Grumman Aerospace Corp. v. United States

• Decision Date: 14 June 1978
• Docket Number: No. 544-76.,544-76.
• Citation: 579 F.2d 586
• Parties: GRUMMAN AEROSPACE CORPORATION v. The UNITED STATES.
• Court: U.S. Claims Court

579 F.2d 586

GRUMMAN AEROSPACE CORPORATION v. The UNITED STATES.

No. 544-76.

United States Court of Claims.

June 14, 1978.

Gene Perry Bond, Washington, D.C., attorney of record, for plaintiff. Robert P. Murphy, Chapman, Duff & Paul, Washington, D. C., Raphael Mur and Robert W. Ballin, Bethpage, N. Y., of counsel.

Thomas W. Petersen, Washington, D.C., with whom was Asst. Atty. Gen. Barbara Allen Babcock, Washington, D.C., for defendant.

Before COWEN, Senior Judge, and DAVIS, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges, en banc.

ON PLAINTIFF'S AND DEFENDANT'S CROSS-MOTIONS FOR SUMMARY JUDGMENT

DAVIS, Judge:

Grumman Aerospace Corp. seeks review under the Wunderlich Act, 41 U.S.C. §§ 321, 322 (1970), of two decisions of the National Aeronautical Space Administration Board of Contract Appeals (NASA BCA) on the company's right to reimbursement, under cost-plus-fixed-fee contracts with NASA and the Department of the Navy,¹ with respect to certain legal and accounting fees for outside services incurred by plaintiff during 1970, 1971 and 1972 in connection with renegotiation proceedings for its 1964 and 1965 fiscal years.²

I

On November 30, 1960, Grumman was issued a letter contract by NASA for the design and development of an Orbiting Astronomical Observatory satellite and related ground equipment. The formalized contract included the standard clauses prescribed by NASA Procurement Regulations for use in cost-reimbursement research and development contracts.³ Those clauses provided that Part II, Section XV of the Armed Services Procurement Regulations (ASPR) would control the allowability of costs under the contract.⁴ The allowability of legal and accounting fees was thus governed by ASPR section 15-205.31, which provided for the reimbursement of such fees except when (inter alia) incurred in "the prosecution of claims against the Government."⁵ This case concerns that exclusionary provision.

Grumman's proceedings before the Renegotiation Board were typical of the process faced by contractors prior to redetermination proceedings in this court (or the Tax Court).⁶ On October 27, 1967, the Eastern Regional Board, after reviewing Grumman's filings to the Board for its 1965 fiscal year, made its recommendation that Grumman had earned excessive profits. After receiving the Regional Board's summary of facts and reasons for its decision, Grumman refused to enter into an excess profits refund agreement on the basis of these findings and pursued its right to de novo review before the statutory Renegotiation Board. Proceedings at that level ultimately resulted in the Board's initial determination, on April 15, 1968, that plaintiff had earned excessive profits in 1965. On May 1, 1968, the Board confirmed its initial decision while denying plaintiff's request for certain information bearing upon the reasons for this decision. When negotiations for a refund agreement based upon this determination had reached an impasse, the Board, on May 21, 1968, issued its unilateral order determining its position as to the existence and amount of excessive profits for 1965. Its statement of facts and reasons was subsequently provided to plaintiff (at its request) on July 26, 1968. In early August, Grumman filed its petition for de novo review of the Board's order in the Tax Court; the case was transferred to the Court of Claims in July 1971, pursuant to the extension of the Renegotiation Act of 1951, Pub.L.No.92-41, § 3, 85 Stat. 97 (1971), and was referred to a trial judge of this court in August 1971. During and subsequent to this time, Grumman and the Justice Department were working on proposed stipulations for use in the judicial redetermination proceeding and were also negotiating the terms and conditions of a compromise settlement for both the 1965 and 1966 renegotiable years.

Renegotiation of Grumman's earnings in 1966 had a slightly different history. Following Grumman's refusal to accept the Regional Board's August 15, 1967 final recommendation that it had earned excessive profits in 1966, the statutory Board confirmed, on December 16, 1970, the Regional Board's decision as to the existence of excessive profits. Plaintiff was granted repeated extensions of time to indicate whether it would enter into a refund agreement on the basis of that decision. However, a unilateral order for 1966 was never issued because Grumman's December 15, 1972 offer of full settlement for 1965 and 1966 was accepted by the Government in February 1973.

