Guarantee Co. of N. Am. v. Ikhana, LLC

• Decision Date: 29 October 2019
• Docket Number: 2018-1394
• Citation: 941 F.3d 1140
• Parties: GUARANTEE COMPANY OF NORTH AMERICA, USA, Appellant v. IKHANA, LLC, Appellee
• Court: U.S. Court of Appeals — Federal Circuit

941 F.3d 1140

GUARANTEE COMPANY OF NORTH AMERICA, USA, Appellant

v.IKHANA, LLC, Appellee

2018-1394

United States Court of Appeals, Federal Circuit.

Decided: October 29, 2019

Patrick Michael Pike, Pike & Gilliss LLC, Towson, MD, argued for appellant.

William Atkins Scott, Pederson & Scott, P.C., Charleston, SC, argued for appellee.

Before Dyk, Wallach, and Hughes, Circuit Judges.

Concurring opinion filed by Circuit Judge Wallach, in which Circuit Judge Dyk joins.

Hughes, Circuit Judge.

This case involves a government contract dispute. After a contracting officer determined that Ikhana, LLC defaulted on a construction contract with the Army Corps of Engineers, Ikhana filed an appeal to the Armed Services Board of Contract Appeals. Guarantee Company of North America (GCNA), a surety that indemnified Ikhana, moved to intervene because the indemnity agreement authorized it to assume all contractual rights in the event of default. The Board denied GCNA's motion, finding that GCNA lacked standing. Appeals of Ikhana, LLC , ASBCA No. 60462, 17-1 BCA ¶ 36,871 (Oct. 18, 2017). Because GCNA executed its settlement agreement with the Corps after the claims at issue arose, we affirm.

I

In September 2013, the United States Army Corps of Engineers awarded Ikhana a construction contract to build a secured access lane and remote screening facility at the Pentagon by October 12, 2015. The contract required Ikhana to furnish performance and payment bonds. Ikhana procured these bonds from GCNA.

As a condition for issuing the bonds, GCNA required Ikhana to execute a general indemnity agreement. The indemnity agreement included a provision that assigned GCNA all rights under the contract if Ikhana defaulted or if GCNA made payment on any bond.

Construction did not go as planned. As Ikhana began working on the project, it encountered multiple problems with the work site that were not in the contract's specification. Each time Ikhana discovered a new problem, it had to halt work until the Corps issued a unilateral change to the contract. These stoppages and contract modifications caused significant delays and cost overruns. One modification required the Corps to schedule a power outage at the Pentagon for the project to continue, but the Corps never scheduled the outage, and by mid-October 2015, construction had stopped.

Between October 13–27, 2015, Ikhana submitted four claims to the contracting officer seeking additional compensation and an extension of the project deadline. Ikhana argued that the unforeseen site conditions and unilateral changes to the contract significantly altered the scope of the contract. The Corps never issued a final decision on Ikhana's claims.

Between November 2015 and June 2016, seven of Ikhana's sub-contractors filed claims against GCNA's payment bond. Corps terminated Ikhana for defaulting on the contract and made a claim on the performance bond. On February 25, 2016, Ikhana appealed the termination decision and its four claims for additional compensation to the Armed Services Board of Contract Appeals.

GCNA sent Ikhana a letter demanding collateral under the indemnity agreement. The letter stated that if Ikhana did not deliver over four million dollars in collateral, "GCNA [would] take all appropriate steps to protect its rights" under the indemnity agreement. J.A. 292. Ikhana responded that the demand for collateral was premature and unreasonably high.

GCNA and the Corps began to negotiate for GCNA to tender a completion contractor. During the negotiations, Ikhana informed GCNA that it would "not [forgo] its claim against the Corps under any circumstances." J.A. 444. GCNA invoked its powers under the indemnity agreement and entered into a settlement agreement with the Corps on September 30, 2016. As part of the settlement agreement, GCNA agreed to "cause the dismissal, with prejudice, of the current pending appeals before the [Board]." J.A. 365.

GCNA sued Ikhana for declaratory judgment in the United States District Court for the Eastern District of Virginia. GCNA sought a declaration that the indemnity agreement authorized it to "settle [Ikhana's] dispute with the [Corps] and dismiss the [Board] appeal." Guarantee Co. of N. Am. USA v. Ikhana , LLC , No. 1:16-CV-1484, 2017 WL 1821106, at *2 (E.D. Va. May 4, 2017). The district court stayed GCNA's action pending resolution of Ikhana's Board appeal. Id. at *4.

GCNA moved to intervene and withdraw Ikhana's appeal before the Board on the grounds that Ikhana had assigned all contractual claims to GCNA. Ikhana opposed the motion. The Board denied the motion because GCNA lacked standing.

GCNA now appeals from the order denying intervention. We have jurisdiction over the Board's final decision under 28 U.S.C. § 1295(a)(10) and 41 U.S.C. § 7107(a)(1).

