Kuwait Pearls Catering Co. v. Kellogg Brown & Root Servs., Inc.

• Decision Date: 27 March 2017
• Docket Number: No. 16-20270,16-20270
• Parties: KUWAIT PEARLS CATERING COMPANY, WLL, Plaintiff–Appellant v. KELLOGG BROWN & ROOT SERVICES, INCORPORATED, Defendant–Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

853 F.3d 173

KUWAIT PEARLS CATERING COMPANY, WLL, Plaintiff–Appellant
v.
KELLOGG BROWN & ROOT SERVICES, INCORPORATED, Defendant–Appellee

No. 16-20270

United States Court of Appeals, Fifth Circuit.

FILED March 27, 2017

Murphy S. Klasing, Attorney, Tanya Nicole Garrison, Weycer, Kaplan, Pulaski & Zuber, P.C., Houston, TX, for Plaintiff–Appellant.

Warren W. Harris, Yvonne Y. Ho, Esq., Bracewell, L.L.P., Margaret T. Brenner, Attorney, Schirrmeister Diaz–Arrastia Brem, L.L.P., Houston, TX, for Defendant–Appellee.

Before JONES, BARKSDALE, and COSTA, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

Primarily at issue in this appeal by Kuwait Pearls Catering Co., WLL (KPCC), from its action's being dismissed is whether the political-question doctrine renders nonjusticiable a contract dispute between Kellogg Brown & Root Svc., Inc. (KBR), a general contractor supporting the Government's military operations in Iraq, and KPCC, one of its subcontractors. At issue is the 2010 contract for, inter alia , KBR's leasing, with an option to purchase, a dining facility (the facility) constructed by KPCC in Iraq. In 2011, KBR informed KPCC the Government deemed the facility was property belonging to the government of Iraq, under a 2008 security agreement between the two governments. KPCC alleges KBR continued using the facility for another year, without paying rent or purchasing it. This action requires construing a contract and determining whether it was, inter alia , breached; there is, inter alia , no nonjusticiable political question. VACATED and REMANDED.

I.

The United States' military began operations in Afghanistan shortly after the 11 September 2001 al Qaeda attacks in the United States. To assist, in part, with those operations, the Government issued

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contracts through its logistical-civil-augmentation program (LOGCAP III) to private entities, including its 14 December 2001 contract with KBR. Under KBR's LOGCAP III contract, the Army issued orders for services, primarily on a cost-reimbursement basis.

Prior to the United States' invasion of Iraq in 2003, the Government began issuing orders to KBR to perform support services for the mission there, including base-life services (BLS) for forward-operating bases (FOBs). KBR was contracted to provide, inter alia , food services for dining facilities at various FOBs in Iraq. KBR's BLS contracts allowed it to subcontract services.

In that regard, KBR contracted in 2007 with KPCC for it to administer food services at FOB Warrior (7) in Kirkuk, Iraq. The complaint alleges: KPCC constructed a "removable" facility after KBR's 2006 request; and, in 2007, KBR began using the facility under the contract. After the contract between KBR and KPCC expired, a new one was entered in September 2010. This second contract (the contract) is at issue.

Under the contract, KBR continued leasing the facility and equipment necessary to operate it. KBR also held the option, for leased assets, "at its sole discretion at any time during the lease, [to] unilaterally opt to purchase the Assets". If KBR exercised its option, "title to the asset passe[d] to [KBR] upon full payment of the Purchase Price minus lease payments". The facility, according to KPCC's briefing—but without citation to the record—was a "temporary structure that could be assembled and disassembled as needed". Moreover, citing provisions of the contract, KPCC asserts the contract provided for it to deconstruct and remove, inter alia , the facility if KBR did not exercise its purchase option.

The complaint alleges the following occurred through the end of 2011. In 2010, after the contract was in effect, KBR initiated negotiations with KPCC to purchase the facility, but these talks fell through. By April 2011, however, KPCC was informed by KBR of its intention to formally re-open the purchase-discussion. This second round of negotiations continued as late as July 2011. Again, no agreement was reached. That November, KBR provided formal notice to KPCC, not only that the Government no longer wished to purchase the facility, but also that this decision was based on the Government's determination the facility was "real property", and, accordingly, was the property of the Iraqi government pursuant to a security agreement between the two governments.

