Opposition Brief — Applied Companies Companies v. Geren (No. 06-817)

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No. 06-817 _ SUPREME oie ae

Jn the Supreme Court of the Gnited States

APPLIED COMPANIES, PETITIONER

v.

PRESTON M. GEREN,

ACTING SECRETARY OF THE ARMY

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

PAUL D. CLEMENT

Solicitor General

Connsel of Record

PETER D. KEISLER

Assistant Attorney General

JEANNE E. DAVIDSON

DONALD FE. KINNER

JAMES W. POIRIER

Attorneys

Department of Justice

Washington, D.C. 2050-0001

(202) 514-2217

QUESTION PRESENTED

Whether, in the absence of a cross-appeal, the court

of appeals may affirm a judgment of the Armed Services

Board of Contract Appeals on a ground that was re-

jected by the Board.

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES

Cases:

Dandridge v. Williams, 397 U.S. 471 (1970) ............ 7

El Paso Natural Gas Co. v. Neztsosie, 526 U.S. 473

SEO: dice den vies ddr naddtaset nee ee 7,9, 10

Mills v. Electric Auto-Lite Co., 396 U.S. 375 (1970) .... 11

Morley Constr. Co. v. Maryland Cas. Co., 300 U.S.

SECIS 6 cAvesb dt esawtaneweetessrs seen 11, 12

Northwest Airlines, Inc. v. County of Kent, 510 U.S.

BOCES bh odbudbbsvndcwaecs Gauuureetneaeein 11

Oil Spill by the Amoco Cadiz, In re, 954 F.2d 1279

Coe Ge WE 6 einen thoes whwwha tlew deeds eden 8

Strunk v. United States, 412 U.S. 434 (19738) .......... 1]

United States v. American Ry. Express Co., 265 U.S.

GCE kid buds eee ie ceeeaeeiikvesoeeeee (me Me

United States v. Bohn, 959 F.2d 389 (2d Cir. 1992) ...... 8

United States v. Harvey, 2 F.3d 1318 (3d Cir. 1993) ..... 8

United States v. [TT Cont Baking Co., 420 U.S. 223

(1975)

IV

Cases—Continued: Page

United States v. New York Tel. Co., 434 U.S. 159

CEE anak eacde sk Vebd Races sedak co ee shaken 7,8

Yee v. City of Escondido, 503 U.S. 519 (1992) .......... 12

Regulations:

42 C.F.R. (1984):

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PEED iy dn snc<asbenstctaresccdsvenedas 2

I PEED iv pec wcincnwcccstavesksessans 3

LED, 6 4.v ns vadcned shader deysacdsdeets 2

Ee PIED oi GWivebccdedcentwetenseaees 3

Miscellaneous:

Robert L. Stern, When to Cross-Appeal or Cross-

Petition—Certainty or Confusion?, 87 Harv. L.

PY, SEP CEMTED: uadaccdvadnedscevedevcuesseessans 11

Robert L. Stern et al., Supreme Court Practice (8th

OU EE eed chunks Ch ueddccevenes dxcenecan> enna 1]

15A Charles A. Wright et al., Federal Practice and

Peas COE. SO) ok nbc ssc tcudcdanveccterenes 7,8

In the Supreme Court of the Anited States

No. 06-817

APPLIED COMPANIES, PETITIONER

Vv.

PRESTON M. GEREN,

ACTING SECRETARY OF THE ARMY

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 2a-138a)

is reported at 456 F.3d 1380. The opinion of the Armed

Services Board of Contract Appeals (Board) (Pet. App.

15a-84a) is reported at 04-2 B.C.A. (CCH) 11 32,786. The

opinion of the Board denying petitioner’s motion for re-

consideration (Pet. App. 85a-111la) is reported at 05-2

B.C.A. (CCH) 9 32,986.

JURISDICTION

The judgment of the court of appeals (Pet. App. 14a)

was entered on July 14, 2006. A petition for rehearing

was denied on September 12, 2006 (Pet. App. la). The

petition for a writ of certiorari was filed on December 8,

2006. The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1).

(1)

STATEMENT

1. In 1985, petitioner entered into a contract to sup-

ply air conditioners (specifically, 36,000 BTU/hr horizon-

tal air conditioners) to the Army Troop Support Com-

mand (Army). Pet. App. 6a. The contract included a

standard clause encouraging petitioner to submit a value

engineering change proposal (VECP), that is, a proposal

to change the manner of performing the contract in a

way that would save the government money. The con-

tract provided that petitioner would share in certain

savings achieved in the event that its VECP were ap-

proved by the Army and petitioner performed in accor-

dance with the approved VECP. J/bid.

