MOTIONS TO DISMISS DENIED: September 8, 2010

MOTIONS TO DISMISS DENIED: September 8, 2010

CBCA 1821

ROCKIES EXPRESS PIPELINE LLC,

Appellant,

v.

DEPARTMENT OF THE INTERIOR,

Respondent.

L. Poe Leggette and Osborne J. Dykes, III of Fulbright & Jaworski L.L.P., Denver,

CO, counsel for Appellant.

Colleen M. Dulin, Office of the Regional Solicitor, Department of the Interior,

Lakewood, CO, counsel for Respondent.

Before Board Judges SOMERS, GOODMAN, and WALTERS.

GOODMAN, Board Judge.

On December 4, 2009, the appellant, Rockies Express Pipeline LLC (appellant), filed

a notice of appeal from the respondent, Department of the Interior, Minerals Management

Service (MMS or respondent),1 contracting officer’s final decision dated November 30, 2009,

1

After the appeal was filed, the respondent changed the name of the entity to Bureau

of Ocean Energy, Management, Review and Enforcement. The respondent now refers to the

entity as the Bureau of Ocean Energy (BOE). In this decision, we refer to MMS/BOE as “the

respondent.”

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2

that denied the appellant’s claims for breach of a precedent agreement (PA), Appeal File,

Exhibit 4, and a firm transportation service agreement (the REX West FTSA), Appeal File,

Exhibit 6, between the appellant and the respondent.

The appellant filed its complaint with this Board alleging five claims.2

Claims 1 and 5 are for alleged breaches of the REX West FTSA. Claim 1 alleges the

respondent has breached the REX West FTSA in refusing to pay at least $3,548,701.45,

which is equal to the monthly reservation charges for April through June 2009 plus accrued

interest charges. Claim 5 states that

if . . . it should be determined that the Precedent Agreement is not a binding

contract, then the REX West FTSA has not terminated and remains in force

and effect for its full ten-year term, until April 19, 2017. [The respondent] has

repudiated and breached the REX West FTSA and is liable to [the appellant]

for the present value of all monthly reservations charges for its ten year terms,

constituting the amount of at least $115,923,840.00, plus interest.

Claims 2, 3, and 4 are for alleged breaches of the PA. Claim 2 alleges the respondent

breached the PA by failing to execute the REX East FTSA and to pay monthly reservation

charges in the amount of at least $173,230,601.10 plus accruing interest. Claim 3 alleges the

respondent breached the PA’s implied duty of good faith and fair dealing. Claim 4 alleges

the respondent breached the representation in clause 12 of the PA that the PA is a “legal,

valid, binding and enforceable obligation of [the respondent].”

On March 30, 2010, pursuant to Board Rule 8(c)(1) (48 CFR 6101.8(c)(1) (2009)),

the respondent filed a motion to dismiss claims 2, 3, and 4 of the complaint for lack of

subject matter jurisdiction, on the basis that the PA is not a contract under the purview of the

Contract Disputes Act of 1978, 41 U.S.C. §§ 601-613 (2006) (CDA).

On May 20, 2010 the respondent filed another motion to dismiss the entire appeal on

the ground that the parties consented to exclusive jurisdiction over their disputes in the

2

The complaint contains a slight inconsistency. Paragraph 2 states that “[appellant]

principally seeks judgement for two claims” and describes these two claims as breach of the

REX West FTSA and the PA. However, the complaint then enumerates five “claims” with

specificity which might ordinarily be denoted as “counts” in a complaint.

CBCA 1821

3

federal district court for the Southern District of New York by the inclusion of a clause in the

PA entitled “Dispute Resolution.” 3

We deny both motions.

Background

The respondent states that its mission is to “manage the ocean energy and mineral

resources on the Outer Continental Shelf and Federal and American Indian mineral revenues

to enhance public and trust benefits, promote responsible use, and realize fair value.”

Respondent’s Motion to Dismiss Claims 2, 3, and 4, at 1. To that end, the respondent is

responsible for ensuring that all revenues from federal and American Indian mineral leases

are “effectively, efficiently, and accurately collected, accounted for, and disbursed to

recipients.” Appeal File, Exhibit 43 at 5.

