Bay Cnty. v. United States

• Decision Date: 11 August 2015
• Docket Number: No. 2014–5149.,2014–5149.
• Citation: 796 F.3d 1369
• Parties: BAY COUNTY, FLORIDA, Plaintiff–Appellee v. UNITED STATES, Defendant–Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

796 F.3d 1369

BAY COUNTY, FLORIDA, Plaintiff–Appellee

v.UNITED STATES, Defendant–Appellant.

No. 2014–5149.

United States Court of Appeals, Federal Circuit.

Aug. 11, 2015.

Charles Franklin Beall, Jr., Moore, Hill & West-moreland, P.A., Pensacola, FL, argued for plaintiff-appellee. Also represented by George R. Mead, II.

Antonia Ramos Soares, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellant. Also represented by Joyce R. Branda, Robert E. Kirschman, Jr., Deborah A. Bynum; Christopher S. Cole, Commercial Law Litigation, Air Force Legal Operations Agency, JB Andrews, MD.

Before PROST, Chief Judge, CLEVENGER, and MOORE, Circuit Judges.

Opinion

CLEVENGER, Circuit Judge.

The United States appeals the decision of the United States Court of Federal Claims, holding that Bay County, Florida is an independent regulatory body and may revise rates in utility contracts without resorting to negotiations with the Air Force. Bay County v. United States, 112 Fed.Cl. 195, 203–04 (2013). This court has jurisdiction under 28 U.S.C. § 1295(a)(3) (2012). Because the Court of Federal Claims correctly applied the regulatory definitions of independent and nonindependent regulatory bodies, we affirm.

I

Bay County, Florida (“Bay County” or “County”) owns and operates Bay County Utilities, a department which provides water and sewer services throughout the County. The Bay County Board of Commissioners (“Board”) is responsible for establishing the rates and charges for these services.

In 1966, the United States Air Force (“Air Force”) and Bay County entered a contract under which the County agreed to provide water services to Tyndall Air Force Base (“the water contract”). The parties entered into a similar contract for the provision of sewer services in 1985 (“the sewer contract”). Early iterations of both contracts contained clauses requiring the parties to renegotiate any new rates, and provided that new rates would become effective upon mutual agreement.

A

In 1994, the Federal Acquisition Regulations (“FAR”)¹ were amended to require certain standardized clauses be included in utility service contracts. As it pertains to the present appeal, the FAR articulate two clauses for adopting new rates in existing utility contracts. There is a negotiated rates clause at FAR 52.241–8. When the government is contracting with an unregulated utility, the contract should include this clause requiring the parties to negotiate new rates. 48 C.F.R. § 41.501(d)(2) (2014). On the other hand, there is a clause for when the government agrees to pay the rate approved by the regulator—without further negotiation. This clause, FAR 52.241–7, is to be included when the government is contracting with a regulated utility. 48 C.F.R. § 41.501(d)(1).²

The Department of Defense (“DoD”) has adopted a modified version of the FAR. The Defense Federal Acquisition Regulation Supplement (“DFARS”) incorporates slightly different, but substantially similar, language to satisfy these FAR requirements for utility service contracts. If the utility providing service to the DoD is subject to oversight by an independent regulatory body (“IRB”), then the government includes the no further negotiation clause at FAR 52.241–7. 48 C.F.R. § 241.501(d)(1). However, if a utility is unregulated or subject to a non-independent regulatory body (“NIRB”), then the parties have to negotiate any change in rate. 48 C.F.R. § 241.501(d)(2) (requiring that DoD include the negotiated rates clause from FAR 52.241–8 in NIRB contracts).

B

In 2007 and 2009, Bay County adopted resolutions to increase wholesale water rates. The Air Force ignored those increases, and continued to pay at the pre–2007 rate. In 2009 and 2010, the Air Force unilaterally modified the water contract, and incorporated new rates. However, the Air Force's self-imposed rates were still lower than the rates set by Bay County. Similarly, in 2009 Bay County notified the Air Force that the County was increasing sewer rates. Again, the Air Force refused to pay those higher rates, and instead instituted a unilateral contract modification in 2010 to moderately increase sewer rates.

On April 8, 2010, Bay County submitted two Contract Disputes Act (“CDA”) claims to recover the unpaid balance on the Air Force's utility contracts. The contracting officer denied Bay County's claims, and concluded that Bay County is an unregulated utility. Therefore, according to the contracting officer, while Bay County is allowed to propose new rates, the parties have to negotiate rate changes and incorporate them as contract modifications. Bay County has alleged breach of both contracts, because the Air Force has failed to pay the Bay County-set utility rates since 2007. Bay County asserted a balance of unpaid invoices of approximately $850,000.

