Chu v. Boeing Co., 2011-1304
| Decision Date | 20 November 2012 |
| Docket Number | 2011-1304,2011-1317 |
| Parties | STEVEN CHU, SECRETARY OF ENERGY, Appellant, v. THE BOEING COMPANY, (SUCCESSOR-IN-INTEREST OF ROCKWELL INTERNATIONAL CORPORATION), Appellee. THE BOEING COMPANY, (SUCCESSOR-IN-INTEREST OF ROCKWELL INTERNATIONAL CORPORATION), Appellant, v. STEVEN CHU, SECRETARY OF ENERGY, Appellee. |
| Court | U.S. Court of Appeals — Federal Circuit |
NOTE: This opinion is nonprecedential.
Appeal from the Civilian Board of Contract Appeals in Nos. 337, 338, 339, and 978, Administrative Judge R. Anthony McCann.
DOMENIQUE KIRCHNER, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for Secretary of Energy. With her on the brief were TONY WEST, Assistant Attorney General, JEANNE E. DAVIDSON, Director, and BRYANT G. SNEE, Deputy Director.
JAMES J. GALLAGHER, McKenna Long & Aldridge LLP, of Los Angeles, California, argued for The Boeing Company. On the brief was S. JEAN KIM, Chadbourne & Parke LLP, of Los Angeles, California.
Before BRYSON, O'MALLEY, and WALLACH, Circuit Judges.
Opinion for the court filed by Circuit Judge WALLACH.
Opinion concurring-in-part and dissenting-in-part filed by
This case arises under the Contract Disputes Act, 41 U.S.C. §§ 7101-09. The Department of Energy ("DOE") appeals and Rockwell International Company ("Rockwell") cross-appeals from decisions of the Civilian Board of Contract Appeals ("Board") that certain litigation defense costs are allowable under the parties' management and operating contracts ("contracts") and thus may be recovered by Rockwell.1 We affirm-in-part and reverse-in-part the Board's determinations.
Beginning in 1975, DOE entered into a series of contracts with Rockwell for the management, operation, and maintenance of the government-owned Rocky Flats Nuclear Weapons Plant in Colorado ("Rocky Flats"). Abraham v. Rockwell Int'l Corp., 326 F.3d 1242, 1244 (Fed. Cir. 2003).2 Private industrial firms have managed and operated the facility since its construction in the early 1950s. Id. at 1245. The contracts governing the management and operation of the facility require the Government, not the private firms, to assume almost all operational and financial risks because of the inherent danger in manufacturing nuclear weapon components. Id. Rockwell's contracts contain cost-reimbursement provisions that enable Rockwell to recover all allowable costs. Id. The dispute here centers on whether certain costs incurred by Rockwell in defending itself in litigation are recoverable.
The two contracts currently at issue are the 1986 contract effective from January 1, 1986 until December 31, 1988 and the 1989 contract effective from January 1, 1989 until December 31, 1989.3 They were both cost-plus-award-fee contracts. 48 C.F.R. § 16.405-2.4 Both contractsprovided that "allowable cost shall not include the cost of any item described as unallowable . . . ."
Effective January 1, 1987, the parties adopted Modification M097, which added clause (e)(32) to the 1986 contract ("clause (e)(32)"), and provided as follows:
Effective January 1, 1989, the parties adopted Modification M124, which provides:
("Environmental Costs Clause") (emphasis added). Subparagraph (e)(17)(ii) expressly excludes costs that "result from willful misconduct or lack of good faith on the part of any of the Contractor's managerial personnel."
On June 25, 1987, Mr. James Stone6 informed the Federal Bureau of Investigations of alleged environmental crimes that occurred at Rocky Flats; the Department of Justice began investigating in 1988.7
On July 5, 1989, Mr. Stone, instituted a qui tam action alleging violations of the FCA against Rockwell in the United States District Court for the District of Colorado. However, on December 20, 1996, the Government and Mr. Stone (collectively, "plaintiffs") filed a joint amended complaint alleging violations of the FCA (Count 1), common law fraud (Count 2), breach of contract (Count 3), payment by mistake (Count 4), and unjust enrichment (Count 5); Mr. Stone additionally asserted other FCA violations (Count 6). Plaintiffs contended that during certain time periods, Rockwell violated the FCA by using false or fraudulent statements to obtain its award fees and operating costs. Following a jury trial, the districtcourt entered judgment against Rockwell solely for Count 1 for certain time periods. The judgment provided for plaintiffs' recovery of $4,172,327.40 (three times the jury award), and the Government's recovery of a civil penalty of $15,000.00. The Tenth Circuit affirmed these awards. United States v. Rockwell Int'l Corp., 282 F.3d 787 (10th Cir. 2002).