The Mineral Leasing Act of 1920, as amended, and the Outer Continental Shelf Lands

Act, 43 U.S.C. § 1353 et. seq., authorized the respondent to take a portion of the natural gas

produced under federal leases as “royalty-in- kind” (RIK), as opposed to taking cash payment

“in value” for these royalties. In connection with taking RIK, the respondent developed a

RIK program to facilitate the competitive sale of this oil and gas on the open market. In

order to facilitate these sales, the respondent had to procure transportation services to ship

the oil or gas it received in-kind from the location where producers delivered royalty

production to the respondent to a location where it could be sold.

The Department of the Interior and Related Agencies Appropriations Act of 2001,

Pub. L. No. 106-291, 114 Stat. 922 (2000), authorized the respondent to use revenue that it

generated from the RIK program to pay for services incidental to selling oil and gas.

Specifically, the Act stated that the respondent may under the RIK pilot program use a

portion of the revenues from RIK sales, without regard to fiscal year limitation, to pay for

transportation to wholesale market centers or upstream pooling points, and to process or

otherwise dispose of royalty production taken in kind.

3

The respondent’s contracting officer’s final decision stated the appellant’s appeal

rights pursuant to the CDA. When the appeal file was submitted, the Board reviewed the PA

and directed the parties to brief the significance of the Dispute Resolution clause. The

respondent’s motion to dismiss the entire appeal was the respondent’s response to the

Board’s direction.

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This law was further codified in 42 U.S.C. § 15902(b)(4) by the Energy Policy Act

of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005). The provision states:

Retention by the Secretary. The Secretary may, notwithstanding section 3302

of title 31, retain and use a portion of the revenues from the sale of oil and gas

taken in-kind that otherwise would be deposited in miscellaneous receipts,

without regard to fiscal year limitation, or may use oil or gas received as

royalty taken in-kind (referred to in this paragraph as “royalty production”) to

pay the cost of ­

(A)

transporting the royalty production;

(B)

processing the royalty production;

(C)

disposing of the royalty production; or

(D)

any combination of transporting, processing, and disposing of the

royalty production.

In 2005, the respondent entered into discussions with the appellant regarding the

reservation of space on a proposed interstate pipeline that the appellant planned to construct.

The proposed pipeline would ultimately be 1679 miles long, stretching from west of

Cheyenne, Wyoming, to Clarington, Ohio. If the respondent could transport to Ohio gas that

was being produced in Wyoming, then it could sell its in-kind gas at a higher market price.

The appellant intended to open the pipeline in three stages. The first pipeline

segment, called the Certificate 1 segment, was to transport gas from production areas west

of Cheyenne, Wyoming, through the existing hub in Cheyenne, and eastward to Audrain

County, Missouri (the “Audrain hub”). This segment is known as REX West. The second

segment of pipeline, called the Certificate 2 segment, was to originate at the Audrain hub and

terminate in Warren County, Ohio (the “Lebanon hub”). The third pipeline segment, called

the Certificate 3 segment, would transport gas from the Lebanon hub to Monroe County,

Ohio (the “Clarington hub”). The Certificate 2 and Certificate 3 segments were eventually

combined and these segments are collectively known as REX East.

The appellant needed approval and authorization from the Federal Energy Regulatory

Commission (FERC) to build the pipeline, and the appellant sought firm commitments from

shippers to ship gas on the pipeline as each segment came available. Without sufficient

commitments from shippers, the appellant could not support the viability of the project and

could not proceed with obtaining the necessary governmental authorizations needed to

construct the pipeline.

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On February 6, 2006, the respondent entered into an arrangement with the appellant

known to the parties as the “Precedent Agreement.” 4

The PA contained the following terms relevant to resolution of the respondent’s

motions to dismiss:

This Precedent Agreement dated this 6th day of February, 2006 states an

agreement between Rockies Express Pipeline LLC (“Transporter”), a

Delaware limited liability company, and U.S. Minerals Management Service

(“Shipper”). Each of Transporter and Shipper are sometimes referred to herein

individually as a “Party” and collectively as the “Parties.”

WHEREAS, Transporter is developing plans to construct and/or acquire and

operate certain facilities referred to as the Rockies Express Pipeline Project

(the “Project”) that will create long-haul, firm transportation takeaway capacity

out of the natural gas supply areas located in the Rocky Mountain producing

areas of Wyoming and Colorado.