II

We review the Board's conclusions of law de novo. Winter v. Bath Iron Works Corp. , 503 F.3d 1346, 1350 (Fed Cir. 2007). The Board's jurisdictional determinations are conclusions of law. England v. Swanson Grp., Inc. , 353 F.3d 1375, 1378 (Fed. Cir. 2004). "The Board's jurisdiction is defined by the Contract Disputes Act [ (CDA) ]. Parties cannot, by agreement, confer upon a tribunal jurisdiction that it otherwise would not have." United Pac. Ins. Co. v. Roche , 380 F.3d 1352, 1356 (Fed. Cir. 2004).

The issue here is whether the Board correctly denied GCNA's attempt to intervene and replace Ikhana as the appellant. The Board's rules of procedure do not include instructions for third-party practice. See In Re S. Powell Constr. Co. , AGBCA No. 2004-122-1, 04-2 BCA ¶ 32,725 (Aug. 26, 2004). The limited Board decisions on the subject do not provide any clear guidance over what standards the Board uses for determining the propriety of intervention or whether intervention is even permitted. See id. (collecting cases and discussing intervention under the CDA). But while the scope of third-party practice rules is murky, the outer bounds are limited by the Federal Rules of Civil Procedure, which the Board may adopt at its discretion. Id. A party seeking to supplant the plaintiff must be able to show that it could have initiated the complaint on its own. Cf. United States v. 936.71 Acres of Land, More or Less, in Brevard Cty., State of Fla. , 418 F.2d 551, 556 (5th Cir. 1969) (noting that the real-party-in-interest requirement applies equally to intervenors as it does to plaintiffs). Thus, GCNA cannot commandeer Ikhana's appeal if it could not directly appeal the contracting officer's decisions to the Board under the CDA.

As explained below, we find that GCNA fails to meet this threshold requirement.

Congress designed the CDA "to prevent duplicative claims [being brought] before the boards and the courts." Admiralty Constr., Inc. v. Dalton , 156 F.3d 1217, 1221 (Fed. Cir. 1998). The CDA prevents duplicative adjudication "by supplying a single point of contact for contract claims." Id. (internal quotation marks omitted). Under the CDA, only contractors can appeal a contracting officer's decision to the Board. 41 U.S.C. § 7104 ; Winter v. FloorPro, Inc. , 570 F.3d 1367, 1370–71 (Fed. Cir. 2009). The CDA defines "contractor" as "a party to a Federal Government contract other than the Federal Government." 41 U.S.C. § 7101(7). This rule is strictly enforced as a jurisdictional prerequisite to any appeal before the Board. Fireman's Fund Ins. Co. v. England , 313 F.3d 1344, 1350 (Fed. Cir. 2002).

Generally, a surety that enters into an indemnity agreement with a contractor is not in privity with the government or considered the contractor in the context of the CDA. See id . at 1351–52. But there is an exception to this rule. Under Fireman's Fund and its progeny, when a surety executes a takeover agreement with the government to complete a contract, it is treated as a contractor under the CDA and can assert claims to the Board. Lumbermens Mut. Cas. Co. v. United States , 654 F.3d 1305, 1320 (Fed. Cir. 2011). However, the only contract between the surety and the government is the takeover agreement. Id. (citing Fireman's Fund , 313 F.3d at 1346 ). "For a claim to ‘arise under’ such a contract, the operative facts upon which the claim is based must have occurred after the pre-takeover contract was executed." United Pac. Ins. Co. v. Roche , 380 F.3d 1352, 1355–56 (Fed. Cir. 2004). "Stated differently, the Board ha[s] no jurisdiction over ... claims ... based upon events that occurred prior to the takeover agreement." Id. at 1356.

Here, GCNA entered into a settlement agreement with the Corps on September 30, 2016. Under Fireman's Fund , even if this agreement constitutes a takeover agreement, it would not entitle GCNA to assert claims that arose prior to this date. Because Ikhana lodged its appeal with the Board on February 25, 2016, all the claims at issue in this case necessarily arose before GCNA contracted with the Corps. As a result, GCNA cannot commandeer this appeal because it could not assert these claims in the first instance.

GCNA raises several other arguments concerning the effect of the settlement agreement. The Corps advanced similar theories before the Board, and the Board rejected them. Because these issues are part of an ongoing adjudication, we decline to address them until the Board issues a final decision.

III

Because all claims at issue here arose before GCNA entered into its settlement agreement with the Corps, GCNA could not assert them before the Board. As a result, we affirm the Board's dismissal of GCNA's motion to intervene.

AFFIRMED

Wallach, Circuit Judge, concurring, in which Dyk, Circuit Judge, joins.

I write not to contest the outcome of the above decision; it rests squarely on this court's precedent. Instead, I raise a concern regarding the rationale underlying that precedent.

I. THE CONTRACT DISPUTES ACT AND SURETIES

My concern arises from this court's precedent regarding two fields of public contract law. First is the Contract Disputes Act ("CDA"), which regulates how U.S. executive agencies ("the Government") may...