Lumbermens Mut. Cas. Co. v. United States

• Decision Date: 07 December 2011
• Docket Number: 2010–5087.,Nos. 2010–5086,s. 2010–5086
• Citation: 654 F.3d 1305
• Parties: LUMBERMENS MUTUAL CASUALTY COMPANY, Plaintiff–Cross Appellant,v.UNITED STATES, Defendant–Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

654 F.3d 1305

LUMBERMENS MUTUAL CASUALTY COMPANY, Plaintiff–Cross Appellant,

v.UNITED STATES, Defendant–Appellant.

Nos. 2010–5086

2010–5087.

United States Court of Appeals, Federal Circuit.

Aug. 3, 2011.Rehearing En Banc Denied Dec. 7, 2011.

Mark G. Jackson, Ball Janik, LLP, of Seattle, Washington, argued for plaintiff-cross appellant. With him on the brief was Matthew C. Hoyer, of Washington, DC.Donald E. Kinner, Assistant Director, Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director and Christopher L. Krafchek, Trial Attorney. Of counsel was Leslie Cayer Ohta.Edward G. Gallagher, the Surety & Fidelity Association of America, of Washington, DC, for amicus curiae the Surety & Fidelity Association of America.Before BRYSON, MAYER and DYK, Circuit Judges.DYK, Circuit Judge.

This case requires us to decide three issues concerning the jurisdiction of the United States Court of Federal Claims (“Claims Court”) in actions brought by Miller Act sureties against the United States. See 40 U.S.C. § 3131(b) (2006) (formerly 40 U.S.C. § 270a).

In Insurance Company of the West v. United States, 243 F.3d 1367, 1375 (Fed.Cir.2001) [hereinafter ICW ], we held that the Claims Court has jurisdiction under the Tucker Act, 28 U.S.C. § 1491, over sureties' claims against the government that are based upon the theory of equitable subrogation. The first issue presented in this appeal is whether the surety's claim against the United States seeking to recover allegedly improper progress payments made to the contractor is an equitable subrogation claim and is therefore within Tucker Act jurisdiction under ICW. We conclude that the surety's claim is not an equitable subrogation claim because the United States made the payments in question before it received notice of the contractor's default.

The second issue is whether the Claims Court has Tucker Act jurisdiction over impairment of suretyship claims against the government apart from the theory of equitable subrogation. We hold that the United States' waiver of sovereign immunity under the Tucker Act does not extend to such claims.

The final question is whether the administrative requirements of the Contract Disputes Act (“CDA”), 41 U.S.C. § 601 et seq., apply to a surety's claim against the United States arising from a takeover agreement which the government and surety have entered into for the completion of a bonded contract following the principal obligor's default. We hold that such claims fall within the scope of the CDA and that, as such, the Claims Court lacks jurisdiction over a surety's takeover agreement claim where the surety has failed to satisfy the CDA's jurisdictional prerequisites.

Background

I

On April 11, 2000, Landmark Construction Company (“Landmark”) and the United States Navy (“Navy”) entered into a contract under which Landmark agreed to repair and renovate 160 military family housing units for the price of $9,878,026. The contract required construction to be completed by October 23, 2002, and it provided for liquidated damages of $75 per unit, per day past that date. In accordance with the Miller Act, 40 U.S.C. § 3131(b) (2006) (formerly 40 U.S.C. § 270a), the contract required Landmark to furnish performance and payment bonds.

To fulfill the construction contract's bond requirement, Landmark entered into two suretyship agreements with Lumbermens Mutual Casualty Company (“Lumbermens”) on April 20, 2000, under which Lumbermens issued a payment bond (for $2.5 million) and a performance bond (for the $9,878,026 contract price). The United States was not a party to either suretyship agreement, but both contracts expressly identified the United States as the intended third-party beneficiary of the bond in the event Landmark breached its obligations.

On February 27, 2001, Landmark and the Navy agreed to add 21 housing units to the construction contract (for a total of 181 units) in exchange for increasing the contract price by $1,884,174. The modification did not extend the contract's completion date, which remained October 23, 2002. Lumbermens did not provide payment or performance bonds for the additional units.