Appeal File, Exhibit 4 at 1.

WHEREAS, The commitment provided by Shipper via this Precedent

Agreement and potentially other similar agreements will be used as support for

the construction and operation of the Project; and . . .

Id. at 2.

WHEREAS, this Precedent Agreement has been executed as evidence of the

agreement between Transporter and Shipper that, upon satisfaction of the

conditions precedent set forth below, the parties will enter into Firm

Transportation Service Agreements (each a “FTSA”) providing for firm

interstate natural gas transportation service to be provided by Transporter for

Shipper on the Project.

Id. at 3.

4

The foregoing facts are summarized from pages 1 through 4 of the respondent’s

motion to dismiss claims 2, 3, and 4.

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WHEREAS, Shipper is an agency of the federal government subject to specific

statutory requirements governing its Royalty in Kind Program; . . .

Id.

WHEREAS, Shipper and Transporter desire to provide, within reasonable

interpretations of the statutory authorities and limitations, the MMS as

custodian of federal natural gas resources reasonable access to transportation

and other services necessary to implement the Congressionally authorized

Royalty in Kind Program and said Shipper and Transporter do hereby agree to

certain rate and termination provisions designed to permit Shipper to

implement its statutory requirements as Shipper has reasonably determined to

implement such requirements.

Id.

NOW, THEREFORE, in consideration of the mutual covenants and agreement

contained herein, and intending to be legally bound, Transporter and Shipper

agree as follows: . . .

2.

Services

Transporter agrees . . . to provide Shipper, as conditioned herein, with firm

transportation service as set forth on the attached Appendix A.[5] The

construction and operation of these interstate facilities are subject to the

jurisdiction of the FERC, and subject to FERC and other federal, state and

local permits and approvals.

Id. at 4.

3. Special Provisions Related to MMS Status as a Government Agency

5

Appendix A contained two rate options - The Maximum Recourse Reservation Rate

and a Negotiated Reservation Rate, with election pages for Certificate segments 1, 2 and 3.

Also included was an illustrative matrix of Fuel Loss and Unaccounted For (FL&U)

percentages applicable to each certificate with a final determination of the actual FL&U

percentages to be determined by FERC. In addition to signing the PA, the contracting officer

separately signed Appendix A.

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(a) Commencing with the date following the in-service date of facilities

needed to deliver Shipper’s gas to the Lebanon Hub, Transporter shall

determine the hypothetical difference between the price at which Shipper

could have sold its gas at the Receipt Points and the price at which Shipper

could have sold its gas at the Delivery Points less transportation costs

assuming a one hundred percent load factor (the “REX Basis/Transport

Difference”). The Rex Basis/Transport Difference is agreed by the Parties to

be an approximation of whether Shipper has been able to sell its RIK gas at

fair market value within its legislative and statutory mandate. Shipper has the

right to audit the calculation during normal business hours.

The REX Basis/Transport Difference shall be calculated, as of the date twelve

months following the in-service date of facilities needed to deliver Shipper’s

gas to the Lebanon Hub (the “First Calculation Date”) and on each twelve

month anniversary of the First Calculation Date thereafter, in accordance with

the methodology and example set forth on Appendix C to establish an “Annual

Bank Balance” and accumulated over time to establish a “Cumulative Bank

Balance”, as set forth on Appendix C. Transporter shall notify Shipper in

writing within forty-five (45) days following the First Calculation Date and

within forty-five (45) days following each twelve-month anniversary of the

First Calculation Date thereafter, of the Cumulative Bank Balance as of such

dates. Shipper shall have the right to terminate the FTSA with no liability

resulting to Shipper in the event the Annual Bank Balance (first annual

calculation) or the Cumulative Bank Balance is negative as of the First

Calculation Date or on any of the twelve-month anniversaries of the First

Calculation Date thereafter. Shipper shall have the right but not the obligation

to terminate the FTSA in such event under this provision, which shall be

exercisable by Shipper, in writing, within fifteen (15) business days after

Shipper receives notification from Transporter that the Cumulative Bank

Balance calculation yields a negative result and shall become effective on the

first day of the month specified by Shipper. Shipper’s failure to notify

Transporter in writing of Shipper’s exercise of a termination right under this

provision within the time set forth above shall constitute waiver of such

termination right for the applicable calculation period.

