Allegheny Teledyne Inc. v. U.S., 02-5008.

• Decision Date: 23 January 2003
• Docket Number: No. 02-5011.,No. 02-5009.,No. 02-5010.,No. 02-5008.,02-5008.,02-5009.,02-5010.,02-5011.
• Citation: 316 F.3d 1366
• Parties: ALLEGHENY TELEDYNE INCORPORATED, Teledyne, Inc., Teledyne Industries, Inc., and Teledyne Electronic Systems, Inc., Plaintiffs-Appellants, and General Motors Corporation, Plaintiff-Appellant, v. UNITED STATES, Defendant-Cross Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

316 F.3d 1366

ALLEGHENY TELEDYNE INCORPORATED, Teledyne, Inc., Teledyne Industries, Inc., and Teledyne Electronic Systems, Inc., Plaintiffs-Appellants, and General Motors Corporation, Plaintiff-Appellant, v. UNITED STATES, Defendant-Cross Appellant.

No. 02-5008.

No. 02-5009.

No. 02-5010.

No. 02-5011.

United States Court of Appeals, Federal Circuit.

January 23, 2003.

COPYRIGHT MATERIAL OMITTED

Harvey G. Sherzer, Greenberg Traurig, LLP, of McLean, VA, argued for plaintiffs-appellants Allegheny Teledyne Incorporated, et al. Of counsel on the brief was Scott Arnold.

John L. Rice, Miller & Chevalier Chartered, of Washington, DC, argued for plaintiff-appellant General Motors Corporation. With him on the brief were Alan I. Horowitz, Lynda Troutman O'Sullivan, Anthony J. Trenga, and Christine S. Trafford. Of counsel on the brief was Norman R. Thorpe, General Motors Corporation, of Detroit, MI.

C. Coleman Bird, Senior Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for defendant-cross appellant. With him on the brief were Robert D. McCallum, Jr., Assistant Attorney General; David M. Cohen, Director; Elizabeth G. Candler and David D'Alessandlis, Trial Attorneys. Of counsel on the brief were Stephen R. Dooley, Supervisory Trial Attorney, Defense Contract Management Agency, of Boston, Massachusetts; and Lawrence S. Rabyne, Defense Contract Management Agency, of Chicago, IL.

Thomas A. Lemmer, McKenna & Cuneo, L.L.P., of Denver, CO, for amicus curiae Viacom Inc. Of counsel on the brief was Herbert L. Fenster, McKenna & Cuneo, L.L.P., of Washington, DC.

Francis J. O'Toole, Sidley Austin Brown & Wood LLP, of Washington, DC, for amicus curiae General Electric Company. With him on the brief were Howard J. Stanislawski, Mark P. Guerrera, and Jonathan A. DeMella.

Before MICHEL, Circuit Judge, PLAGER, Senior Circuit Judge, and LOURIE, Circuit Judge.

MICHEL, Circuit Judge.

Plaintiffs-appellants Allegheny Teledyne Incorporated, Teledyne, Inc., Teledyne Industries, Inc., and Teledyne Electronic Systems, Inc. (collectively "Teledyne") and Plaintiff-appellant General Motors Corporation ("GM") each separately sued the United States in the United States Court of Federal Claims. In each case the plaintiff challenged the United States' Corporate Administrative Contract Officer's ("CO") resolution of its claims regarding a pension surplus or deficit due to one of the parties as a result of a "segment closing" within the meaning of Cost Accounting Standard ("CAS") 413. Specifically, Teledyne challenged the CO's determination that it owed the government a certain part of its pension surplus because it sold two divisions. GM challenged the CO's conclusion that the government did not owe GM a certain part of GM's pension deficit because GM sold one of its divisions. On cross-motions for summary judgment on the legal issues of the proper interpretation of both the original and the amended CAS 413, the trial court interpreted several of the terms of CAS 413 and accordingly granted-in-part and denied-in-part all motions for summary judgment.

After its partial disposition of the summary judgment motions, the trial court entered an order pursuant to 28 U.S.C. § 1292(d)(2) certifying that it decided "a controlling question of law with respect to which there is a substantial ground for difference of opinion, and that an immediate appeal from this order with regard to that question may materially advance the ultimate termination of this litigation." Both appellants and cross appellant filed petitions for leave to appeal from the interlocutory orders, and this court granted those petitions. The GM and Teledyne cases are now before this court in a consolidated appeal. Because the Court of Federal Claims correctly interpreted the original CAS 413, we affirm all of its rulings before us on appeal.