During its proceedings before the Renegotiation Board and pending its de novo appeal to the court, Grumman was also involved in a suit under the Freedom of Information Act (FOIA), 5 U.S.C. § 552 (1970) (amended 1976), to force disclosure to it of two kinds of information used by the Board in determining the excessiveness of its profits for 1965 and 1966. The first request, made to the Board in April 1968 (after the Board's initial determination of the excessiveness of the profits earned in 1965, but prior to the issuance of its unilateral order), sought disclosure of "the final opinions, determinations, unilateral orders, agreements, clearance notices and letters not to proceed, as well as the written summaries of facts and reasons upon which such were based, issued in the adjudication of renegotiation cases from 1962-65 involving fourteen of its competitors." Grumman's request was made "as further assistance in enabling us to determine whether to enter into an agreement with the Board." On May 21, 1968, the date of the Board's unilateral order for 1965, the Board upheld its General Counsel's denial of this request on the basis that the records requested were subject to exemptions under the FOIA set forth in subsections (b)(3) and (b)(4),⁷ and under Board Regulations 1480.9(a)(3) — (4), 1480.9(b).⁸ Before receiving notice of this decision, plaintiff made its second request to the Board to make available, in addition, all reports, correspondence and data contained in the Board's files regarding its own performance on its renegotiable contracts in 1965. The Board denied this request on May 21 and June 13, 1968, citing the same statutes and regulations and also claiming that the request lacked the necessary specificity to be honored.

On June 27, 1968, Grumman filed suit in the District Court for the District of Columbia under 5 U.S.C. § 552(a)(3) (1970) (amended 1974) seeking to enjoin the Board from withholding, and ordering the production of, the records relating to its competitors' renegotiation cases and the documents concerning its own case. The District Court granted the Government's motion for summary judgment without opinion. On appeal, the Court of Appeals held that plaintiff was entitled to access to the records and documents after suitable deletions by the Board of confidential commercial or financial information, as required by exemption (b)(4) of the Freedom of Information Act, see note 7, supra. Grumman Aircraft Eng'r Corp. v. Renegotiation Board, 138 U.S.App.D.C. 147, 425 F.2d 578 (1970). On remand, the District Court held that summaries of facts and reasons, and certain other reports and documents, constituted "final orders and opinions" and had to be made available to plaintiff. Grumman Aircraft Eng'r Corp. v. Renegotiation Board, 325 F.Supp. 1146 (D.D.C.1971). The Court of Appeals affirmed the District Court, Grumman Aircraft Eng'r Corp. v. Renegotiation Board, 157 U.S.App.D.C. 121, 482 F.2d 710 (1973), but the Supreme Court reversed, holding that the documents sought were not subject to disclosure under the FOIA but were pre-decisional consultative memoranda exempted from disclosure by Exemption 5 of that Act. Renegotiation Board v. Grumman Aircraft Eng'r Corp., 421 U.S. 168, 95 S.Ct. 1491, 44 L.Ed.2d 57 (1975).

Legal and accounting fees incurred in the renegotiation proceedings and in the FOIA suit were at stake in the NASA BCA decision we are asked to review. Plaintiff did not seek reimbursement of those fees as such, but only as part of the general and administrative expenses allocated to the particular contract (No. NAS5-814). Grumman's expenses for these outside legal and accounting fees can be separated into three categories: (1) costs incurred in proceedings before the Renegotiation Board; (2) costs of appealing the Board's unilateral order for 1965, including the costs of settlement negotiations pending such judicial redetermination, and (3) the expenses of suing to compel disclosure, under the Freedom of Information Act, of information used by the Renegotiation Board in making its decision. Plaintiff, however, did not so distinguish its legal and accounting fees incurred during 1970, 1971, and 1972, but instead recorded and charged them as a general and administrative expense, thereby allocating them among all of its contracts on a total cost input basis.⁹ During the summer of 1972, the Defense Contract Audit Agency (DCAA)¹⁰ resident auditor challenged this treatment of legal and accounting expenses during a routine review of Grumman's overhead accounts for 1970 and 1971. Acting upon the DCAA recommendation, the Contracting Officer issued, in May 1973, a Notice of Contract Costs Suspended and/or Disapproved, with supporting documents, which totally disallowed these fees for 1970, 1971 and 1972.¹¹ Following expiration of sixty days, the notice matured into the final decision of the Contracting Officer, which Grumman timely appealed to the NASA Board of Contract Appeals.

Before the NASA Board, the Government conceded the allowability of those legal and accounting fees incurred before the Renegotiation Board on the theory that expenses, such as these, incurred in connection with the preparation of reports designed to help settle an issue before or during the formulation of the final Government position (unilateral order) were allowable, while subsequent expenses incurred in an adversarial relationship to that position were disallowed as "claims against the...