Id. at 4-5.

4.

Rates

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Shipper acknowledges that it has made an election, as set forth on Appendix

A; to either (i) pay the Maximum Recourse Reservation Rates for firm service

under each FTSA or (ii) to pay Fixed Negotiated Reservation Rates for firm

service under each FTSA.

If Shipper shall have opted to pay a negotiated rate, as described on Appendix

A,[6] such negotiated rate shall be applicable to service under each FTSA

during the entire term of such FTSA, except as provided in Section 3 of this

Precedent Agreement, as the same may be extended, regardless of any

otherwise applicable maximum rate and shall be applicable at all primary and

secondary points on the Project that are located in a zone covered by Shipper’s

primary transportation path(s); provided that the applicability of the negotiated

rate assumes that receipts and deliveries under the FTSAs will be made at the

prevailing operating pressures of the Project facilities and that the negotiated

rate does not cover any non-conforming quality or pressure requirement at any

receipt or delivery point.

Regardless of which form of reservation rate Shipper shall have opted to pay,

the Commodity Rate, calculated using straight fixed variable rate design, Lost

and Unaccounted for Gas (“L&U”), ACA and any other additional authorized

charges or surcharges will be applied pursuant to the FERC approved Gas

Tariff applicable to the Project (the “Tariff”). Fuel shall be provided by

Shipper in accordance with the zoned fuel matrix set forth in the Tariff, with

an illustrative matrix set forth on Appendix A attached to this Precedent

Agreement. The Commodity Rate, determined on the basis of a straight fixed

variable rate design, is estimated to be $0.004 per Dth [decatherm] for each

zone ($0.012 per Dth across the length of the system), subject to final

determination by the FERC. Transporter will propose as part of the Tariff,

subject to FERC approval, that Fuel and L&U shall be assessed in-kind and

that Fuel and L&U will be adjusted through a tracking provision. . . .

Id. at 6.

5. Volume, Receipt and Delivery Points

6

The respondent elected the negotiated rate for the three certificate segments on the

election pages of Appendix A.

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The contract Maximum Daily Quantity (“MDQ”) and primary term are as

elected by Shipper on the attached Appendix A (subject to the minimum term

requirements set forth in Appendix A). The primary receipt point shall be the

Cheyenne Hub (subject to being moved to points in the zone containing

Meeker or Opal upon the combination of the Entrega Projects and the Project)

and the primary delivery points shall be: (a) for Certificate 1 Segment:

mutually agreeable Mid Continent/Midwest point(s); (b) for Certificate 2

Segment: mutually agreeable point(s) in the zone containing the Lebanon Hub;

and (c) for Certificate 3 Segment: mutually agreeable point(s) in the zone

containing the Clarington Hub. Shipper’s election of Primary Receipt and

Delivery Points are set forth on Appendix A. Secondary Receipt and Delivery

Points will be made available pursuant to the Tariff.

Transporter hereby agrees that it will construct a minimum of twenty five

points of interconnection from among the points set forth on Appendix A or

such other points as may be determined to have shipper demand during the

Open Season. The selection and capacities of such points will be based on

shipper demand as demonstrated by the results of the Open Season. Shipper

may indicate on Appendix A up to twenty five points of interconnection

(including Shipper’s primary receipt and delivery points) to communicate

Shipper’s preferences.

Id. at 7.

6. Conditions Precedent

Performance by Transporter of the duties and obligations assumed by it in this

Precedent Agreement are expressly subject to the following conditions

precedent:

(a)

All appropriate and final governmental approvals and

other applicable authorization must be obtained and maintained

on terms acceptable to Transporter, including approval of

construction, rates and terms and conditions of service; and

(b)

All rights-of-way and other surface rights required to site

and maintain the pipeline facilities along the route described

herein must be obtained on terms and conditions acceptable to

Transporter; provided, however, that conditions (a) and (b) shall

be deemed satisfied for each Certificate Segment of the Project

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upon Transport's acceptance of the FERC Authorization for such

Certificate Segment; and

(c)

Sufficient firm capacity subscription must exist at

acceptable rates, in Transporter's sole discretion, to proceed with

the Project; provided, however, that this condition shall expire

on February 28, 2006 if Transporter has not terminated this

Precedent Agreement on or before such date; and

(d)

Shipper shall have complied with all its material

obligations hereunder and under any FTSA then in effect.