On April 4, 2006, Rockwell filed a petition for a writ of certiorari. The only issue before the Supreme Court was "whether respondent Mr. Stone was an original source" for purposes of standing to bring suit. Rockwell Int'l Corp. v. United States, 549 U.S. 457, 460 (2007). An "original source" is "an individual who [1] has direct and independent knowledge of the information on which the allegations are based and [2] has voluntarily provided the information to the Government before filing an action under this section which is based on the information." 31 U.S.C. § 3730(e)(4)(B). This question pertained only to FCA violations involving pondcrete.8 On March 27, 2007, the Court held that Mr. Stone was not an "original source" with respect to FCA violations involving pondcrete. Rockwell, 549 U.S. at 479. Therefore, the Court found that the district court lacked jurisdiction to enter judgment in favor of Mr. Stone, and reversed the Tenth Circuit's holding to the contrary. Id.9
On June 18, 2007, the Tenth Circuit affirmed the judgment in favor of the Government for the reasons articulated in its prior opinion, United States v. Rockwell Int'l Corp., 282 F.3d 787 (10th Cir. 2002), but remanded with directions to vacate the portion of the judgment entered in favor of Mr. Stone and dismiss his portion of the case. United States v. Rockwell lnt'l Corp., 492 F.3d 1157 (10th Cir. 2007).
At the beginning of the Stone suit, when Rockwell was served with Mr. Stone's Complaint on November 13, 1995, Rockwell submitted to DOE vouchers for payment of related defense costs ("Stone defense costs"). On April 22, 1993, DOE stated it would provisionally reimburse Rockwell and "reserve[] the right to evaluate the final outcome of the case and seek reimbursement from Rockwell for any amount paid . . . ." A160. After conditionally reimbursing Rockwell $4,060,669.03 in Stone defense costs, DOE notified Rockwell on December 6, 1995, that those costs were unallowable pursuant to the DOE and Rockwell contracts.
In May 2005, Rockwell requested a contracting officer's final decision, seeking $11,344,081.14 as reimbursement for the Stone defense costs incurred from November 14, 1995, to December 31, 2004. On September 30, 2005, the contracting officer issued a final decision denying Rockwell's claim. Additionally, the contracting officerrendered a final decision granting the Government's claim against Rockwell for recovery of $4,060,669.03, the amount that DOE provisionally advanced as reimbursement for Rockwell's Stone defense costs, plus interest. Rockwell appealed this final decision along with other related later decisions to the Board which were consolidated into various appeals before the Board.
From July 9, 2007 to March 8, 2011, six Board decisions were issued which currently are being challenged by one or both parties.10 The Board considered whether Rockwell's costs incurred defending Stone were unallowable under clause (e)(32) and held that such costs could be apportioned on a claim-by-claim basis and determined that: (1) costs relating solely to claims where the Government was successful are unallowable; (2) costs relating solely to claims where Rockwell was successful are allowable under clause (e)(32); and (3) costs relating to common costs, i.e., costs incurred defending against both claims where Rockwell was successful and was found liable, are unallowable.
DOE filed a timely appeal. Rockwell cross-appealed. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(10).11
The Board's factual determinations will be set aside if arbitrary, capricious, so grossly erroneous as to necessarily imply bad faith, or not supported by substantial evidence. 41 U.S.C. § 7107(b)(2). The Board's determinations of questions of law, including interpretation of contracts, statutes and regulations, are subject to de novo review. Lear Siegler Servs. v. Rumsfeld, 457 F.3d 1262, 1265-66 (Fed. Cir. 2006)...
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