Ins. Co. of the West v. United States
| Decision Date | 08 September 2011 |
| Docket Number | No. 09-509 C,09-509 C |
| Parties | Insurance Company of the West, Plaintiff, v. United States of America, Defendant. |
| Court | U.S. Claims Court |
Surety; Contract Disputes Act; Anti-Assignment Acts; Equitable Subrogation; Waiver; Silence as Assent
Christopher M. Bunge, Watt, Tieder, Hoffar & Fitzgerald, L.L.P., Irvine, CA, for plaintiff.
James W. Poirier, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, for defendant.
On August 4, 2009, plaintiff, Insurance Company of the West ("ICW") filed this action, pursuant to the Contract Disputes Act ("CDA"),1 in which it seeks to appeal, as equitable subrogee and assignee of the W.R. Chavez Construction Company, Inc. ("Chavez"), a contracting officer's final decision denying additional compensation to Chavez on its claims for delayed project completion and additional work. On December 3, 2009, defendant filed a motion to dismiss for lack of jurisdiction, pursuant to Rule of the Court of Federal Claims ("RCFC") 12(b)(1). See Def.'s Mot. to Dismiss at 1. Therein, defendant argues that plaintiff cannot maintain an action under the CDA because plaintiff is not the contractor, id. at 4, has not identified any assignment from the contractor, Chavez, to plaintiff that is effective against thegovernment, id. at 6, and has not alleged facts sufficient to show it is an equitable subrogee, id. at 7. Because plaintiff was not the contractor and has not demonstrated that the government has waived the protections of the Assignment of Claims Act, 31 U.S.C. § 3727, to allow plaintiff to assert the contractor's claims, it cannot maintain this action. Accordingly, defendant's motion to dismiss is GRANTED.
In September 1999, Chavez entered into Contract Number N68711-99-D-6203 with the U.S. Department of the Navy ("the Navy") to design and construct the "Live Fire Survivability Test & Evaluation Complex," ("the project") located at Naval Air Weapons Station China Lake in California. Am. Compl. ¶ 5. Pursuant to the Miller Act, Chavez was required to obtain payment and performance bonds. See 40 U.S.C. § 3131 (). In the event that a contractor defaults on a contract, a performance bond guarantees that a construction project will be completed, while a payment bond guarantees that subcontractors and suppliers will be paid for their contributions to a project. See United Pacific Ins. Co. v. United States, 464 F.3d 1325, 1326 n.2 (Fed. Cir. 2006). Plaintiff issued both of these bonds to Chavez, thereby becoming Chavez's surety. Am. Compl. ¶ 5. Chavez then entered into the contract with the Navy and began work on the project in September 1999. Am. Compl. ¶ 10.
On March 26, 2001, Chavez executed a General Indemnity Agreement for the benefit of plaintiff. See Ulibarri Decl. Ex. A at 1 [hereinafter "GIA"]. In the General Indemnity Agreement, Chavez assigned to plaintiff "all monies due or to become due to [Chavez] as a result of the contract covered by [the] Bonds, including . . . proceeds of any delay or other damage claims" and "all other rights of [Chavez] in or growing out of the contract covered by [the] Bonds." GIA ¶ 5. The General Indemnity Agreement provided that "[t]his assignment shall be effective as of the date of [the] Bonds, but only in the event of a Default of this Agreement." Id. The General Indemnity Agreement also defined default to include failure to perform any contract covered by the bonds, failure to pay bills incurred in connection with any contract covered by the bonds, and failure to comply with the terms of the General Indemnity Agreement. Id. ¶ 4.
In August 2002, Chavez and plaintiff jointly notified the Navy that Chavez would not be able to meet its obligations under the bonds issued by plaintiff. Am. Compl. ¶ 6. At that time, Chavez and plaintiff also requested that the Navy direct to plaintiff all future payments that would otherwise be owed to Chavez, including payments for the settlement of any claims Chavez had against the Navy. Id.; Ulibarri Decl. ¶ 10.
Following this request, Chavez continued working on the project with the assistance of plaintiff. Am. Compl. ¶ 7. In particular, plaintiff provided financing to Chavez and also paid Roel Construction Company ("Roel") to assist Chavez in completing the project. Ulibarri Decl. ¶ 5. The Navy was aware that Roel was assisting Chavez. Montgomery Decl. ¶¶ 4-5. Roel assigned a project superintendent who did daily work on the project and a project manager who attended weekly meetings with the Navy. Id. While plaintiff and Roel were assisting Chavez,the Navy met with Chavez, Roel, and plaintiff to discuss settlement of certain claims that Chavez had asserted against the Navy for project delays and for additional work required by the Navy. Ulibarri Decl. ¶ 9. An employee from the Navy advised plaintiff and Roel to submit a formal request for equitable adjustment in order to seek additional compensation on Chavez's claims. Ulibarri Decl. ¶ 8.
