was conducted on August 19, 2004, and the contract was found to

be substantially complete. The punch list was completed on November 18, 2004. Mr. Ivey

wrote CEC on January 19, 2005, that the VA considered the project to be “accepted and

completed” and “[a]gain, we are requesting that you submit an invoice for all remaining

funds (approximately $153,630.00) and a signed copy of the Release of Claims, for

processing. The Government has no reason to withhold these funds.” Mr. Ivey again wrote

CEC on March 10, 2005, asking it to submit an invoice for all remaining funds.

Around May 28, 2005, CEC brought an action against MBI in the Virginia courts

seeking $2,005,471.53 in disputed claims. MBI filed a counter-claim against CEC seeking

$362,625 in disputed claims. Among other things, MBI’s counter-claim sought damages for

delayed performance ($105,589), disruptions and inefficiencies ($13,930), and the roofing

stop work order ($10,642). MBI also sought the unpaid subcontract balance of $172,607,

the sum of which was not in dispute.

CEC and MBI engaged in binding arbitration to resolve the Virginia action around

June 8, 2006. As a result of the arbitration, CEC was found liable to MBI for $29,580.10 in

disputed damages and $172,607 for the unpaid subcontract balance. MBI was found liable

to CEC for $43,877.08. The arbiters denied MBI’s claims for delayed performance,

disruptions and inefficiencies, and the roofing stop work order.

On June 27, 2006, the appellant submitted a claim to Mr. Fred Neun, the VA NCA’s

project manager assigned to administer this contract. Referencing a “breach of contract”,

CEC sought $12,667 for additional costs relating to increased slab capacity; $5041 for extra

work associated with the heating, ventilation, and air-conditioning (HVAC) system;

$163,127 that CEC expended to defend against the Virginia action with MBI; $57,353.49 in

legal fees and expenses in connection with the MBI litigation; $22,063.28 for an expert

witness to defend against the delay claim asserted by MBI; $11,250 in administrative costs

paid to the American Arbitration Association (AAA) associated with the MBI litigation;

$15,717.22 for AAA arbitrator fees; and loss of income in the amount of $254,761 allegedly

caused by the VA’s stopping the roof work.

CBCA 582

CEC invoiced the VA for the final payment on July 12, 2006, enclosing a release of

claims dated June 27, 2006, that excepted the claims that CEC submitted on June 27, 2006.

The contracting officer issued a final decision on October 12, 2006, granting equitable

adjustments for the work associated with the increased slab capacity and the HVAC. Mr.

Ivey denied the $106,383.93 claim for legal and arbitral fees associated with the MBI

litigation, asserting that the VA did not issue a stop work order, delay, or disrupt CEC or

MBI. In denying CEC’s loss of income claim, Mr. Ivey noted that as far as the VA was

concerned, it was CEC’s own decision to delay its acceptance of the final payment.

CEC timely appealed the final decision to the VA Board of Contract Appeals, where

the appeal was docketed as VABCA 7627. The VA Board was, pursuant to statute,

consolidated into the Civilian Board of Contract Appeals (CBCA or Board) on January 6,

2007. Pub. L. No. 109-163, § 847, 119 Stat. 3136 (2006). VABCA 7627 was redocketed

as CBCA 582. Via CBCA 582, CEC seeks $361,144.93 in damages.

Discussion

This case arises out of the appellant’s attempt to recover certain costs that it says it

incurred as a result of a verbal “constructive stop work order” issued by the VA in contract

V786C-472 at the Culpeper National Cemetery. The stop work order, CEC claims, prevented

it and its subcontractors from completing the roof work and “incited its roofing

subcontractor, MBI, to file a delay suit against CEC . . . for about $600,000.” As a result of

this suit, CEC claims it has incurred “a total loss of at least $361,144.93 ($106,383.93 +

$254,761.00).”

The respondent’s motion asserts that the Board lacks jurisdiction to review the portion

of the appellant’s claim seeking costs associated with CEC’s litigation and arbitration with

its subcontractor. In asserting its argument for lack of jurisdiction, the respondent posits:

The arbitration costs claimed by the appellant are the direct result of a contract

between his company and one of his subcontractors on the project. However,

VA was not a party to that contract and cannot be held liable for those costs.

It is well settled that “[a] plaintiff must be in privity with the United States to

have standing to sue the sovereign on a contract claim.” S. Cal. Fed. S&L

Assn. v. United States, 422 F.3d 1319 (Fed. Cir. 2005) See also Anderson v.

United States, 344 F.3d 1343, 1351 (Fed. Cir. 2003). Because there is no

privity of contract between appellant and VA in relation to the costs being

sought, the CBCA lacks jurisdiction to hear this part of the appellant’s

complaint.

CBCA 582

The appellant contests the motion and avers that the litigation with its subcontractor

arose out of the VA’s stopping the roof work, and that CEC was essentially “defending the

VA” in its litigation with MBI.

The respondent’s application of the above-cited case law and legal principle to the

facts of this case is incorrect. Here, the damages CEC claims are sought under its contract

with the VA. So too, CEC, the party bringing the action, is in privity with the VA in contract

V786C-472. While it appears there may be several other reasons for a summary disposition

of this portion of the claim, the respondent’s relief does not lie in arguing the Board’s lack

of jurisdiction. The respondent’s motion to dismiss the appellant’s claim of $106,383.93 for

costs it alleges it incurred as a result of the Virginia action brought by its subcontractor is

denied.

