Flexfab, L.L.C. v. U.S.

Decision Date27 September 2005
Docket NumberNo. 05-5018.,05-5018.
Citation424 F.3d 1254
PartiesFLEXFAB, L.L.C., Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
CourtU.S. Court of Appeals — Federal Circuit

John W. Allen, Varnum, Riddering, Schmidt & Howlett, LLP, of Grand Rapids, Michigan, argued for plaintiff-appellant. With him on the brief was Perrin Rynders. Of counsel was Cynthia W. Warren.

Claudia Burke, Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellee. With her on the brief were Peter D. Keisler, Assistant Attorney General, David M. Cohen, Director, and Harold D. Lester, Jr., Assistant Director.

Before CLEVENGER, BRYSON, and PROST, Circuit Judges.

CLEVENGER, Circuit Judge.

Plaintiff-appellant Flexfab, L.L.C. ("Flexfab") appeals the ruling of the United States Court of Federal Claims on cross-motions for summary judgment that Flexfab was not an intended third-party beneficiary of a contract between Capital City Pipes, Inc. ("Capital City"), a now-insolvent contractor, and The Defense Logistics Agency, Defense Supply Center Columbus ("DSCC" or "government"), or in the alternative that Flexfab was not a direct party to an implied-in-fact contract with the government. See Flexfab, LLC v. United States, 62 Fed.Cl. 139 (2004). Because the record is absent evidence that a government agent with authority to contract on behalf of the government intended to benefit Flexfab in the contract between Capital City and DSCC, or to contract with Flexfab directly, we affirm.


Congress passed the Small Business Act of 1953, 15 U.S.C. §§ 631-651, to "aid, counsel, assist, and protect . . . the interests of small-business concerns in order to preserve free competitive enterprise [and] to insure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government . . . be placed with small-business enterprises." 15 U.S.C. § 631(a) (2000). In section 8(a) of the Act, 15 U.S.C. § 637(a), Congress delegated to the Small Business Administration ("SBA") the authority to "enter into contracts with any procurement agency of the Federal Government to furnish required goods or services, and, in turn, to enter into subcontracts with small businesses for the performance of such contracts." Fullilove v. Klutznick, 448 U.S. 448, 463, 100 S.Ct. 2758, 65 L.Ed.2d 902 (1980); see also 15 U.S.C. § 631(f)(2) (explaining the purposes of section 637(a)). In accordance with this statutory mandate, the SBA in 1968 developed a program "to assist eligible small disadvantaged business concerns compete in the American economy through business development." 13 C.F.R. § 124.1 (2005). See generally 13 C.F.R. § 124.1-.603 (2005) (implementing section 8(a) programs). It is within the context of the SBA's section 8(a) program that the present case arises.


Michael Taylor was one of five DSCC small business specialists responsible for reviewing government contract solicitations above $10,000 to determine whether the work solicited could be completed by an SBA-approved section 8(a) contractor. If the contract solicitation is placed in the section 8(a) program, bidding on the solicitation is generally limited to participating businesses — i.e., those businesses "unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of the United States, and which demonstrate[ ] potential for success." 13 C.F.R. § 124.101.

Prior to 1998, C & S Industrial Supply Co. ("C & S") was DSCC's section 8(a) program supplier of air-duct hose. In 1998, however, C & S "graduated" from the program. See id. § 124.2 ("A firm that completes its nine year term of participation in the 8(a) BD program is deemed to graduate from the program."). Upon the recommendation of Henry Cook, Chief Executive Officer of C & S, Mr. Taylor arranged for the approval of Capital City to participate in the section 8(a) program. Capital City thereafter became DSCC's new supplier of air-duct hose.

In 1999, Anita Luich, a DSCC pre-award contracting officer, contacted Capital City about the procurement of air-duct hose. Capital City in turn approached Flexfab about manufacturing the hose. Flexfab refused to deal directly with Capital City, however, and instead offered to supply hose to Capital City through C & S. Mr. Cook claims to have informed Mr. Taylor at this point that Flexfab would not enter into the proposed arrangement unless the government agreed to pay Flexfab directly through an escrow account. According to Mr. Cook, Mr. Taylor promised to contact Capital City to ensure that any contract provided for the means for payment requested by Flexfab. There is no evidence of record, however, that Mr. Taylor himself had authority to execute contracts on behalf of DSCC or that he communicated directly with an authorized contracting officer or any representative of an authorized contracting officer.

