Carter v. United States

• Decision Date: 30 November 2011
• Docket Number: No. 10-048C,10-048C
• Parties: RICHARD CARTER AND JERRY GOODWIN, d/b/a R&J FEED, Plaintiffs, v. THE UNITED STATES, Defendant,
• Court: U.S. Court of Appeals — District of Columbia Circuit

RICHARD CARTER AND JERRY GOODWIN, d/b/a R&J FEED, Plaintiffs,

v.THE UNITED STATES, Defendant,

No. 10-048C

United States Court of Federal Claims

Filed: November 30, 2011

Contract; third-party beneficiary;

Astra; mutuality; consideration

Stephen Quesenberry, Provo, Utah, with whom was Michael Quesenberry, for plaintiffs.

Michael Paul Goodman, United States Department of Justice, Civil Division, Washington, D.C., with whom were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, Kirk Manhardt, Assistant Director for defendant.

OPINION

BRUGGINK, Judge.

This is an action for breach of an asserted contract between the United States Department of Agriculture, acting through the Commodity Credit Corporation ("CCC"), and beneficiaries of a drought relief program coordinated by the government and several states. Under the program, the federal government provided large quantities of nonfat dry milk to individual states, which distributed the nonfat dry milk to livestock producers. Before thecourt is defendant's motion for summary judgment and plaintiff's¹ motion for Rule 56(d) discovery. The matter is fully briefed. Oral argument was held on September 6, 2011. For the reasons discussed below, we grant in part and deny in part defendant's motion for summary judgment and deny plaintiff's motion for additional discovery.

BACKGROUND²

The early 2000s were a time of severe drought in western states, resulting in a significant shortage in livestock feed. To ameliorate the effects of the drought, the United States Department of Agriculture ("USDA") created a drought relief program in 2002 pursuant to 7 U.S.C. § 7285 (2006)³ . The program allowed the USDA to contract with drought-afflicted states for the distribution of nonfat dry milk ("NDM") to foundation livestock producers and feed dealers. The program continued through 2004.

The NDM program was administered primarily by the CCC, a wholly-owned government corporation designed to aid and support agricultural producers. Each participating state executed a uniform document with the CCC, entitled "Nonfat Dry Milk Sales Agreement between the Commodity Credit Corporation and the State of _______."⁴ Under the sales agreement, the CCC agreed to provide the state with NDM at a price of $1 per 21-ton truckload. It also provided a formula for determining the quantity of NDM which each state could request. The CCC also agreed to pay for transportation costs to deliver NDM to the states.

The standard agreement contained certain terms and conditions limiting the states' distribution to certain recipients and the recipients' use of the NDM. Each participating state agreed in section III of the agreement, "STATE COMMITMENTS," to:

1. Purchase NDM using documents provided by CCC . . . and to refrain from assigning or transferring any rights or obligations under this Agreement without written approval of CCC.

2. Establish and maintain distribution points capable of receiving, unloading from trucks, moving into storage, and distributing NDM to eligible producers.

3. Be responsible for all costs associated with the operation of the distribution points and all costs of delivery . . . .

4. Take action that the State determines to be appropriate to ensure that only producers of foundation herd livestock . . . receive NDM . . . .

5. Report to CCC the quantity of NDM purchased from CCC that exceeds the quantity authorized under this Agreement

. . . .

NDM Agreement 2. The USDA retained the responsibility to enforce the limits on the use of NDM acquired by "third parties" other than states and eligible livestock producers.

Each participating state subsequently entered into form agreements, each entitled "Agreement to Participate in the 2003 NDM Livestock Feed Assistance Program," with feed dealers and livestock producers for the distribution and use of that state's share of the NDM. Plaintiff entered into such a standard agreement with several states. Plaintiff has offered the agreement between it and the state of Utah as representative of these agreements and transactions. That agreement contained the same restrictions enumerated above on the use of NDM. After signing the agreement, plaintiff then had to complete a voucher issued by the state authorizing receipt of a stated quantity of NDM and requesting a delivery date and location. Vouchers were issued by and returned to Utah and, like the sales agreement, containedthe same limitations on NDM use discussed above. Plaintiff submitted NDM order forms for the 2003 NDM program, and apparently received some NDM. In January 2004, however, CCC denied plaintiff's request for additional NDM.