By its claim for $254,761, CEC seeks lost income, averring that “the VA’s

irresponsibility . . . caused CEC to lose money at the end of 2004, 2005, and 2006.” In its

reply, CEC clarifies the nature of its claim to be comparable with claims for lost profits:

Being a small engineering business, during the period preceding the arbitration

outcome, because of the suit, appellant was not able to compete for like

government or civilian contracts. As a result, appellant was not able to take

advantage of its last 2 years, the most critical, in the Small Business

Administration (SBA) 8(a) program.1

The respondent moves the Board to dismiss the appellant’s claim for lost income,

arguing that the appellant has failed to state a claim upon which relief can be granted. A

motion to dismiss for failure to state a claim upon which relief can be granted is appropriate

when the facts asserted by the claimant do not entitle it to a legal remedy. Boyle v. United

States, 200 F.3d 1369 (Fed. Cir. 2000). Controlling precedent at the Court of Appeals for

the Federal Circuit, noted recently that “[i]n reviewing a dismissal for failure to state a claim,

we must assume all well-pled factual allegations are true and indulge in all reasonable

inferences in favor of the nonmovant.” Anaheim Gardens v. United States, 444 F.3d 1309,

1314-15 (Fed. Cir. 2006) (quoting Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed.

CEC was designated as a subcontractor in the program authorized by section 8(a)

of the Small Business Act. 15 U.S.C. § 637(a) (1994). That program offers assistance to

small, disadvantaged, minority businesses. Regulations promulgated by the SBA give it the

authority to enter into contracts with Government agencies and negotiate subcontracts for

performance of those contracts with 8(a) subcontractors. See 13 CFR pt. 124 and 48 CFR

pt. 19 (1995).

CBCA 582

Cir. 1991)). Dismissal for failure to state a claim should not be granted unless it appears

beyond doubt that the appellant cannot prove any set of facts in support of its claim that

would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Icenogle

Construction Management, Inc., VABCA 7534, 06-2 BCA ¶ 33,325 at 165,271; South

Carolina Public Service Authority, ASBCA 53701, 04-2 BCA ¶ 32,651 at 161,607; Thai Hai,

ASBCA 53375, 02-2 BCA ¶ 31,971 at 157,920, reconsideration denied, 03-1 BCA ¶ 32,130,

aff'd, 82 F.App’x 226 (Fed. Cir. 2003).

As indicated supra, the appellant asserts that the VA unreasonably stopped the roof

work. The appellant also claims that the VA refused to provide the MACTEC report in a

timely manner and by failing to do so breached the contract. The appellant concludes that

it is entitled to an equitable adjustment for additional services it provided as a result of roof

work ultimately found to be acceptable. However, the appellant has not claimed costs for

additional services. Instead, CEC seeks $254,761 for the income it claims it would have

received during 2005 and 2006 from other contracts but for the VA’s breach.

In asserting its motion the respondent argues:

[A]lthough appellant has presented information to prove probable future loss

of income . . . such information does not substantiate a claim because it is too

remote, consequential, and speculative. Consequently, losses of income, as a

matter of law, “are not recoverable in any event.” William Green Construction

Co. v. United States, 477 F.2d 930, 934, 936, 201 Ct. Cl. 616 (1973); Ramsey

v. United States, 101 F. Supp. 353, 357, 121 Ct. Cl. 426 (1951); CCM Corp.

v. United States, 15 Ct. Cl. 670, 671-72 (1988). Further . . . one element of

loss of income, “[a]nticipated but unearned profit[,] is never recoverable.”

Dairy Sales Corp. v. United States, 219 Ct. Cl. 431, 593 F.2d 1002, 1005-06

(Ct. Cl. 1979). Therefore, because loss of income is too arbitrary . . . a claim

to substantiate, the appellant has failed to state a claim upon which relief can

be granted.

Longstanding case law of the Federal Circuit and its predecessor court, the Court of

Claims, has held that for a contractor to recover lost profits those losses must flow from the

contract the contractor has with the Government, and not from prospective, independent, or

collateral undertakings. For this proposition, the courts have generally followed case law

established by the 1897 Court of Claims decision in Myerle v. United States, which held that:

If the profits are such as would have accrued and grown out of the contract

itself, as the direct and immediate results of its fulfillment, then they would

form a just and proper item of damages, to be recovered against the delinquent

CBCA 582

party upon a breach of the agreement. These are part and parcel of the contract

itself, and must have been in the contemplation of the parties when the

agreement was entered into. But if they are such as would have been realized

by the party from other independent and collateral undertakings, although

entered into in consequence and on the faith of the principal contract, then they

are too uncertain and remote to be taken into consideration as a part of the

damages occasioned by the breach of the contract in suit.

33 Ct. Cl. 1, 26-27 (1897).

The analysis set forth in Ramsey v. United States, 101 F.Supp. 353 (Ct. Cl. 1951),

provides a test to apply in determining whether certain damages may be recovered. The

contractor in Ramsey suffered a shortage of capital due to the Government’s delays in

payment. It sought interest on the money it was forced to borrow as a result of the

Government’s breach. Id. at 357-58. In analyzing the case prior to granting the

Government’s motion for judgment on the pleadings, the court wrote:

[T]here is a distinction by which all questions of this sort can be easily tested.