Id. at 8.

8.

Shipper’s Obligations

(a)

Shipper agrees that it will execute a minimum of three Firm

Transportation Service Agreements consistent with the form of Service

Agreement as contained in Appendix B[7] hereto, as finally approved by FERC

which, if Shipper shall have elected the Negotiated Reservation Rate Option,

shall reflect the fixed nature of the reservation rate as described in Section 4,

within five (5) business days after tender by Transporter. In light of the timing

considerations associated with the Executive Committee of the U.S. Minerals

Management Service, Transporter shall provide Shipper with ten (10) business

days advance notice prior to tendering any FTSA for execution by Shipper.

The FTSAs, at least one each for Certificate 1 Segment, Certificate 2 Segment

and Certificate 3 Segment, will reflect the receipt points, delivery points,

term(s), rate(s) and MDQ(s) described herein.

Id. at 9.

12. Representations

Each Party represents to each other as follows: . . .

(c) This Precedent Agreement has been duly executed and delivered by such

Party. This Precedent Agreement constitutes the legal, valid, binding and

7

Appendix B contained the form and terms and conditions of the FTSA.

CBCA 1821

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enforceable obligation of such Party, except as such enforceability may be

limited by bankruptcy, insolvency, reorganization, moratorium or other similar

laws of general application relating to or affecting creditor’s rights generally

and by general equitable principles.

Id. at 13.

16.

Dispute Resolution

To the fullest extent allowed by law, any disputes, controversies or claims that

arise between the Parties (the “Disputing Parties”) relating to this Precedent

Agreement (a “Dispute”) shall be resolved by means of the following

procedure:

(a)

Notice of Dispute. Any Disputing Party shall give notice

to the other Disputing Parties in writing that a Dispute has arisen

(“Dispute Notice”).

(b)

If the Disputing Parties have failed to resolve the Dispute

within fifteen (15) business days after the Dispute Notice was

given, the Disputing Parties shall seek to resolve the Dispute by

negotiation. If the Disputing Parties are unable to resolve the

Dispute through negotiation within thirty (30) business days

after the Dispute Notice was given, then the Dispute may be

finally resolved as follows:

i. Any disputes that arise between the Parties

shall be brought in or removed to the United

States District Court for the Southern District of

New York. By execution and delivery of this

Precedent Agreement, Shipper and Transporter

irrevocably and unconditionally submit to the

exclusive jurisdiction of such court and to the

appellate courts therefrom and consent to service

of process out of any of the aforementioned

courts.

ii. Transporter and Shipper agree that the

provisions of subparagraph (a) above shall not

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apply to any controversy wherein the FERC has

or exercises jurisdiction.

Id. at 14.

On April 24, 2007, the appellant and respondent entered into the REX West FTSA,

which was effective on that date. The parties agree that the conditions precedent to entering

into the REX East FTSA were fulfilled.8 On May 16, 2008, the appellant provided to the

respondent a draft FTSA for the REX East segment. Appeal File, Exhibit 7. The respondent

states that “[s]ubsequent to receiving the draft REX East FTSAs, the [respondent] advised

[the appellant] that it would not enter into the REX East FTSAs unless they contained

applicable FAR [Federal Acquisition Regulation] clauses.” Respondent’s Motion to Dismiss

Claims 2, 3, and 4 at 10 (citing generally Appeal File, Exhibits 9, 10, 12, and 53).

In response to the respondent’s refusal to sign the REX East FTSA as provided, the

appellant attempted to negotiate mutually acceptable revisions to the REX East FTSA.

Almost six months of negotiating between the parties followed, but they were unable to agree

to the terms of the FTSA.9

On December 11, 2008, the appellant notified the respondent that it was terminating

the PA pursuant to its termination provisions. Appeal File, Exhibit 19. On December 15,

2008, the appellant filed a notice of termination with FERC in compliance with FERC

regulations. Appeal File, Exhibit 20.