Specifically, the contract stated that petitioner would

be eligible for a share of VECP savings achieved on all

relevant contracts issued by the same contracting group

during a certain period of time. Those savings were de-

fined as “savings resulting from the application of a

VECP to contracts * * * for essentially the same unit.”

48 C.F.R. 52.248-1(b) (1984).

Savings were to be calculated in different ways de-

pending upon the type of contract involved. The stan-

dard clause included a detailed formula for calculating

the savings per unit achieved in the course of the perfor-

mance of the contract for which the VECP was submit-

ted (the instant contract). 48 C.F.R. 52.248-1(b), (g) and

(h) (1984). Savings achieved on other contracts for es-

sentially the same unit that existed when the VECP was

approved (concurrent contracts) were measured by ac-

tual price reductions to those contracts resulting from

the application of the VECP. 48 C.F.R. 52.248-1(b)(2)

(1984).

3

Finally, savings achieved on other contracts for es-

sentially the same unit that came into existence after the

VECP was approved (future savings) could be calculated

by two alternative methods. The parties could apply a

formula specified by regulation, or they could estimate

the future savings at the time the VECP was approved

and agree to a lump sum settlement, which would not be

subject to later adjustment even if it proved inaccurate.

48 C.F.R. 52.248-1(b)(3), (g)(1) and (h)(3) (1984).

2. In 1989, petitioner suggested that certain air-con-

ditioner parts could be replaced with lower-cost com-

mercially available parts. Pet. App. 25a. That sugges-

tion was formalized in a VECP, and petitioner and the

Army then entered into a bilateral modification to the

contract, known as modification P9. In modification P9,

the contracting officer conditionally approved the

VECP, subject to submission of cost data and successful

completion of various tests. /d. at 26a-27a, 49a. The

specific unit identified in modification P9 was the 36,000

BTU/hr horizontal model air conditioner supplied under

the instant contract. Jd. at 25a.

Modification P9 memorialized specific agreements

concerning savings and stated that savings from concur-

rent contracts were “not applicable.” Pet. App. 28a. It

further provided that projected future units were “zero”

and that “li]t is mutually understood and agreed that

there will be no future contract sharing provisions.” /d.

at 10a, 29a. It also specified that the instant contract

savings would be determined and agreed in accordance

with the “Lump Sum Settlement Method.” /d. at 29a.

In its VECP, petitioner had stated that a new and

different VECP would be submitted for a different kind

of air conditioner: the 36,000 BTU/hr vertical model.

Pet. App. 25a. Subsequently, petitioner submitted the

4

VECP for that unit (7d. at 33a-34a), and the VECP was

approved. /d. at 15a-16a.

After completing various tests, petitioner proposed

a lump-sum settlement of instant savings. Pet. App. 9a.

Thereafter, the Army issued modification P15, a con-

tract modification stating the amount of instant savings

as a lump-sum amount equal to that proposed by peti-

tioner. /bid.

3. In 1995, petitioner submitted a claim to the Army

for additional savings under the VECPs. Pet. App. 45a-

46a. Petitioner asserted that more than $81 million in

savings had been achieved on other contracts, covering

23 different models of air conditioners, as a result of its

two VECPs: the VECP for the 36,000 BTU/hr horizontal

model, and the VECP for the 36,000 BTU/hr vertical

model. /d. at 6la. Petitioner sought half the alleged

savings on these contracts, and it allocated its entitle-

ment equally between its two VECPs. In other words,

petitioner sought $20,250,000 for savings allegedly

achieved on other contracts as a result of the VECP for

the horizontal model at issue in this case. /d. at 45a-46a.

4. The Board awarded petitioner $1,000,947.36, plus

interest, for future savings achieved on other contracts.

Pet. App. 7la. The Board rejected the Army’s argument

that modification P9 foreclosed any entitlement to fu-

ture contract savings. /d. at 10a-lla, 48a-55a. Instead,

it held that modification P9 was ambiguous and that pe-

titioner had a right to future savings related to the same

units procured by other contracts during the sharing

period. /d. at 48a.