BACKGROUND

These consolidated appeals involve claims relating to Teledyne's and GM's sales of certain business segments and "defined benefit"¹ pension plans of those business segments. A contractor sponsoring a "defined benefit" pension plan generally guarantees the payment of the future benefits under the plan and therefore deposits amounts anticipated to be sufficient to pay the benefits to participants for their entire life. These deposits are part of the cost of doing business with the contractor and they are therefore paid, in part, by the contractee in these cases, the government. Determining the proper amount to deposit requires reliance on estimates of a wide range of variables, such as how much the pension assets will earn in the future and when participants will retire. Because of this necessary estimation, Congress empowered the Cost Accounting Standards Board ("Board") to "promulgate cost-accounting standards designed to achieve uniformity and constancy in the cost-accounting principles followed by defense contractors and subcontractors under Federal contracts." Pub.L. No. 91-379, § 719(g), 84 Stat. 796 (1970), (codified at 50 U.S.C. § 2168 (repealed 1988)).²

The CASs apply to negotiated government contracts and subcontracts. 48 C.F.R. § 9903.201-1(a)-(b) (2000). The CAS clause, incorporated into these contracts, requires contractors to comply with all CASs in effect and comply with any later modifications or amendments. 48 C.F.R. § 52.230(a)(3) (1998). The CAS clause also allows equitable adjustments when a contractor is required to prospectively comply with modifications or amendments to a CAS. Id. § 52.230-2(a)(4)(i). These contracts also incorporate other clauses, including the allowable cost and payment clause³ and the credits clause.⁴

As a general rule, these standards regulate the allocation of costs to cost objectives, but do not regulate issues of cost allowability or contract pricing. Pub.L. No. 91-379, § 719(h)(1). Allowability is "a procurement concept affecting contract price and in most cases is established in regulatory or contractual provisions." Cost Accounting Standards Board Restatement of Objectives, Policies and Concepts (May 1977), reprinted in Cost Accounting Standards Guide (CCH) ¶ 2915 (1984). Allocability "is an accounting concept involving the ascertainment of contract cost; it results from a relationship between a cost and a cost objective such that the cost objective appropriately bears all of a portion of that cost." Id. The difference then is that allocability is simply a determination of what portions of a cost are assigned to what party, whereas allowability is a determination of whether one party may apply or recover that cost.

One of these standards, CAS 412, governs how a contractor determines its pension costs for each period — by the contractor's best actuarial estimate of the plan's anticipated earnings and benefit payments, taking into account the plan's past experience and reasonable expectations. 4 C.F.R. § 412.40(b)(2) (1986).⁵ The contractor first determines its pension cost as a whole, then allocates those costs among its different segments, then further allocates them among various contracts. Those pension costs allocated to cost-type government contracts are paid by the government if allowed under the Federal Acquisition Regulation ("FAR") and the terms of the particular contract.

Original CAS 413 was issued by the Board in 1977 and became effective in 1978. It provides for two related types of adjustments to a contractor's pension costs: (1) adjustments to account for the pension plan's actuarial gains and losses and (2) adjustments to account for a closed segment's pension surplus or deficit. Id. § 413.20. Under normal circumstances, the actuarial gains or losses (differences between the estimates and actual experience) are amortized in equal annual installments over a fifteen-year period. This is not the case, however, when a "segment closing" occurs. Original CAS 413 does not define "segment closing" but does define "segment" as "one of two or more divisions, product departments, plants, or other subdivisions of an organization reporting directly to a home office." Id. § 413.30(a)(11). In the event a contractor closes a segment, original CAS 413 provides that a contractor:

shall determine the difference between the actuarial liability for the segment and the market value of the assets allocated to the segment, irrespective of whether or not the pension plan is terminated.... The calculation of the difference between the market value of the assets and the actuarial liability shall be made as of the date of the event (e.g., contract termination) that caused the closing of the segment.... The difference between the market value of the assets and the actuarial liability for the segment represents an adjustment of previously-determined pension costs.

Id. § 413.50(c)(12).

In 1995 the new Board (created in 1988) amended CAS 413. The amendments were a part of several changes to the regulatory framework brought about by concerns about over-funded pension plans. 60 Fed.Reg. 16,534, 16,534-35 (Mar. 30, 1995). The amendments made two significant changes. First, they specifically defined "segment closing." 48 C.F.R. § 9904.413-30(a)(20) (1995). Second, they added a specific formula for allocating a pension surplus or deficit between the contractor and the government. Id. § 9904.413.50(c)(12).

Turning now to the facts before us, the government contends that the sale of divisions by Teledyne and GM constituted "segment closings" under CAS 413 and, therefore, it is entitled to a share of Teledyne's pension surplus but nevertheless is exempt from paying a share of GM's pension shortfall. Teledyne and GM, of course, assert various reasons for the opposite results in their respective cases.

Teledyne engaged in two sales of business divisions. The only one relevant on appeal is its January 2, 1995 sale of Teledyne Electronic Systems ("TES") to Litton Industries, Inc. and Litton Systems, Inc. (collectively "Litton"). Pursuant to...