DMS Imaging, Inc. v. United States, 12-204C

• Decision Date: 27 October 2015
• Docket Number: No. 12-204C,12-204C
• Court: U.S. Claims Court
• Parties: DMS IMAGING, INC., Plaintiff, v. THE UNITED STATES, Defendant.

DMS IMAGING, INC., Plaintiff, v. THE UNITED STATES, Defendant.

No. 12-204C

United States Court of Federal Claims

October 27, 2015

Contract Disputes Act, 41 U.S.C. § 7100 et seq; Breach of Contract; Risk of Loss Clause; Specific Performance; Prompt Payment Act, 31 U.S.C. § 3902(a); Constructive Termination; Frustration of Purpose Doctrine; Damages; Causation; Foreseeability; Reasonable Certainty; Interest; Attorney's Fees.

Mark J. Fink, Cozen O'Conner, The Army Navy Building, 1627 I Street NW, Suite 1100, Washington, D.C. 20006, for Plaintiff. Philip T. Carroll and Marisa L. Saber, Cozen O'Conner, 333 W. Wacker Dr., Suite 1900, Chicago, IL 60606, for Plaintiff.

Benjamin Mizer, Robert E. Kirschman, Jr., Martin F. Hockey, Jr., and Michael D. Austin, U.S. Department of Justice, Civil Division, Commercial Litigation Branch, P.O. Box 480, Ben Franklin Station, Washington, D.C. 20044, for Defendant.

OPINION AND ORDER

WILLIAMS, Judge.

This Contract Disputes Act ("CDA") case comes before the Court following a trial on damages. In a previous opinion this Court found Defendant liable for breach of contract. DMS Imaging, Inc. v. United States, 115 Fed. Cl. 794 (2014). Plaintiff, DMS Imaging, Inc. ("DMS") claims damages for itself and as a pass-through for its insurer, United States Fire Insurance Company ("USFIC"), stemming from the Government's breach of a lease agreement for a magnetic resonance imaging ("MRI") mobile unit. Plaintiff claims damages of $907,209.33, consisting of $713,823.33 for the fair market value of the MRI unit, $416,000 for eight months of unpaid lease payments, and $2,886 for travel expenses to investigate damage to the unit, minus $500 for the salvage value of the unit and $225,000 received from a tort settlement with a third party.¹ Additionally, Plaintiff claims late payment fees and service fees on the unpaid lease payments, and attorney's fees and costs under the contract. Finally, Plaintiff claims interest under the CDA.

The Court awards Plaintiff its claimed damages of $907,209.33. In addition, Plaintiff is entitled to reasonable attorney's fees and litigation costs, and contractual late payment fees and service fees on the eight unpaid lease payments in an amount to be determined in further proceedings. Plaintiff may be entitled to interest calculated pursuant to 41 U.S.C. § 7109(a)(1) so long as such interest does not constitute "payment of interest on interest liability." See Stone Forest Indus., Inc. v. United States, 973 F.2d 1548, 1553-54 (Fed. Cir. 1992).

Findings of Fact²

Formation of the Parties' Contract and Key Terms

On September 16, 2008, DMS and the United States Department of Veterans Affairs ("VA") entered into contract number VA248-08-RP-0455. DX 1.1. This contract was a sole-source contract based on the VA's need for a mobile MRI unit. Tr. 55-56. Both parties signed the first page of the contract, Standard Form 1449 ("SF 1449"). DX 1.1. Contracting OfficerAwilda Perales signed on behalf of the VA, while Jeff Axelrod signed on behalf of DMS. Ms. Perales was a supervisory contract specialist and contracting officer and Mr. Axelrod was DMS' senior vice president. Tr. 13, 254. Under "Schedule of Supplies/Services," the contract stated:

LEASE ON ONE (1) SIEMENS MOBILE MRI SYSTEM TO RADIOLOGY SERVICE AT VA CARIBBEAN HEALTHCARE SYSTEM, SAN JUAN, PUERTO RICO IN ACCORDANCE WITH APPROVED CONTRACTOR'S LEASE AGREEMENT 090408A AND ATTACHED CONTRACT TERMS AND CONDITIONS.

DX 1.1. Under this contract, the VA agreed to lease DMS' MRI unit for a period of nine months, paying $65,000 for the first month and $52,000 for each month thereafter. DX 1.3. The lease agreement also contained the specification details of the MRI mobile unit in an "Equipment Description" attached as Exhibit A. DX 1.15-1.23.

The parties revised the lease agreement three times, altering the equipment components of the MRI mobile unit. Tr. 61; DX 1.8. In its final version, "Revision 4," the lease agreement placed the responsibility for keeping the MRI mobile unit in good repair on DMS. DX 1.8. The Risk of Loss clause in the lease agreement addressed damages and destruction of the unit, stating:

Lessee shall bear the entire risk of loss, theft, destruction or damage of the leased property from any cause whatsoever and no loss, theft, destruction or damage of the leased property shall relieve Lessee of the obligation to pay rent or any other obligations under this lease. In the event of loss, theft, or damage of any kind to the leased property, Lessee, at the option of Lessor, shall place the leased property in good condition and repair, or if the leased property is determined by Lessor to be lost, stolen, destroyed or damaged beyond repair and if requested by Lessor, purchase[] the property at its fair market value immediately preceding the event causing the loss.