Nonetheless, the Board refused to award petitioner

savings related to 21 other models of air conditioners,

because it concluded that those models were not “essen-

tially the same unit” (Pet. App. 61a) as the 36,000

5

BTU/hr horizontal model for purposes of damage calcu-

lations, because they had different parts, assembly

methods, and associated costs. See id. at 35a, 6la-62a,

8la, 84a. Rather, the Board awarded petitioner savings

in connection with only one model of air conditioner be-

sides the 36,000 BTU/hr horizontal model specifically

identified in the VECP; that model was an updated ver-

sion of the 36,000 BTU/hr horizontal air conditioner. /d.

at 65a-66a.

5. Petitioner appealed the Board’s decision to the

United States Court of Appeals for the Federal Circuit.

Pet. App. 5a-14a. The Army did not cross-appeal, and it

did not challenge the $1 million award to petitioner for

savings in connection with the contract for an updated

36,000 BTU/hr horizontal model. /d. at 70a-71a.

The court of appeals affirmed. Pet. App. 5a-14a.

First, the court held that none of the 21 models was es-

sentially the same “unit” as the unit designated in the

VECP, and, therefore, none of the 21 models was cov-

ered by the VECP. The court observed that “[t]he lan-

guage of the VECP is unambiguous. It names only'the

contract for the Applied AC, and indeed specifies only

the Applied AC’s unique drawing set.” Jd. at 9a. For

that reason, “the Board correctly concluded that | peti-

tioner] was not entitled to share in future savings on air

conditioner models not covered by | petitioner’s] contract

with the Army.” /d. at 5a.

Second, the court of appeals held that modification

P9 was “unambiguous” and meant that petitioner could

not recover any savings in connection with future con-

tracts. Pet. App. 10a. “Of particular note, [modification

P9] also provided that there would be ‘zero’ future units

scheduled for delivery during the sharing period and

stated: ‘It is mutually understood and agreed that there

6

will be no future contract sharing provisions.’” J/bid.

Accordingly, the court held that petitioner “is not enti-

tled to share in future savings.” /bid.

ARGUMENT

The decision of the court of appeals is correct and

does not conflict with any decision of this Court or any

other court of appeals. Further review is not warranted.

1. Petitioner asserts (Pet. 6-8) that it was improper

for the Army to support the Board’s judgment by rely-

ing on contract modification P9. In petitioner’s view, the

Army’s argument, if asserted in support of a cross-ap-

peal, would have invalidated the Board’s award of ap-

proximately $1 million to petitioner. For that reason,

petitioner contends, the Army was foreclosed from rais-

ing that argument because it did not cross-appeal.

Even if petitioner’s theory were correct, the judg-

ment of the court of appeals would still stand on the in-

dependent ground that none of the 21 other air condi-

tioner models was essentially the same as the unit desig-

nated in petitioner’s VECP. Pet. App. 8a. That deter-

mination—which petitioner does not challenge

here—afforded a sufficient basis for affirming the

Board’s judgment and denying any additional monetary

recovery to petitioner. This case is therefore a,poor ve-

hicle for considering petitioner’s arguments about the

scope of the issues that may be considered by a court of

appeals in the absence of a cross-appeal.

2. In any event, petitioner errs in arguing that the

court of appeals lacked the ability to affirm the Board’s

judgment on a ground that had been rejected by the

Board. To be sure, an appellee who fails to file a cross-

appeal may not seek to change the judgment of the trial

court in the appellee’s favor. As this Court has long

7

held, however, as long as the appellee does not seek to

change the judgment of the trial court, the appellee is

free to support that judgment with any arguments fairly

presented in the trial record—even if the trial court re-

jected those arguments:

It is true that a party who does not appeal from a

final decree of the trial court cannot be heard in op-

position thereto when the case is brought here by the

appeal of the adverse party. In other words, the ap-

pellee may not attack the decree with a view either to

enlarging his own rights thereunder or of lessening

the rights of his adversary * * * . But it is likewise

settled that the appellee may, without taking a cross-

appeal, urge in support of a decree any matter ap-

pearing in the record, although his argument may

involve an attack upon the reasoning of the lower

court or an insistence upon matter overlooked or ig-

nored by it.

United States v. American Ry. Express Co., 265 U.S.

425, 435 (1924); accord El Paso Natural Gas Co. v.

Neztsosie, 526 U.S 473, 479 (1999); United States v.

New York Tel. Co., 434 U.S. 159, 166 n.8 (1977);

Dandridge v. Williams, 397 U.S. 471, 475 n.6 (1970); see

15A Charles A. Wright et al., Federal Practice and Pro-

cedure § 3904, at 195-196 (2d ed. 1992) (Wright) (while

“a cross-appeal is required to support modification of

the judgment, * * * arguments that support the judg-

ment as entered can be made without a cross-appeal”).

