Broad Ave. Laundry and Tailoring v. United States

Decision Date16 June 1982
Docket NumberAppeal No. 82-81.
Citation681 F.2d 746
PartiesBROAD AVENUE LAUNDRY AND TAILORING v. The UNITED STATES.
CourtU.S. Claims Court

Charles M. Reifel, Atty. of record, Washington, D. C., for petitioner; Bastianelli, Thomas, Reifel & Lyon, Washington, D. C., of counsel.

Gerald L. Elston, Washington, D. C., with whom was Asst. Atty. Gen., J. Paul McGrath, Washington, D. C., for respondent; Timothy J. Greszko, Dept. of the Army, of counsel.

Before COWEN, Senior Judge, and DAVIS and NICHOLS, Judges.

NICHOLS, Judge:

This case is an appeal under the Contract Disputes Act of 1978, 41 U.S.C. § 601 and ff, seeking review of a decision of the Armed Services Board of Contract Appeals (ASBCA). Broad Avenue Laundry & Tailoring, ASBCA No. 25136, 81-1 BCA ¶ 14,895 (1980). It presents important questions whether respondent can repudiate a contracting officer's written modification of a fixed price contract and refuse to bear the pecuniary consequences on the ground that the modification was outside the contracting officer's authority, because based on a mistake of law.

The contract, awarded July 2, 1979, ran a year from August 1, 1979, and required petitioner to operate a government-owned laundry service facility at Fort Rucker, Alabama. Petitioner succeeded a different previous contractor and inherited some of the latter's work force. The contract was labor intensive to the degree that the cost of performance varied almost directly with the applicable wage rates. These were set by collective bargaining and had to equal prevailing rates in the area as determined by the Labor Department under 41 U.S.C. § 351 and ff (Service Contract Act).

Shortly after work started under the new contract at previously established labor rates, the employees shifted their union affiliation, hoping to fare better with a new bargaining representative. The new man did indeed do better, obtaining from Mr. Hancock, owner of petitioner, in a December 1979 negotiation, an agreement for new and higher wage rates, but they agreed it would not be possible to put the new rates in effect unless the government would absorb the added cost of performance. Both therefore separately consulted Mrs. Helen E. Nicholson, the contracting officer, who said, if the Department of Labor (DOL) issued a new prevailing wage determination as a result of the new agreement, she would automatically include it (require it) in the contract and that petitioner could request a price adjustment. Apparently counting on the DOL, employer and employees formally agreed December 12, 1979, to take effect February 1, 1980. She sent a copy of the proposed new pay schedules to the DOL which determined that the newly bargained rates were the prevailing rates. Mrs. Nicholson incorporated the new prevailing rate into a modification of the contract (Mod. 12) which required petitioner to pay the new prevailing rates and for the life of the contract he did so. Petitioner then, on March 10, 1980, requested a contract price adjustment.

Neither party now contends that Mrs. Nicholson correctly applied the applicable law, as stated and construed in the DOL Regulation. It says, 29 C.F.R. § 4.143 and ff, 4.161, that wages effective at the start of an ongoing contract may be changed by "a change in the Fair Labor Standards Act minimum by operation of law * * *." She (not being an attorney) supposed that a new DOL prevailing wage determination effected a change "by operation of law." If she had read further, she would have come across further language which makes it reasonably clear (to a lawyer) that a mere local prevailing wage determination, not based on new statute or regulation, does not force any change in wage rates under contracts actually in effect. "Such wage determinations are effective for contracts not yet awarded * * *."

On March 19, a price analyst questioned Mrs. Nicholson's wage rate modification and recommended that legal advice be sought. Thereafter occurred a painful correspondence between her and the office of the Staff Judge Advocate (SJA) in which a clearcut legal opinion was repeatedly withheld because the contracting officer failed to furnish an adequate file with her request for a ruling. Despite the apparent simplicity of the question, to a lawyer, she obtained a definite legal statement only on June 5. The issue was still not treated as settled within the command. Only on July 16, 1980, two weeks before expiration of the contract, did Mrs. Nicholson's successor, Mrs. Gloria G. Wheeler, issue a final ruling that the price adjustment was disallowed, though petitioner seems to have been made aware at an earlier date that it was in jeopardy. The contract of course included the usual disputes clause which required the contractor "to proceed diligently with performance of this contract, pending resolution of any request for relief * * * claim, appeal, or action * * *."