R&J filed suit here in January of 2010, alleging that it had a contractual right to receive NDM and that the United States had breached that agreement. R&J subsequently amended its complaint, seeking $21 million in damages, and alleging five causes of action: (1) breach of implied-in-fact contract, (2) breach of third-party beneficiary contract, (3) breach of written contract, (4) breach of the covenant of good faith and fair dealing, and (5) equitable estoppel.

Defendant filed a motion to dismiss under Rules 12(b)(1) and 12(b)(6) of the Rules of the Court of Federal Claims ("RCFC"). We granted the motion to dismiss in part, eliminating all counts except the third-party beneficiary claim. See Order, Apr. 29, 2011, ECF No. 34. Defendant then filed the present motion for summary judgment under RCFC 56 directed at that remaining claim. It argues that there was no enforceable contract between the government and the states, and even if there was, plaintiff is nevertheless precluded from recovering as a third-party beneficiary. In response, plaintiff contends there was a valid and enforceable contract, but that it is unable to fully respond to the motion without additional discovery under RCFC 56(d).

DISCUSSION

We are presented with a contract interpretation issue. Interpreting a contract is a question of law amenable to summary judgment, assuming there are no relevant disputed facts. Varilease Tech. Group, Inc. v. United States, 289 F.3d 795, 798 (Fed. Cir. 2002). Defendant offers a number of theories to support its position that there was not an enforceable contract. Although we ultimately agree in part with some of those theories, we address first an argument with which we disagree.

I. The subject matter of the agreement does not insulate it from treatment as a contract

Defendant argues that even if the NDM Agreement was otherwise binding, liability is nevertheless precluded because the government was acting in its sovereign capacity when it entered into the NDM Agreement.⁵ Thegovernment relies primarily on Kentucky v. United States, 27 Fed. Cl. 173, 180 (1992), for the proposition that no express or implied contract can arise from acts performed by the government in its sovereign capacity. In this case, it contends, no contract was actually formed because the government was acting as sovereign, not as a contractor; the government's motivations were charitable and not commercial. In opposition, plaintiff argues that the NDM program was not a sovereign act and that additional discovery is required to show that the CCC's real purpose was to reduce costs to itself as well as to benefit drought states.

In Kentucky, the United States Army Corps of Engineers assumed control and operation over a series of locks and dams that the Commonwealth of Kentucky had built in the mid-1800s. See 27 Fed. Cl. at 174. In addition to rehabilitating the locks, the Corps built additional locks along the river. In 1979, as some of the locks approached nearly 140 years in age and experienced serious deterioration, the Corps decided that several of the locks no longer served their purpose. Accordingly, in an attempt to make more efficient use of funds and manpower, the Corps sought to close the deteriorating locks. After a public notice, the Corps formally decided to cease maintenance of certain locks and prepare for their divestiture. Id. Afterwards, Kentucky, acting through its Natural Resources and Environmental Protection Cabinet, expressed interest in continuing the operation of the locks and dams. After a series of meetings and negotiations between the Corps and the state, a memorandum of understanding ("MOU") was executed in 1985.

Pursuant to the MOU, the Corps would provide one-time maintenance and repairs to the covered locks. Kentucky was to make good-faith efforts to bring about legislation and appropriations to effectuate a fee-simple transfer of the locks to it. The state also agreed to maintain the locks during a transition period, which was defined as the time from execution of the MOU until the earlier of October 15, 1988, or when title was transferred. Id. at 175.

Kentucky claimed that the Corps breached the MOU by not performing the one-time maintenance and repairs sufficiently to prevent a collapse of the locks. It also alleged that the Corps had not performed specific repairs identified by the state. Id. Kentucky therefore brought suit here for breach of contract.

The principal basis for the court's rejection of Kentucky's claim was that the MOU was not an express contract. The court continued its analysis, however, and discussed whether the government could be contractually liable for acts that are performed in its sovereign capacity. The court noted, "[e]ven if elements of a contract could be identified in the MOU, contract liability . . . 'does not extend to every agreement, understanding, or compact which can be stated in terms of offer or acceptance or meeting of the minds.'" Id. at 179 (quoting Kania v. United States, 650 F.2d 264, 268 (Ct. Cl. 1981)). More specifically, the court noted that "the Government is not liable for damages resulting from sovereign acts performed by it in its sovereign capacity." Id. Whether an act is sovereign or proprietary depends on "the nature of the Government's action and the nature of the parties involved." Id.

The court noted...