Brownlee v. Dyncorp

• Decision Date: 13 November 2003
• Docket Number: No. 02-1601.,02-1601.
• Citation: 349 F.3d 1343
• Parties: Les BROWNLEE, Acting Secretary of the Army, Appellant, v. DYNCORP, Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

349 F.3d 1343

Les BROWNLEE, Acting Secretary of the Army, Appellant, v. DYNCORP, Appellee.

No. 02-1601.

United States Court of Appeals, Federal Circuit.

November 13, 2003.

COPYRIGHT MATERIAL OMITTED

Domenique Kirchner, Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for appellant. With her on the brief were David M. Cohen, Director; and Bryant G. Snee, Assistant Director. Of counsel on the brief was Craig S. Clarke, Deputy Chief Trial Attorney, Contract Appeals Division, United States Army Legal Services Agency, of Arlington, Virginia.

Craig A. Holman, Holland & Knight, LLP, of Washington, DC, argued for appellee. With him on the brief was Richard O. Duvall, Holland & Knight, LLP, of McLean, Virginia.

Before MICHEL, LOURIE, and DYK, Circuit Judges.

DYK, Circuit Judge.

This case presents two significant issues. The first is whether the appeal by Les Brownlee, Acting Secretary of the Army, ("Army") to this court concerning the Board's June 21, 2000, entitlement decision is timely. We hold that it is. The mere fact that the government could have appealed the Board's June 21, 2000, entitlement decision does not prohibit the government from raising entitlement issues in an appeal from the Board's subsequent quantum decision.

On the merits, the question is whether the Armed Services Board of Contract Appeals ("Board") correctly awarded as allowable contract costs a part of the contractor's legal fees incurred in defending against criminal charges brought by the United States. The Board assumed that Federal Acquisition Regulation ("FAR") 31.205-47(b), 48 C.F.R. § 31.205-47(b) (1991), made unallowable criminal defense costs incurred by a government contractor in a proceeding in which one of its employees was convicted of criminal conduct. However, the Board held the regulation invalid on the ground that it was contrary to the statute (10 U.S.C. § 2324 (2000)) and that the statute allowed partial cost recovery. We conclude that the regulation disallows recovery of the contractor's costs incurred in a proceeding in which an employee is convicted; that the regulation is valid because the statute does not mandate a contrary result; and that such defense costs are accordingly not allowable.

BACKGROUND

In 1991, the Army awarded DynCorp a cost-plus-award-fee contract for base support services at Fort Irwin, California. The contract included FAR 52.216-7, pursuant to which the government was required to pay the contractor's costs "in amounts determined to be allowable by the Contracting Officer in accordance with Subpart 31.2 of the [FAR] in effect on the date of this contract."¹ (App. at 47.) Subpart 31.2 deals with the allowability of costs accrued under contracts between the government and commercial organizations. Among other things, the subpart includes FAR 31.205-47, which disallows the recovery by a contractor of costs related to certain legal proceedings. The government contends that the regulation disallows legal defense costs in a proceeding in which one of the contractor's employees is convicted of a criminal offense. The contractor disputes the government's interpretation of the regulation and urges that, if it is so construed, the regulation is invalid because it is contrary to the statute. The background of the present controversy is as follows.

In 1992, the Army Criminal Investigation Division began investigating allegations of criminal activity by DynCorp and its employees relating to DynCorp's performance of the contract. The allegations included fraud involving documentation related to vehicle maintenance; fraudulent use of government gasoline credit cards; and recording of false data by Larry Marcum, the Branch Manager for DynCorp's Bio-Medical Maintenance Branch. In accordance with the law of Delaware — DynCorp's state of incorporation — and DynCorp's bylaws, DynCorp paid the costs of its defense and the defense of its employees. The United States declined to prosecute the contractor, but it charged Mr. Marcum in a single-count information. The information alleged that Mr. Marcum input into a government accounting system "estimated hours, which represented the average time among all work centers using [the government accounting system] for performing a particular scheduled service," rather than the actual work hours his employees had expended. (App. at 94.) Mr. Marcum subsequently entered into a plea agreement with the government in which he pled guilty to a charge of unauthorized access to a government computer in violation of 18 U.S.C. § 1030(a)(3). No criminal or civil actions were filed against DynCorp as a result of the investigations.