On July 20, 2001, Landmark informed the Navy that it was unable to complete the construction contract due to financial problems, and it abandoned the construction site soon thereafter. The Navy terminated Landmark for default on August 2, 2001. At that time, Landmark had completed only 22 (about 12%) of the 181 housing units, but the Navy had already given Landmark payments equal to $4,793,633—approximately 40% of the modified contract price. In making these payments, the government allegedly ignored multiple Federal Acquisition Regulation (“FAR”) provisions incorporated into the contract that were purportedly aimed at ensuring progress payments would correspond to the amount of work actually completed. For example, under the FAR payment provisions, progress payments were not to be issued until Landmark provided a Schedule of Prices (an itemization of the contract price detailing how all funds would be spent), a Network Analysis Schedule (a chart breaking down the contractor's work schedule into a series of tasks and dates), and, for each invoice, a Certification of Completion (a document certifying that the invoice submitted by the contractor only requests payment for services within the contract). Lumbermens contends that the government did not enforce these FAR provisions; that the provisions were intended to benefit the surety as well as the government; and that Lumbermens was injured as a result of the government's lax enforcement.

Following Landmark's default, the United States exercised its rights as an intended third-party beneficiary of the performance bond and demanded that Lumbermens complete the construction contract. Lumbermens accepted its obligation and hired Atherton Construction (“Atherton”) to complete the job. The three parties—Lumbermens, Atherton, and the United States—entered into a “takeover agreement” on November 20, 2001, under which Lumbermens agreed that, “in accordance with [its] obligations under [the] Performance Bond,” “it [would] undertake the completion of the work and [would] contract with [Atherton] for completing the work remaining under the contract.” J.A. 314. Atherton agreed to complete the entire modified contract, including the 21 additional units that were not part of the original contract bonded by Lumbermens, and it contracted with another surety to bond the additional units. Lumbermens and Atherton also entered into a separate “completion” contract under which they agreed that Lumbermens would be responsible for all liquidated damages assessed by the government between October 23, 2002, and June 22, 2003, and Atherton would be liable for assessments thereafter.

In January 2002, after beginning construction, Atherton discovered safety code violations in the electrical work completed by Landmark. The Navy had previously been notified of the faulty wiring issue by Landmark during a design review meeting on August 24, 2000. Though the electrical issue delayed Atherton's work by 46 days, the Navy denied Atherton's requests for an extension.

Atherton completed the construction project on June 6, 2003. Because this was after the contract's October 23, 2002, completion date, the Navy assessed Atherton liquidated damages of $1,015,125—including $713,475 for its delay in finishing the base units from the original construction contract and $301,650 for its delay in completing additional units under the modified contract. Because these liquidated damages were all assessed for the period between October 23, 2002, and June 22, 2003, Lumbermens was required to reimburse Atherton pursuant to the parties' completion contract.

II

Following completion of the construction project, Lumbermens brought suit against the government in the Claims Court under the Tucker Act, 28 U.S.C. § 1491, seeking to recover damages under three theories, which we now discuss.

A. Equitable Subrogation

Lumbermens' first claim sought to recover damages under the theory of “equitable subrogation.” J.A. 43. Lumbermens contended the government improperly increased Lumbermens' suretyship costs by making overpayments to Landmark in violation of FAR payment provisions in the bonded contract that were aimed at ensuring progress payments corresponded to work actually completed. Lumbermens argued that these provisions were included in the construction contract in part for Lumbermens' protection as a surety. As such, Lumbermens argued, the government owed it a duty to administer the contract according to these provisions so that it did not materially increase Lumbermens' risk under its bond obligations. By making payments to Landmark before the corresponding work was completed, Lumbermens argued, the government prematurely depleted the contract fund that Lumbermens relied on to support its bond, thereby increasing the amount Lumbermens ultimately was required to pay out to complete the contract following Landmark's default.

The government moved to dismiss Lumbermens' equitable subrogation claim for lack of jurisdiction, contending that the United States has not waived sovereign immunity for claims by a surety based on alleged overpayments on a bonded contract made prior to receiving notice from the surety of the contractor's default. In considering the government's motion to dismiss, the court noted that we recognized in ICW that the Claims Court has Tucker Act jurisdiction over sureties' equitable subrogation claims against the government. See Lumbermens Mut. Cas. Co. v. United States, 67 Fed.Cl. 253, 255 (2005) (citing ICW, 243 F.3d at 1375) [hereinafter Lumbermens I ]. The court described “[t]he doctrine of equitable subrogation [as] entitl[ing] a surety...