An appellee may defend the judgment without cross-

appealing even if its arguments in support of the judg-

ment might, if taken to their logical conclusion, suggest

that the judgment should be altered in some way. As

the Seventh Circuit has put it, an appellee “may urge in

8

defense of the judgment any argument preserved be-

low—even an argument the logical implications of which

would call for a different judgment.” Jn re Oil Spill by

the Amoco Cadiz, 954 F.2d 1279, 1333 (1992); see 15A

Wright § 3904, at 207 (“The abstract incongruity of af-

firming on grounds that logically dictate reversal should

not stand in the way. It is enough that the arguments

are properly presented in the district court and the

court of appeals.”); ef. United States v. Harvey, 2 F.3d

1318, 1326 (3d Cir. 1993); United States v. Bohn, 959

F.2d 389, 393-394 (2d Cir. 1992).

In New York Telephone, for example, the United

States obtained an order requiring a telephone company

to permit the installation of a pen register and to lease

a telephone line to the United States to facilitate the

installation. On appeal, the Second Circuit upheld the

portion of the order requiring installation of the pen

register, but reversed the portion requiring the com-

pany to lease a line to the United States. The United

States then filed a petition for a writ of certiorari, but

the telephone company did not cross-petition. See 434

U.S. at 161-165. In defending the portion of the judg-

ment denying the lease, the telephone company argued

that, by statute, pen registers could only be installed

under a wiretap order. See id. at 165-166. It was undis-

puted that this argument, if accepted, would logically

have invalidated the portion of the judgment regarding

installation of the pen register, which was not chal-

lenged by either party. See id. at 165 n.7. Nonetheless,

this Court held that, because the company was not seek-

ing to attack the judgment, it was proper for it to raise

its statutory argument to support the portion of the

judgment placed in dispute by the government’s peti-

tion. See id. at 166 n.8.

9

Thus, in appropriate circumstances, an appellee may

present, and an appellate court may accept, arguments

supporting the portion of the judgment under review

even when a particular argument might be considered

inconsistent with other aspects of the judgment that

have not been appealed. Here, the Arsuy did not seek to

overturn the judgment awarding petitioner over $1 mil-

lion in future savings. Even though it did not cross-ap-

peal, the Army was permitted to advance any argument

supported by the record in defending the judgment

against petitioner’s arguments that the award should

have been higher. For that reason, the court of appeals

acted properly in affirming the Board’s judgment on the

ground that contract modification P9 expressly denied

petitioner the right to any future savings.

3. Petitioner suggests (Pet. 7-8) that the decision of

the court of appeals is inconsistent with three decisions

of this Court. Petitioner is mistaken.

First, petitioner misreads Ll Paso Natural Gas Co.

v. Neztsosie, 526 U.S 473 (1999). Petitioner quotes the

Court’s observation that “orderly functioning of the ju-

dicial system” requires “putting opposing parties and

appellate courts on notice of the issues to be litigated

and encouraging repose of those that are not.” Pet. 7

(quoting El Paso Natural Gas, 526 U.S. at 481-482).

Petitioner apparently reads that language to mean that,

in the absence of a cross-appeal, only the arguments

raised by the appellant are properly before the court.

That proposition finds no support in El Paso Natural

Gas. To the contrary, El Paso Natural Gas reaffirmed

the settled .ule that an appellee may “urge in support of

a decree any matter appearing in the record.” 526 U.S.

at 479 (quoting American Ry. Express, 265 U.S. at 435)

(emphasis added). At issue in El Paso Natural Gas was

10

the “prohibition on modifying judgments in favor of a

nonappealing party,” 526 U.S. at 480 (emphasis added),

because the court of appeals in that case had actually

modified the district court’s judgment to enlarge the ap-

pellee’s rights notwithstanding the absence of a cross-

appeal, id. at 478-480. Here, by contrast, the Army did

not ask the court of appeals to modify the judgment be-

low, and the court did not do so. Accordingly, the deci-

sion below is entirely consistent with El Paso Natural

Gas.