On January 23, 1996, DynCorp submitted a certified claim to the Army seeking reimbursement of the costs it incurred in connection with the criminal investigation. DynCorp excluded from its claim the fees charged by the lawyers who conducted Mr. Marcum's defense. The Army contracting officer denied the claim on March 29, 1996, and DynCorp appealed the decision to the Board on April 2, 1996. On June 21, 2000, the Board rendered a decision on entitlement, holding that DynCorp could recover a portion of its defense costs. DynCorp, ASBCA No. 49714, 00-2 B.C.A. (CCH) ¶ 30,986 ("Entitlement Decision"), at 152,930 (2000). The Board accepted, arguendo, the government's argument that FAR 31.205-47(b) barred recovery of defense costs for a proceeding in which only the contractor's agent or employee, not the contractor itself, was convicted. However, the Board found that, so construed, the regulation was "inconsistent" with 10 U.S.C. § 2324, as amended by the Major Fraud Act of 1988. Id. The Board found that the regulation was thus an unenforceable "mere nullity." Id. (quoting Manhattan Gen. Equip. Co. v. Comm'r, 297 U.S. 129, 134, 56 S.Ct. 397, 80 L.Ed. 528 (1936)). The Board remanded the case for negotiation of quantum. Id. at 152,932. The Army did not appeal that decision to this court. On May 6, 2002, the Army stipulated to the amount of DynCorp's fees, and the Board entered final judgment in DynCorp's favor on May 15, 2002. DynCorp, ASBCA No. 53098, available at 2002 WL 1009833. The Army then filed a notice of appeal in this court on September 11, 2002.

DISCUSSION

I

At the outset, we must resolve a challenge to our jurisdiction. The contractor contends that the government's appeal challenging the Board's June 21, 2000, decision as to entitlement is untimely because (1) the government could have appealed earlier from the Board's June 21, 2000, decision, and (2) having failed to appeal earlier, the government's present appeal on the issue of entitlement is time barred. We agree with the first proposition, but disagree with the second. We conclude that we have jurisdiction to consider the issue of entitlement.

A

This court has exclusive jurisdiction "of an appeal from a final decision of an agency board of contract appeals pursuant to section 8(g)(1) of the Contract Disputes Act of 1978." 28 U.S.C. § 1295(a)(10) (2000). Although the statute requires that the Board's decision be "final," we have held that the concept of finality in this context is more flexible than, for example, the "rigid district court concept of finality" required by 28 U.S.C. § 1291. Dewey Elecs. Corp. v. United States, 803 F.2d 650, 655 (Fed.Cir.1986) ("Dewey"); see also Rumsfeld v. Applied Cos., 325 F.3d 1328, 1333 n. 3 (Fed.Cir.); cert. denied ___ U.S. ___, 124 S.Ct. 462, ___ L.Ed.2d ___, 72 U.S.L.W. 3007 (2003). The relevant inquiry in determining finality in appeals pursuant to section 1295(a)(10) is "the scope of the contracting officer's decision, for this determines the extent of the contractor's right of appeal and the board's jurisdiction." Dewey, 803 F.2d at 655; see also Applied Cos., 325 F.3d at 1333 n. 3. In Dewey and Applied Cos., the Board had only entitlement issues before it because the contracting officer had not considered quantum issues. Dewey, 803 F.2d at 655; Applied Cos., 325 F.3d at 1333 n. 3. Similarly, the only issue resolved by the contracting officer in this case at the time of the Board's June 21, 2000, decision was the issue of entitlement. The Board's reversal of that determination by the contracting officer was therefore a final judgment for purposes of this court's review. Applied Cos., 325 F.3d at 1333 n. 3 ("[S]ince the contracting officer did not decide quantum, but decided only entitlement, the Board's decision on entitlement is final and appealable to this court."); Dewey, 803 F.2d at 658. Thus, the government could have appealed from the June 21, 2000, Board decision at the time it was rendered.

B

The government argues, however, that its decision not to appeal the earlier Board decision does not render the present appeal as to entitlement time barred. We agree. The statutory language authorizing an appeal from a "final" judgment does not address the consequences of a failure to appeal from that "final" judgment. As DynCorp admitted at oral argument, we have not previously decided this question. Cases such as Dewey and Applied Cos., while permitting appeals from entitlement decisions, neither hold nor suggest that appeals are required before the question of quantum is resolved. Allowing the aggrieved party to wait for a truly final judgment before appealing furthers the purposes of both the Contract Disputes Act of 1978 ("CDA"), Pub.L. No. 95-563, 92 Stat. 2383, and the doctrine of finality. A contrary rule would force the government or the contractor to appeal each and every Board entitlement decision that was appealable under our flexible final judgment approach or lose the right to appeal those issues when the case was truly final in the section 1291 sense. Requitum appeals under such circumstances would compel premature appeals that might in fact be mooted if the parties awaited a judgment concerning quantum, thus wasting the parties' and this court's resources.

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