On June 30, 2009, the appellant submitted certified claims pursuant to the CDA.

Appeal File, Exhibit 35. By final decision dated November 30, 2009 the contracting officer

denied the claim. Id., Exhibit 38.

8

The Board directed the parties to brief this factual issue. The parties concurred that

the conditions precedent required for the REX East FTSA were fulfilled. Respondent’s

Responses to the Board’s Questions of June 25, 2010, at 1-2; REX’s Reply to Respondent’s

Responses to the Board’s Questions of June 25, 2010, at 1.

9

The parties’ motions describe in detail the negotiations that took place prior to the

appellant terminating the contract.

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Discussion

Respondent has filed two motions to dismiss - to dismiss claims 2, 3, and 4 of the

complaint arising from the PA and to dismiss the entire appeal. With regard to both motions,

the appellant bears the burden of establishing subject matter jurisdiction by a preponderance

of the evidence. Ron Anderson Construction, Inc. v. Department of Veterans Affairs, CBCA

1884, et al., 10-2 BCA ¶ 34,485, at 170,070 (citing McNutt v. General Motors Acceptance

Corp., 298 U.S. 178, 189 (1936); Reynolds v. Army and Air Force Exchange Service, 846

F.2d 746, 748 (Fed. Cir. 1988); 801 Market Street Holdings, L.P. v. General Services

Administration, CBCA 425, 08-1 BCA ¶ 33,853).

In assessing whether the Board has subject matter jurisdiction, the allegations of the

complaint should be construed favorably to the pleader. Ron Anderson (citing Scheuer v.

Rhodes, 416 U.S. 232, 236 (1974); United Pacific Insurance Co. v. United States, 464 F.3d

1325, 1327-28 (Fed. Cir. 2006); Hamlet v. United States, 873 F.2d 1414, 1416 (Fed. Cir.

1989); CACI, INC.-FEDERAL v. General Services Administration, GSBCA 15588, 02-1

BCA ¶ 31,712, at 156,635 (2001)).

When a motion to dismiss for lack of subject matter jurisdiction challenges the truth

of alleged jurisdictional facts, the Board may consider relevant evidence beyond the

pleadings to resolve disputed facts. Ron Anderson (citing Cedars-Sinai Medical Center v.

Watkins, 11 F.3d 1573, 1583-84 (Fed. Cir. 1993); B&M Cillessen Construction Co. v.

Department of Health and Human Services, CBCA 931, 08-1 BCA ¶ 33,753 (2007);

Innovative (PBX) Telephone Services, Inc. v. Department of Veterans Affairs, CBCA 12, et

al., 07-2 BCA ¶ 33,685).

Respondent’s Motion to Dismiss Claims 2, 3, and 4 of the Complaint

The Jurisdictional Issue and the Parties’ Positions

The respondent has filed a motion to dismiss for lack of subject matter jurisdiction

claims 2, 3, and 4 of the complaint that allege breach of the PA, asserting that the PA is not

a contract within the purview of the CDA.

The jurisdiction of the Board arises from the CDA. The Board has the jurisdiction to

“decide any appeal from a decision of a contracting officer . . . relative to a contract made

by its agency.” 41 U.S.C. § 607(d). The CDA applies to all express or implied contracts

entered into by an executive agency for the procurement of property other than real property;

the procurement of services; the procurement of construction, alteration, repair or

maintenance of real property; or the disposal of personal property. Id. § 602(a). It does not

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cover all government contracts. Coastal Corp. v. United States, 713 F.2d 728, 730 (Fed. Cir.

1983). The existence of a contract to which the Government and the contractor are parties

is an essential prerequisite to Board jurisdiction. Presidio County, Texas v. General Services

Administration, CBCA 1209, 08-2 BCA ¶ 33,976; Inversa, S.A. v. Department of State,

CBCA 440, 07-2 BCA ¶ 33,690.

The respondent characterizes the PA as an agreement to agree in the future, as the PA

contemplates entering into FTSAs after the PA was executed, and maintains that a contract

is not formed until the FTSA is signed. The respondent also asserts that the PA cannot be

a contract as it lacks consideration, and that the contracting officer did not have authority to

enter into the PA. Thus, the respondent asserts that the PA is not a contract within the

purview of the CDA, and this Board lacks jurisdiction to resolve the appellant’s claims of

breach of the PA.