In late January 2004, Chavez's principals, Wilfred and Deborah Chavez, each executed a "Compromise Settlement and Mutual Release Agreement" ("Compromise Settlement") with plaintiff. See Am. Compl. Ex. B. Each Compromise Settlement established the rights of the respective parties in light of the fact that Chavez was unable to perform its construction contracts and had defaulted on the bonds issued by plaintiff. See id.
Despite plaintiff and Roel's assistance, Chavez was unable to complete the project, and plaintiff, as the issuer of the performance bond, became responsible for its completion. Id. ¶ 7. Plaintiff, Chavez, Roel, and the Navy entered into a four-party agreement on May 26, 2004 (the "Four-Party Agreement") under which Roel would complete all remaining work on the project. Id. Ex. A ¶ 1. The parties agreed that Roel would find its own surety to furnish payment and performance bonds for the project's completion. Id. Ex. A ¶ 2.
On March 8, 2007, Chavez submitted a written claim to the Navy seeking $1,466,799.34 as compensation for alleged project delays and additional work. Id. ¶ 17. In its claim, Chavez noted that Def.'s Reply App. at 5. The contracting officer ("CO") for the Navy issued a written decision on November 2, 2008, granting Chavez additional compensation in the amount of $6,068 for delays resulting from base closures following the attacks on September 11, 2001, but otherwise denying Chavez's claim. Am. Compl. ¶ 18. However, the Navy also asserted its own claim against Chavez for $85,043.00 because the government allegedly changed the contract specifications in a way that reduced Chavez's cost of performance. Id.; Def.'s Mot. to Dismiss App. at 35.
Plaintiff then filed this action seeking compensation under the CDA on the claims denied by the CO in his November 2, 2008, decision. See Am. Compl. ¶¶ 18, 20. In its complaint, plaintiff relies on its alleged status as Chavez's equitable subrogee and assignee as the basis for this action. See id. ¶ 20. Defendant thereafter filed a motion to dismiss for lack of subject-matter jurisdiction, arguing that the plaintiff is not a "contractor," which is a prerequisite to plaintiff's suit under the CDA. Def.'s Mot. to Dismiss at 1. Thus, defendant argues that equitable subrogation provides no basis for plaintiff's claims. Id. at 7. Furthermore, according to defendant, plaintiff has failed to show an assignment from Chavez to plaintiff that is effective against the government. Id. at 1. After the parties completed briefing, the court conducted a hearing on the motion to dismiss. See Tr. at 1.
It is historically true that the United States cannot be sued in law or equity without its consent. See United States v. Mitchell, 463 U.S. 206, 212 (1983); Cardiosom, L.L.C. v. United States, No. 2010-5109, 2011 WL 3835406, at *2 (Fed. Cir. Aug. 31, 2011), available at http://law.justia.com/cases/federal/appellate-courts/cafc (recognizing sovereign immunity as part of American common law). Such waivers are strictly construed in favor of the sovereign. Orff v. United States, 545 U.S. 596, 601-02 (2005). It is for this reason that "[j]urisdiction over any suit against the [g]overnment requires a clear statement from the United States waiving sovereign immunity, together with a claim falling within the terms of the waiver." United States v. White Mountain Apache Tribe, 537 U.S. 465, 472 (2003) (citations omitted). Pertinent for the purposes of this court, "[t]he Tucker Act contains such a waiver, giving the Court of Federal Claims jurisdiction to award damages" for any claim founded upon any express or implied contract with the United States. Id.; see 28 U.S.C. § 1491(a)(1). Furthermore, the Tucker Act waives sovereign immunity for assignees of the claim, unless a statute bars such an assignment. Ins. Co. of the W. v. United States, 243 F.3d 1367, 1375 (Fed. Cir. 2001) ().
To be sure, as long recognized by the Federal Circuit, examples of such statutory bars are the Assignment of Claims Act, 31 U.S.C. § 3727, and the Assignment of Contracts Act, 41 U.S.C. § 15 (). In essence, these Acts withdraw the Tucker Act's waiver of sovereign immunity. See Ins. Co. of the W., 243 F.3d at 1375. So, as explained more fully below, the Anti-Assignment Acts render an assignment ineffective against the...
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