Ms. Luich ultimately prepared an initial draft of a section 8(a) program contract between Capital City and the government for the provision of air-duct hose. As originally drafted, the contract listed the following remittance address:

                  Capital City Pipes, Inc
                  P.O. Box 12368
                  Tallahassee, FL 32317

By incorporating the provisions of 48 C.F.R. § 52.232-33, the contract also allowed for payment at the option of the government through an electronic fund transfer ("EFT"). See 48 C.F.R. § 52.232-33(a) (1998) ("Payments by the Government under this contract, including invoice and contract financing payments, may be made by check or [EFT] at the option of the Government."). Capital City initially registered its own EFT information in DSCC's Central Contractor Registration ("CCR") database. Despite a modification to the remittance address in the contract, as discussed infra, Capital City never updated the CCR database with new EFT information. The incorporated regulation made it Capital City's responsibility to do so. See id. § 52.232-33(c) ("In the event that the EFT information changes, the Contractor shall be responsible for providing the changed information to the designated payment office(s).").


On June 23, 1999, Capital City requested by letter that the remittance address listed in the contract be changed to:

                  Capital City Pipes, Inc
                  C/O ABA # 07200052
                  Old Kent Bank Corp Trust
                  P.O. Box 144
                  Grand Rapids, MI 49501-0144

The letter was incorporated into the contract. On June 29, 1999, DSCC formally awarded Contract No. SPO740-99-C-1004 to Capital City for payment in exchange for the supply of air-duct hose. As a supplier without manufacturing capabilities, Capital City entered into a sub-contract with C & S, which in turn entered into a sub-contract with Flexfab for production of the hose.

After several conversations between Mr. Taylor and Mr. Cook purportedly aimed at securing Flexfab's payment under the contract, Capital City requested in a July 1, 1999, letter to Ms. Luich that DSCC make two changes to the June 29 contract:

                The adjustments are 1st the remittance
                  Capital City Pipes, Inc
                  C/O ABA # 07200052
                  Old Kent Bank Corp Trust
                  P.O. Box 144
                  Grand Rapids, MI 49501-0144
                  2nd Adjustment
                  Place of Performance, Place of Shipping
                  & Inspection should read
                  Flexfab, Division
                  8143 Gun Lake Road
                  Hastings, MI

On September 27, 1999, Malinda Jeffries, a DSCC post-award contracting officer, issued the following modification in an Amendment of Solicitation/Modification of Contract form:

                  The remittance address where cited throughout the contract
                  is hereby
                  corrected to read as follows
                  Old Kent Bank, Corp Trust
                  CO# ABA# 07200052
                  P.O. Box 144
                  Grand Rapids, MI 49501-0144

The record is void of evidence that Ms. Jeffries knew that the modification to the contract was in any way associated with Flexfab's escrow account. The record reflects that neither Mr. Cook, nor Mr. Taylor, nor any Flexfab personnel ever communicated with the contracting officers to explain and memorialize the alleged demand by Flexfab that it would perform only if paid directly by the government into an escrow account for its benefit. In short, Flexfab relied entirely on others, mainly Capital City, to assure that Flexfab, not Capital City, would receive direct payment for the delivered hose.

Flexfab thereafter delivered air-duct hose to DSCC on several occasions. After each delivery, Defense Finance and Accounting Services ("DFAS") paid Capital City electronically, using Capital City's EFT information listed in the CCR database. DFAS ultimately paid Capital City the full amount due under the contract. Capital City later became insolvent and never paid Flexfab. On August 25, 2000, Flexfab demanded payment of $452,031.60 from DSCC for the delivered air-duct hose. DSCC denied the request. Flexfab thus brought suit in the Court of Federal Claims, claiming that it was owed the money as an intended third-party beneficiary to the contract between Capital City and DSCC or, in the alternative, as a direct party to an implied-in-fact contract between it and DSCC.


Turning its attention first to Flexfab's third-party beneficiary theory, the Court of Federal Claims stated that "unless Flexfab can make a sufficient showing that DSCC intended to benefit Flexfab, in other words, that some government agent possessing authority to bind the government agreed to make Flexfab a payee under the Contract, the government is entitled to judgment as a matter of law." Flexfab, 62 Fed.Cl. at 149 (internal quotation marks omitted). Finding that Flexfab made no such showing, the court held that "Flexfab's third-party beneficiary claim here falls short because Flexfab has failed to present any evidence that a government employee with actual authority intended to benefit Flexfab through the Capital City contract." Id. at 150. Turning next to the implied-in-fact contract theory, the Court of...

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