The present dispute turns on whether Bay County is an IRB or an NIRB. If, as the government contends, Bay County is an NIRB, then the parties must negotiate any rate changes in the water and sewer contracts. If, on the other hand, Bay County is an IRB, then the government must pay utility rate increases fixed by the Board.

The Court of Federal Claims held that Bay County is an IRB, because under Florida law it is an agency of the state and Florida authorized the County to regulate utilities. Bay County, 112 Fed.Cl. at 201. Therefore, Bay County was allowed to revise utility rates without negotiating with Tyndall Air Force Base. Id. at 203. The Court of Federal Claims granted summary judgment in favor of Bay County, and reserved the determination of damages for a later proceeding, id. at 204, which was concluded before this appeal, see Bay County v. United States, 117 Fed.Cl. 131 (2014) (damages calculation decision). We agree with the Court of Federal Claims that Bay County is an IRB under the DFARS definitions.

II

We review the Court of Federal Claims' legal conclusions without deference, Vaizburd v. United States, 384 F.3d 1278, 1282 (Fed.Cir.2004), and its grant of summary judgment de novo, AmeriSource Corp. v. United States, 525 F.3d 1149, 1152 (Fed.Cir.2008).

This is a straightforward case of regulatory interpretation. The DFARS defines both of the relevant terms:

Independent regulatory body means the Federal Energy Regulatory Commission [ (“FERC”) ], a state-wide agency, or an agency with less than state-wide jurisdiction when operating pursuant to state authority. The body has the power to fix, establish, or control the rates and services of utility suppliers.

Nonindependent regulatory body means a body that regulates a utility supplier which is owned or operated by the same entity that created the regulatory body, e.g., a municipal utility.

48 C.F.R. § 241.101.

Based on the plain meaning of these definitions, Bay County is clearly an IRB. Bay County has been authorized by the State of Florida to fix, establish, and control the rates and services of utility suppliers. Specifically, each Florida county has the power to: (1) “[p]rovide and regulate waste and sewage collection and disposal, [and] water and alternative water supplies ...,” Fla. Stat. § 125.01(1)(k)(1), as well as (2) “fix and collect rates, fees and other charges for the service and facilities furnished by any such water supply system or ... sewage disposal system ...,” Fla. Stat. § 153.03(3).

This delegation of state authority also makes Bay County “an agency with less than state-wide jurisdiction.” Neither party can reasonably dispute that Bay County has less than state-wide jurisdiction. Oral Arg. at 3:24–3:59, available at http://www.cafc.uscourts.gov/oral–argument–recordings/2014–5149/all. And, in its capacity of regulating utilities—as a county acting pursuant to state authority—Bay County is an agency of the State of Florida. See Amos v. Mathews, 99 Fla. 1, 126 So. 308, 321 (1930) (“[A] county in the performance of certain functions is an agency or arm of the state....”). Therefore, Bay County plainly satisfies the regulatory definition of an IRB.

Moreover, Bay County clearly falls outside the definition of an NIRB. To fit the NIRB definition, there must be a single entity which both created the relevant regulatory body and owns or operates the regulated utility supplier. In this case, Bay County is the regulatory body and it owns the utility supplier. There is no entity that created one and owns the other. The State of Florida created Bay County. See Fla. Const. art. VIII, § 1. And Bay County, not Florida, owns and operates the utility supplier. Therefore, Bay County is not an NIRB under the DFARS definition.

The government suggests it is improper to rely on state law to resolve this case. Br. of Def.-Appellant at 22–23, 51–52; see also Roedler v. Dep't of Energy, 255 F.3d 1347, 1351 (Fed.Cir.2001) (federal common law governs contracts of the United States).

Not only is it proper, but it is necessary to refer to state law when applying these regulations. The regulations are written in terms of state authority and jurisdiction. The Court of Federal Claims was, and this court is, correct to look at Florida law to decide whether Bay County was created by the state and whether it is acting pursuant to state authority. Cf. Baltimore Gas & Elec. Co. v. United States, 133 F.Supp.2d 721, 738 (D.Md.2001) (“[T]he federal government has absorbed state law, including utilities law, to supply the regulatory standards necessary and appropriate for the operation and maintenance of the electricity and natural gas distribution systems at Fort Meade....”).

III

Since the terms of the regulation are unambiguous, and the Court of Federal Claims correctly applied the definitions of “independent regulatory body” and “nonindependent regulatory body,” no further inquiry is required. Glover v. West, 185 F.3d 1328, 1332 (Fed.Cir.1999). However, the government makes four arguments against the plain meaning of the regulations, and we respond to each briefly.

A

The government's overarching argument that Bay County lacks...