Second, petitioner relies on United States v. ITT

Continental Baking Co., 420 U.S. 223 (1975), in which

the Court determined that it would consider only the

question of remedy for violation of an antitrust consent

decree, as presented by the United States in its petition

for a writ of certiorari, and would not entertain several

arguments advanced by the respondent concerning

whether it had correctly been held liable. See id. at 226

n.2. The limitation on the issues considered by the

Court did not reflect a limitation on the Court’s power,

however, but was instead “a matter of practice and con-

trol of our docket.” Jbid.; see ibid. (“We follow that rule

of practice in this case, particularly because the issue of

whether there were any violations concerns only a par-

ticular order as applied to a discrete set of facts and

therefore would not merit this Court’s grant of a petition

for certiorari.”). This Court’s rule of practice concern-

ing the discretionary management of its docket provides

no support for petitioner’s contentions here.

" In El Paso Natural Gas, the Court observed that “the prohibition

on modifying judgments in favor of a nonappealing party” is a “firmly

entrenched rule” and that “not a single one of our holdings has ever

recognized an exception to the rule.” 526 U.S. at 480. The Court then

referenced [TT Continental Baking as containing “statements in

11

Finally, petitioner erroneously cites Morley Con-

struction Co. v. Maryland Casualty Co., 300 U.S. 185

(1937). In that case, this Court held that, in the absence

of a cross-appeal, an appellee could not seek “a modifica-

tion of the decree itself, the facts being found anew and

differently, the law declared anew and differently, and

the relief remodeled and adapted to the new law and

dictum that might be taken to suggest the possibility of an exception to

the rule,” but reiterated that “(wle have repeatedly expressed the rule

in emphatic terms.” /d. at 480 n.3. The “rule” at issue in El Paso

Natural Gas, however, was the prohibition against modifying a

judgment to benefit the appellee in the absence of a cross-appeal.

When an appellee does not seek to modify the judgment, no such rule

forecloses the appellee from defending the judgment on any ground

supported by the record, even one that suggests that the judgment

might be erroneous in some respects. On the contrary, El Paso

Natural Gas reaffirms that an appellee may defend the judgment on

the basis of “any matter appearing in the record, although his argu-

ment may involve an attack upon the reasoning of the lower court.” /d.

at 479 (quoting American Ry. Express, 256 U.S. at 435).

Some of this Court’s decisions, which petitioner does not cite, might

be taken to suggest that there are restrictions on the ability of a party

defending a judgment to attack the reasoning of the lower court. See,

e.g., Northwest Airlines, Inc. v. County of Kent, 510 U.S. 355, 364

(1994); Strunk v. United States, 412 U.S. 434, 437 (1973); Mills v.

Electric Auto-Lite Co., 396 U.S. 375, 381 n.4 (1970). Those cases

involved the defense of court-of-appeals judgments in this Court, not

the defense of district-court judgments in a court of appeals. They can

be explained by “the Court’s need to control its docket and to resolve

the question that prompted it to grant certiorari,” Robert L. Stern et

al., Supreme Court Practice § 6.35, at 447 (8th ed. 2002), by avoiding

issues that might prevent it from resolving that question. See Robert

L. Stern, When to Cross-Appeal or Cross-Petition—Certainty or Con

fusion ?, 87 Harv. L. Rev. 763 (1974); ef. TT Continental Baking, 420

U.S. at 226 n.2. Those considerations are not relevant to proceedings

in the lower courts, so whatever additional limitations might be

appropriate for respondents in this Court, they should not be imposed

on appellees in the courts of appeals.

12

the new facts.” Jd. at 191. That rule has no application

here, because the Army did not challenge the Board’s

judgment awarding $1 million to petitioner, and the

court of appeals left that judgment undisturbed.

4. Petitioner’s remaining arguments (Pet. 9-14) have

nothing to do with the question presented as set out in

the petition (Pet. i) but instead constitute an attack on

the Federal Circuit’s general approach to commercial

contract interpretation. Because they are not fairly en-

compassed by the question presented, those contentions

are not properly before the Court. See Yee v. City of

Escondido, 503 U.S. 519, 535 (1992).

In any event, petitioner’s arguments lack merit, be-

cause the court of appeals simply interpreted the con-

tract in this case in accordance with its plain meaning.

The canons of interpretation on which petitioner relies

have no application where, as here, the contract is unam-

biguous. See Pet. App. 9a (“The language of the VECP

is unambiguous.”); id. at 10a (“[TJhe language of [modifi-

cation| P9 is unambiguous.”). Petitioner has not at-

tempted to show that any other court of appeals would

have interpreted this contract differently, nor would

that case-specific question merit review in any event.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

PAUL D. CLEMENT

Solicitor General

PETER D. KEISLER

Assistant Attorney General

JEANNE E. DAVIDSON

DONALD E. KINNER

JAMES W. POIRIER

Attorneys

MARCH 2007