The contractor took a timely appeal to the ASBCA. The board relied in denying the claim mainly on the historic doctrine of Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947), that the government is not estopped by promise or undertaking of its officials outside the scope of their authority. So does respondent before us. We conclude that the act of Mrs. Nicholson, though erroneous, was within the scope of her authority. The government can be estopped by the promises of an official within the scope of her authority, as the ASBCA concedes, referring to George H. Whike Construction Co. v. United States, 135 Ct.Cl. 126, 140 F.Supp. 560 (1956). To the same effect see California-Pacific Utilities Co. v. United States, 194 Ct.Cl. 703, 720 (1971); Russell Corp. v. United States, 210 Ct.Cl. 596, 537 F.2d 474 (1976), cert. denied, 429 U.S. 1073, 97 S.Ct. 811, 50 L.Ed.2d 791 (1977), or by a contracting officer's waiver, Roberts v. United States, 174 Ct.Cl. 940, 357 F.2d 938 (1966) (to a price reduction for reduced cost under changes article).

The question clearly is not the general rule but its application to the facts of this case. The parties have discussed, and we take up, the following three lines of legal doctrine: I, how the no estoppel rule applies to an official's undertaking based on a mistake of law, but otherwise within her jurisdiction, II, whether the error here was "palpably illegal" it being respondent's premise that a "palpably illegal" commitment cannot be the basis of an estoppel or other equitable claim by the other party, and III, whether respondent by its acts and omissions breached its implied commitment to cooperate and act in good faith. We take these up in order, but our conclusions on the first two issues are dispositive.

I

The recent Supreme Court case of Schweiker v. Hansen, 450 U.S. 785, 101 S.Ct. 1468, 67 L.Ed.2d 685 (1981) shows that the doctrine the government is not estopped by the unauthorized commitments of its agents is still alive and well. The facts, however, in that case reflect that the claimant sought to establish entitlement to Social Security benefits for which she had filed no written application, as the law affirmatively required her to do. The government agent's blundering statements were thought below to excuse this requirement, the substantive prerequisites to entitlement all being present. The Court in summarily reversing reiterated, however, at p. 788, 101 S.Ct. at p. 1471, its previous recognition in the Federal Crop Ins. case of "the duty of all courts to observe the conditions defined by Congress for charging the public treasury." Since Congress affirmatively required, on top of everything else, a written application, the blundering official could not excuse this requirement by means of his blunders.

The effort to use an official's errors to avoid compliance with an affirmative prerequisite to an entitlement, is a sure loser. A classic case in this court is Montilla v. United States, 198 Ct.Cl. 48, 457 F.2d 978 (1972), where the reservist claimant sought to use the alleged erroneous statement of an Army officer to obtain entitlement to military retirement pay without earning "points" by training duty as the law requires. The noteworthy thing about Schweiker v. Hansen, is that except in that classic situation, it seems to recognize at least by reference to lower court decisions, that in cases other than this classic situation, estoppel by an agent's blunders is not impossible. A seventh circuit decision since Schweiker v. Hansen, takes this view. Portmann v. United States, 674 F.2d 1155 (1982). The claim of estoppel was against the U. S. Postal Service by the owner of a package lost in the mail. The blunder by the postal clerk was to assure the mailer that insurance offered by the Service included "document reconstruction" though in fact by regulation it did not. The court upheld the estoppel on consideration of all the factors. The fact the government had gone into the market place as vendor, and that the right claimed was contractual and not merely to an entitlement, were seen as distinguishing factors that justified an estoppel despite Schweiker v. Hansen.

Central to the ASBCA's and to respondent's argument here is the thesis, not clearly spelled out but necessarily implied, that any order or commitment by a contracting officer based on an incorrect idea of the law is necessarily unauthorized. But this cannot be true, and a moment's thought will show its fallacy. Payment of prevailing wages is one of the services required of petitioner by the contract. Performance of laundry service is another. Suppose the contracting officer decided to order some particular laundry service in a mistaken belief that the contract called for it. The order, if made with requisite formality, would be valid and effective even though based on a mistake of law. The contractor would under the disputes clause language already quoted be required to comply, perform the demanded service, and prosecute a claim for a constructive change order under...

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