The appellant maintains that the PA is a contract for services within the purview of

the CDA. It asserts that the PA is an agreement between the parties in which the respondent

agreed to supply a commitment to ship gas through a pipeline to be constructed and the

appellant would provide transportation services for the gas through that pipeline upon

fulfillment of specific conditions precedent in the PA under the specific terms set forth in the

PA and its appendices. Thus, according to the appellant, the PA is a contract, supported by

consideration, for services and therefore within the purview of the CDA.

This Board addressed this jurisdictional issue in Inversa, S.A.:

It is hornbook law that the existence of a Government contract depends upon

an unconditional offer by a purported contractor and an unconditional

acceptance by the Government. . . .

An offer must be a promise, and a mere expression of intention or a general

willingness to do something on the happening of a particular event or in return

for something to be received does not amount to an offer. . . .

Consequently, an informal agreement, such as a letter of intent, may be

considered an enforceable contract only if the agreement contains the essential

terms and conditions, the agreement is made or approved by an authorized

official, and the execution of a formal agreement is regarded by all parties as

a technicality.

07-2 BCA at 166,779 (citations omitted).

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The PA is Supported by Consideration

With regard to the respondent’s assertion that the PA lacked consideration, the PA

contains an express commitment by the respondent to ship natural gas, and states that this

commitment would be used by the appellant as support for the construction and operation of

the project. Appeal File, Exhibit 4 at 2. The PA states further that it was executed as

evidence of the agreement between the appellant and the respondent that, upon satisfaction

of the conditions precedent the respondent would enter into FTSAs providing for firm

interstate natural gas transportation service to be provided by the appellant to respondent.

Id. at 3. Additionally, the respondent’s obligations included that it would execute a minimum

of three FTSAs. Id. at 9. Thus, the PA contained mutual promises and obligations and

therefore was supported by valid consideration.

Execution of the PA by an Authorized Official

The PA states that the parties intend to be legally bound. Appeal File, Exhibit 4 at 3.

The contracting officer executed the PA and also separately executed Appendix A, which

contained the respondent’s election of specific agreed terms in the FTSAs as explained

below. Id. at 16-19. There is nothing in the PA that gives rise to a question as to the

contracting officer’s authority to execute it.

The respondent asserts that if the PA is anything other than an agreement to agree, the

contracting officer did not have authority to enter into the PA, as the respondent interprets

the FAR as prohibiting it from contracting for more than ten years and the aggregate term of

the FTSAs exceeded ten years. The question of whether the FAR applies to the FTSAs is an

issue that remains to be resolved in the merits portion of this appeal.

The PA is a Contract within the Purview of the CDA

The plain meaning of the PA’s language supports the appellant’s position that the PA

is a contract for services within the purview of the CDA.

The PA cannot be characterized as a letter of intent or a mere expression of intention

or general willingness to do something on the happening of a particular event. The PA

consists of detailed provisions with three appendices. Relying upon the express commitment

of the respondent to ship its natural gas through the pipeline, the appellant committed

substantial funds to the “support and operation” of the pipeline. The appellant would

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thereafter provide transportation services10 through the pipeline for the respondent to ship

specific quantities of natural gas through identified delivery points at specific prices

according to specific pricing calculations.

The PA contains an express statement that the parties intended to be bound by the

agreement, Appeal File, Exhibit 4 at 3, and that specific, enumerated obligations of both

parties arose upon satisfaction of specific conditions precedent. Included in these obligations

are the appellant’s obligation to transport natural gas through a minimum of twenty-five

delivery points and the respondent’s obligation to enter into a minimum of three FTSAs. Id.

at 7, 9.

The respondent is required in the PA, clauses 4 and 5, to elect rates, maximum daily

quantities (MDQ) of natural gas to be shipped, and delivery points. Appeal File, Exhibit 4

at 6-7. Appendix A contains the respondent’s election of rates, MDQ, and delivery points

together with another component of pricing to be applied to the elected rates - Fuel, Loss &

Unaccounted For percentages. Id. at 16-23. Appendix A was separately signed by the same

contracting officer who executed the PA. Appendix B contains the form of the FTSA to be

entered into upon fulfillment of the conditions precedent. Id. at 24-27. Appendix C contains

an additional pricing calculation (the REX Basis/Transport Difference), id. at 29-30, that was

also described in detail in the PA, id. at 4-5.

