L.S.S. Leasing Corp. v. U.S.

• Decision Date: 10 December 1982
• Docket Number: No. 408-78,408-78
• Citation: 695 F.2d 1359
• Parties: 30 Cont.Cas.Fed. (CCH) 70,620 L.S.S. LEASING CORPORATION, Appellant-Cross-Appellee, v. UNITED STATES, Appellee-Cross-Appellant. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 1359

695 F.2d 1359

30 Cont.Cas.Fed. (CCH) 70,620

L.S.S. LEASING CORPORATION, Appellant-Cross-Appellee, v. UNITED STATES, Appellee-Cross-Appellant.

Appeal No. 408-78.

United States Court of Appeals Federal Circuit.

Dec. 10, 1982.

Jay L. Cohen, Washington, D.C., argued the case for appellant-cross-appellee. With him on the briefs were Fred Israel and Israel & Raley, P.C., Washington, D.C.

Stephen G. Anderson, Washington, D.C., argued the case for appellee-cross-appellant. With him on the brief was Asst. Atty. Gen. J. Paul McGrath, Washington, D.C.

Before FRIEDMAN, BALDWIN, and NIES, Circuit Judges.

NIES, Circuit Judge.

This appeal is from the final judgment ¹ of the United States Claims Court holding the Government contractually liable for overtime usage of a building leased from L.S.S. Leasing Corporation (lessor) during the period from September 1972, to November 30, 1974. Lessor's additional claim for usage prior to September 1972 was held to be barred by the statute of limitations set forth in 28 U.S.C. Sec. 2501 (1976). ² We modify.

Background

The Social Security Administration, Department of Health and Human Services, has been occupying an entire building under a lease entered into June 1, 1966. The lease runs until May 31, 1991, and had apparently been modified at least 22 times by the time this suit was filed. Two of these modifications, Supplemental Agreements 10 and 22 (S.A. 10 and S.A. 22, respectively), are of concern here.

The original lease, in what was denominated Schedule "B" and entitled "Maintenance and Service Provisions," required the lessor to furnish: (1) heat and air conditioning; (2) porter service; (3) alternating current; (4) hot and cold running water and sewerage; (5) passenger and freight elevator service; (6) chilled drinking water; (7) snow and ice clearance; and (8) a limited number of parking spaces. These services were to be provided during "tenant working hours" identified as Monday through Friday, 8:00 a.m. to 6:00 p.m., and Saturday, 8:00 a.m. to 1:00 p.m. (except federal holidays). Schedule "B," p 2. In addition, outside the "tenant working hours," the lessor was obligated to furnish heat or air conditioning and elevator service upon four hours' written notice from the Government. Schedule "B," p 3, "Overtime Services." The lessor was entitled to the actual costs of overtime heat and air conditioning, up to a maximum of $100 per hour. No compensation was paid for electricity for lighting or for use of the building or other building services after tenant working hours. The "Overtime Services" provision further required: "Each invoice submitted by the lessor for overtime heat or air conditioning ... shall itemize the actual cost and shall be subject to audit."

One room of the building, identified as the "Computer Room" (hereinafter as Computer Room One), received special treatment. Computer Room One, which housed the agency's computer systems, was to be provided "heat or airconditioning to maintain proper environmental conditions for the equipment and power for lighting" 24 hours per day, seven days a week, and "electricity for the equipment [estimated at 20 KVA], which will operate approximately 16 hours per day, 5 days per week." Schedule "B," p 4, "Computer Room Services."

At the time the lease was entered into, it was the Government's expectation that its overtime use of the building would be negligible. However, with the subsequent enactment by Congress of the Medicare Program and its resulting impact upon the Social Security Administration's workload, overtime use of the building increased dramatically. This, in turn, led to a significant increase in non-compensable costs to the lessor while simultaneously imposing a burdensome overtime audit procedure upon the Government. Within a year, it had become obvious to the parties that, because of changed circumstances, the overtime provisions of the lease were no longer fair or practicable.

Negotiations were undertaken to resolve the problems posed by this mutually disadvantageous overtime payment scheme. What resulted was S.A. 10 which modified Schedule "B," p 3 by (1) eliminating the previous auditing procedures and (2) setting a single flat fee of $53 per hour for each hour of "overtime services requested by, and furnished to, the Government ... irrespective of the numbers of floors or portions worked or the number of hours worked." All services specified in Schedule "B," p 2 were to be provided during overtime. S.A. 10 was drafted by the Government and made retroactive to July 4, 1966.