The security agreement, executed 17 November 2008, took effect 1 January 2009, and governed the terms of the United States' military withdrawal from Iraq, and the transition to future security arrangements. Article five of the security agreement settled the ownership of certain property as between the two governments: "Iraq owns all buildings, non-relocatable structures, as well as assemblies connected to the soil that exist on agreed facilities and areas , including those that are used, constructed, altered, or improved by the United States Forces". (Emphasis added.) As provided in the security agreement, the "agreed facilities" to be returned to Iraq would be "based on two lists": one was to take effect upon entry of the security agreement; the second, no later than 30 June 2009. These two lists, however, are not part of the record; and, at oral argument here, the parties represented the lists have never been located.

KBR asserts it first became aware of the Government's position regarding the security agreement's application to the facility in an October 2011 email to KBR

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from the deputy program director for LOGCAP. (The email is an exhibit to KBR's motion to dismiss.) Through email correspondence with the Government, KBR initially pushed back against the Government's position, and advised the reclassification could result in a breach of the contract and liability in excess of the purchase price. Ultimately, however, the Government maintained its position, and KBR gave formal notice to KPCC.

The complaint alleges: KPCC was required by KBR to vacate the facility in February 2012, without being allowed to remove the structure; and KBR continued using the facility through 2013, while not making lease payments to KPCC during that time period and denying its claim for reimbursement of the cost of building the facility.

After KPCC filed this action in Texas state court, KBR removed to district court, and KPCC filed its first amended complaint, subject to its motion to remand. In that complaint, KPCC presented the following three claims: breach of contract; fraud; and promissory estoppel.

In support of the breach-of-contract claim, the complaint provides: KPCC "entered into a valid and binding agreement" with KBR; it breached the contract when it "exercised its option to purchase the ... facility"; and it "refused and continues to refuse to pay for the ... facility", despite "continu[ing] to utilize the facility and refus[ing] to allow KPCC to take the facility and its equipment back to Kuwait". The complaint maintains KPCC suffered damages "[a]s a result" of this claimed breach, as well as "because KBR unlawfully took the building and continued to use it".

With regard to fraud, the complaint states: KBR's representation in 2011 that "it would exercise the option to purchase the building" under the contract "was material and false"; KBR "made the representation at a time it knew the representation was false or ... recklessly as a positive assertion without knowledge of its truth ... with the intent KPCC would act upon it"; and, in reliance on KBR's representation, KPCC negotiated for the sale of the facility, "instead of preparing to demobilize the facility in advance of the end of the contract". Additionally, the complaint maintains: "KBR's continued reliance on [the security agreement] means that in 2010 [when the contract with KPCC was entered] its promises to purchase the [f]acility were false and/or made with reckless disregard for the truth". The complaint claims KPCC suffered damages as a result of its reliance on KBR's fraudulent representations.

For the promissory-estoppel claim, the complaint provides: if the facility is subject to the security agreement, it became the property of Iraq in June 2009, and, therefore, the contract "fails for lack of mutuality"; and "KPCC relied on KBR's promises to lease and purchase the [f]acility to its detriment ... [because] KPCC could have removed the facility in 2010, or earlier".

KBR moved to dismiss on numerous grounds, including nonjusticiability pursuant to the political-question doctrine articulated in Baker v. Carr , 369 U.S. 186, 82 S.Ct. 691, 7 L.Ed.2d 663 (1962), and the related act-of-state doctrine. It also asserted derivative immunity under Yearsley v. W.A. Ross Const. Co. , 309 U.S. 18, 60 S.Ct. 413, 84 L.Ed. 554 (1940).

In a very detailed and comprehensive opinion, the district court denied remand and granted KBR's motion to dismiss. Kuwait Pearls Catering Co., WLL v. Kellogg Brown & Root Svcs., Inc. , No. 4:15-cv-754, 2016 WL 1259518, at *14, *22 (S.D. Tex. 31 Mar. 2016). The court stated in dicta : "[T]he government contract defense, the political question doctrine ... and the act

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of state doctrine all apply under the facts here to preclude the [c]ourt from ruling on the issues in this case". Id. at *22. Ultimately, however, the court based its decision on "only the...