All of these terms are agreed in advance within the PA and its appendices to be

applicable to the services rendered by the appellant to the respondent and the obligations of

the respondent upon fulfillment of the conditions precedent. The parties agree that the

conditions precedent for entering into the REX East FTSA have been fulfilled. Thus, the PA

with its appendices is not an agreement to agree in the future. The PA is a contract entered

into by an executive agency whereby the appellant provides services to the respondent, and

therefore a contract within the purview of the CDA.

10

As described by the respondent in its motion to dismiss, the services provided by

the appellant to the respondent are transportation services for the natural gas received by

respondent in the RIK program to support the respondent’s mission to receive natural gas as

RIK and sell it on the open market.

CBCA 1821

17

The Board has Subject Matter Jurisdiction over the Appellant’s Claims of

Breach of the PA

As the PA is a contract within the purview of the CDA, the appellant’s claims arising

from its allegation that the respondent breached the PA by not fulfilling its obligation under

the PA to enter into the REX East FTSA when the condition precedents of the PA were

fulfilled are therefore claims pursuant to the CDA and within the jurisdiction of this Board.

Respondent’s motion to dismiss claims 2, 3, and 4 of the complaint is denied.

Respondent’s Motion to Dismiss the Entire Appeal

Respondent has moved to dismiss the entire appeal, alleging that clause 16 of the PA

entitled “Dispute Resolution” is an agreement of the parties to vest exclusive jurisdiction

over their disputes in the United States District Court for the Southern District of New York.

Appeal File, Exhibit 4 at 14. In support of its position, the respondent states that this clause

reflects the intent of the parties to apply the Little Tucker Act (LTA), 28 U.S.C. § 1346(a)(2),

to all disputes arising from the PA. The LTA is the waiver of sovereign immunity that allows

the United States to be sued in federal district court if the amount of the claim is $10,000 or

less. While the LTA is not mentioned in clause 16 or anywhere else in the PA, the

respondent nevertheless concludes that the LTA is the legal basis of clause 16 and that this

dispute must be resolved in the United States District Court of the Southern District of New

York with appellant’s recovery limited to $10,000.

The Respondent’s position lacks merit. The Dispute Resolution clause, by its own

terms, applies only “[t]o the fullest extent allowed by law.” As the PA is a contract within

the purview of the CDA, the CDA provides the exclusive remedy for the resolution of claims

of breach of the PA, and the appellant has the choice of forum allowed by the CDA, i.e., an

appeal to the United States Court of Federal Claims or the appropriate board of contract

appeals.11 Dalton v. Sherwood Van Lines, Inc., 50 F. 3d 1014 (Fed. Cir. 1995); GonzalezMcCaulley Investment Group, Inc. v. United States, slip op. (Fed. Cl. Aug 3, 2010);

Government Technical Services LLC v. United States, 90 Fed. Cl. 522 (2009); Morgan v.

United States, 55 Fed. Cl. 706 (2003).

11

The Dispute Resolution clause also states: “Transporter and Shipper agree that the

provisions of subparagraph (a) above shall not apply to any controversy wherein the FERC

has or exercises jurisdiction.” While subparagraph (a) of the clause is the notice provision,

neither party has alleged lack of notice or that FERC has jurisdiction over the disputes

alleged in this appeal.

CBCA 1821

18

Appellant, having filed a certified claim pursuant to the CDA and received a

contracting officer’s final decision setting forth its appeal rights pursuant to the CDA, has

elected to proceed at this Board. The appeal is properly before this Board. Respondent’s

motion to dismiss the entire appeal is denied.

Decision

Respondent’s motions to dismiss claims 2, 3, and 4 of the complaint and to dismiss

the entire appeal and for lack of jurisdiction are DENIED.

__________________________________

ALLAN H. GOODMAN

Board Judge

We concur:

_______________________________

JERI K. SOMERS

Board Judge

__________________________________

RICHARD C. WALTERS

Board Judge