DX 1.13-1.14.

The agreement also contained two clauses regarding insurance - a clause requiring the VA to maintain liability insurance and property insurance policies on the full replacement value of the MRI unit and a clause requiring the VA to name DMS as an additionally insured party under an extended insurance policy:

Department of Veterans Affairs is self insured. Lessee shall maintain, at its cost[], comprehensive professional liability insurance coverage for any current or future claim, in an amount of not less than that amount required by appropriate law, and if none, then not less than $1,000,000.00 per occurrence, $3,000,000.00 in an aggregate amount, and a minimum of $2,500,000.00 umbrella policy coverage with respect to the activities of the Lessee, and shall name the Lessor as an additional insured. The Lessee will, at its cost, maintain full property insurance on the leased property. The property insurance will be for the full replacement value in an amount not less than $2,000,000.00 . . . . The Lessor will be named as loss payee on the property policy. The proceeds of such coverage, inthe event of loss or damage, shall be applied, at the Lessor's option, to the repair or replacement of the property affected. Lessee shall provide to Lessor a certificate evidencing liability and property insurance.

DX 1.10.

The Lessee will at its own expense purchase and maintain extended insurance coverage on the leased property naming Lessor as an additional insured. The proceeds of such coverage, in the event of loss or damage, shall be applied at the Lessor's option, to the repair or replacement of the property affected. The Lessee shall be responsible for any loss or damage to the property from any cause whatsoever not included under fire and extended coverage insurance. [. . .]

DX 1.13.

With respect to late lease payments, the lease agreement provided:

A late charge of five percent (5%) of any payment not paid when due as compensation for Lessor's internal operating expenses arising as a result of such delayed payment, plus a service charge of 1 ½ % per month, not to exceed the maximum amount allowed by law, shall be made on any portion of the Lessee's outstanding balance which is not paid when due whether such payments are due prior to or after a Default. The lease is a net lease and Lessee shall not be entitled to any abatement of, reduction of, or setoff against Lease Payments for any reason whatsoever.

DX 1.12.

Finally, the lease agreement set forth the following rights of DMS, the lessor, in the event of breach:

LESSOR shall be entitled to exercise all rights and remedies under law upon breach by Lessee of any terms or conditions herein. In the event that legal or other action is required to enforce Lessor's rights hereunder, Lessee agrees to reimburse LESSOR on demand for its reasonable attorneys' fees and other related costs and expenses.

DX 1.14. The lease agreement also contained a severability clause indicating that if any portion of the agreement were to be found unenforceable or void, that portion would be severable from the rest of the agreement. Id.

At trial, Ms. Perales, the VA's Contracting Officer, testified that she had assigned this contract to America Quiñones, one of her subordinate contracting specialists, in 2008. Tr. 57. According to Ms. Perales, Ms. Quiñones "had some questions" about the contract "because she was basically new" and had come to her with "a concern." Id. Ms. Perales did not recall what Ms. Quiñones' concern was. Id. Ms. Perales stated that she had been busy when Ms. Quiñones approached her and that she instructed Ms. Quiñones to review a previous 2006 agreement between the VA and DMS and "just go with it" if the 2006 lease agreement was "similar or the same" to SF 1449. Id. at 155. Although Ms. Perales had not been the contracting officer on the2006 contract, she understood that the service DMS had provided under that contract had been very good. Id. at 125-26. Ms. Perales felt comfortable instructing Ms. Quiñones to use the 2006 agreement as a basis for the 2008 agreement because she did not believe there had been any problems with DMS and its equipment. Id. at 127. Ms. Perales only read the first page of the contract, the SF 1449; she did not read the remainder of the 2008 contract or the attached lease agreement with its terms and conditions before signing it. Id. at 79. Ms. Perales also did not consult with the VA's legal department about the 2008 contract. Id. at 127.

Arrival and Destruction of the MRI Unit

On or about October 16, 2008, the MRI mobile unit was delivered and accepted by the VA. DMS Imaging, 115 Fed. Cl. at 796. The Radiologic Modalities Supervisor at the San Juan medical center signed the certificate of acceptance for the MRI unit on behalf of the VA, acknowledging its acceptance and the terms of the lease agreement. Id. Within the first month following acceptance, the VA began experiencing "operational issues" with the MRI unit. DX 3.1, 3.5-3.17; Tr. 165-66. DMS sent someone to repair the unit after each of these occurrences. Tr. 166. Although the lease agreement contained an "uptime guarantee" allowing the lessee...