Under S.A. 10, a self-monitoring procedure developed wherein the Government would verify its overtime usage and report such usage on both a weekly and a monthly basis to the lessor and Government Services Administration (GSA); the lessor would then bill GSA for each hour at $53 per hour; and GSA would remit payment to the lessor.

Although the $53 per hour rate was in effect for some time and seemed satisfactory, by 1972 that rate had become unprofitable for the lessor. On May 30, 1972, lessor contacted GSA and demanded additional compensation asserting that (1) the lessor's overtime costs had risen to $126 per hour (this figure was later revised to $168); (2) the number of Government employees occupying the building had increased substantially; and (3) the Government's overtime use had increased to almost a full double-shift, a marked increase over what had been contemplated when S.A. 10 was entered into.

GSA's Office of Audits conducted a review of building use and overtime costs and, initially, determined that the lessor's contentions were unjustified. However, upon further investigation, GSA did find that the lessor's costs had risen to about $106 per hour.

In an effort to find out for himself why costs had gotten out of hand, lessor's vice-president, Mr. Daniel E. Walzer, made an early-morning check of the building in August of 1974. At 5:00 a.m. he found Computer Room One in operation and was informed by a computer room employee that the computer facilities had been used regularly for two or three shifts per day for several years. Prior to this discovery, Mr. Walzer had been unaware of this extensive use of the computer room which was greatly in excess of the overtime hours reported by the Government.

Mr. Walzer's pre-dawn encounter resulted in a demand by him for an accounting covering the overtime hours in Computer Room One. He also informed GSA that the computer's electricity consumption had been "for sometime in excess of the 20 KVA permitted by the Lease."

GSA conducted a check of employee records which verified that Computer Room One had been in almost constant operation, that is, with employees present. An additional discovery was that the Government had constructed another computer room (hereinafter Computer Room Three) which had been operational since January 1974 and had also been heavily used. Without a precise audit of payroll records, the Government estimated that, since the inception of the lease, Computer Room One had been used 22,614 hours in addition to any hours which would have been included in any previously reported overtime use of the building, and that Computer Room Three had been used during 1,144 hours not previously reported, but that these hours were concurrent with Computer Room One hours.

With the "report" of overtime usage in hand, Mr. Walzer proceeded to submit an invoice for overtime compensation in accordance with previous billing procedures. In response, the Government took the position that no overtime usage had occurred because the lessor was under an obligation to provide continuous computer room services. Any incidental use of the rest of the building (i.e., washrooms, elevators, etc.) by employees outside of that room was, in the Government's view, de minimis. The lessor, naturally, disagreed.

Notwithstanding their sharp differences, the parties negotiated to achieve an amicable settlement for overtime use of both computer rooms. However, the national office of GSA's Public Buildings Service rejected the proposed settlement, taking the view that the Government's liability was limited to payment for excess electricity.

After further negotiations, the parties entered into S.A. 22 which provided for a lump sum payment for excess electrical consumption and released the Government from all claims except the following:

a) For overtime services performed by the Lessor for the period December 1, 1966 through August 31, 1972, being a total of 16,059 hours for services performed in Computer Room No. 1 (constructed at the inception of the lease and also known as the main computer room) at the rate of $53.00 per hour for a total of $851,127.

* * *

* * *

b) For overtime services performed by the Lessor for the period September 1, 1972 through November 30, 1974, being a total of 3,630 hours for services performed in Computer Room No. 1 (constructed at the inception of the lease and also known as the main computer room) at the rate of $53.00 per hour for a total of $192,390.00.

c) For overtime services performed by the Lessor for the period January 1, 1974 through November 30, 1974, a total of 1,144 hours, for services performed in Computer Room No. 3 (constructed and operational on January 1, 1974, and also known as the SSADARS area) at the rate of $53.00 per hour for a total of $60,632.00.

There is no language in S.A. 22 indicating that "b" and "c" are concurrent hours. However, in its petition before the trial court, the lessor set out the above figures and sought compensation for a total of 19,689 hours of usage (the sum of "a" and "b"), either under the contract at $53 per hour or on a quantum meruit basis at the same rate. ³ The Government denied liability on the grounds that the overtime services were not "requested by, and furnished" within the meaning of the lease and that any overtime services provided were de minimis. At the close of the trial the Government added...