Mabus v. Gen. Dynamics C4 Sys. Inc
| Decision Date | 04 February 2011 |
| Docket Number | No. 2009-1550,No. 2009-1560,2009-1550,2009-1560 |
| Court | U.S. Court of Appeals — Federal Circuit |
| Parties | RAYMOND E. MABUS, SECRETARY OF THE NAVY, Appellant, v. GENERAL DYNAMICS C4 SYSTEMS, INC., Appellee. GENERAL DYNAMICS C4 SYSTEMS, INC., Appellant, v. RAYMOND E. MABUS, SECRETARY OF THE NAVY, Appellee. |
Appeal from the Armed Services Board of Contract Appeals in No. 54988, Administrative Judge Cheryl L. Scott.
David A. Harrington, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for Secretary of the Navy. With him on the brief were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, and Brian M. Simkin, Assistant Director.
Elaine J. Goldberg, Jenner & Block LLP, of Washington, DC, argued for General Dynamics C4Systems, inc. With her on the brief was Jessica Ring Amunson. Of counsel was Matthew E. Price.
Before Rader, Chief Judge, and Newman and Moore,
Circuit Judges.
Opinion for the court filed by Circuit Judge Moore.
Appellant Raymond E. Mabus, Secretary of the Navy (Navy) appeals the final judgment of the Armed Services Board of Contract Appeals (Board) holding that General Dynamics C4 Systems, inc. (General Dynamics) is entitled to damages. Because the Board abused its discretion by denying the Navy's equitable estoppel defense, we reverse.
On September 4, 1998, the Navy entered into a contract with Motorola, Inc. (Motorola) for the development and delivery of Digital Modular Radios. A Digital Modular Radio (radio) is also called a "software radio" and allows a single computer to interface with a number of different radio signals that would typically each require its own receiving device. This was an indefinite delivery/indefinite quantity (ID/IQ) contract meaning that the Navy, after purchasing a contractual minimum, couldorder additional radios at the contract price. The contract included an "Ordering Clause" that stated:
If mailed, a delivery order or task order is considered "issued" when the Government deposits the order in the mail. Orders may be issued orally, by facsimile, or by electronic commerce methods only if authorized in the schedule.
J.A. 105. The schedule did not authorize electronic transmission of orders.
The initial phase of the contract involved two contractors, Motorola and a competitor. The government issued its initial delivery order (DO) by mail on September 8, 1998. This DO satisfied the government's ordering obligation under the contract. The contract included five option years. Prior to exercising Option I, the Navy performed a "down-select," choosing Motorola. As part of this down-select, the parties entered into a bilateral modification that specified the criteria for the down-select as well as anticipated quantities that the government would require under each option. This modification also extended the times for exercising Options I-IV. The modification did not extend the time for exercising Option V, so the last date for issuing any orders would be September 30, 2003. Prior to down-select, the Navy issued DO2 and DO3. It is unknown whether the Navy sent these by mail or email. On November 30, 1999, the Navy issued DO4 via email.
As part of the down-select process, Motorola issued a revised proposal for lower prices throughout the option years. Motorola prevailed in the down-select and the Navy exercised Option I on February 1, 2000. The Navy then issued DO5 through DO7 via email.
Prior to exercising Option II, the parties entered negotiations to modify the terms of the contract. The Navy agreed to extend the higher prices of Option I through Option II. This was advantageous to Motorola who had been losing money on the contract and stood to lose more under the Option II prices. Following this agreement, the Navy exercised Option II on March 28, 2000. The Navy then issued DO8 via email.
On September 28, 2001, General Dynamics assumed the contract from Motorola with knowledge that it was not profitable. Appeal of Gen. Dynamics C4 Sys., Inc., ASBCA No. 54988, 09-2 BCA 1 34150, 2009 WL 1464387 at 11 (Board Opinion). Although the Navy exercised Option III, it did not order any radios under that option. In 2002 and early 2003, the parties entered negotiations and General Dynamics asked the Navy to extend Option I pricing. The parties entered a bilateral modification on September 27, 2002, which did not extend Option I pricing, but did require the Navy to pay higher prices for repair parts. This modification also exercised Option IV. The Navy then issued DO15 for a number of radios via email.
For reasons that are not entirely clear, the parties continued to negotiate whether to extend Option I pricing after the exercise of Option IV. In addition to extending Option I pricing, General Dynamics also sought to delete from the contract the "HF waveform," an apparently costly waveform that the Navy had not yet ordered under the contract. No contract modification resulted from these negotiations and the Navy ordered HF waveforms via email as DO16. Board Opinion at 6. General Dynamics was "a little shocked" that the government ordered these HF waveforms because it believed that there was an agreement to delete this contract term. Id. However, the parties never executed a modification to this effect andthe Navy demanded delivery of the HF waveforms stating that "the contract, as written, remains in full force and effect." Id.
On September 10, 2003, the Navy exercised Option V. Id. at 7. The Navy then issued DOs 18-20 and 22-29 via email under the Option V pricing. On September 30, 2003, the deadline for ordering under the contract, General Dynamics contacted the Navy to inquire about DO21. The Navy confirmed that it "skipped" that DO and that it would not issue it.
General Dynamics did not want to accept DOs 18-20 and 22-29 at Option V prices. Id. Sometime in September or early October 2003, General Dynamics personnel began discussing ways to avoid filling these orders. Id. At this time, General Dynamics reviewed the contract and determined that the Ordering Clause prohibited emailing DOs unless authorized by the schedule and that the accompanying schedule did not allow for email delivery of DOs. Id. at 7-8. General Dynamics sent a letter to the Navy on October 6, 2003, stating that General Dynamics rejected DOs 17-20 and 22-29. The Navy responded that it considered the DOs valid and demanded that General Dynamics deliver. Id. at 9. General Dynamics argued that the DOs were not valid and construed the Navy's demand as direction to proceed under the Changes Clause of the contract. The Changes Clause requires a contractor to go forward with work even if it disputes the propriety of the Navy's request. Id. at 3-4.
Following the Navy's demand for performance, General Dynamics filed a claim with the contracting officer. The contracting officer denied this claim. General Dynamics appealed to the Board. The Board ruled that the Navy failed to send the disputed DOs in strict compliance with the contract, and they were thus invalid. The Boardfurther rejected the Navy's arguments regarding waiver and estoppel. The Navy appeals; we have jurisdiction under 28 U.S.C. § 1295(a)(10).
We review the Board's legal determinations de novo. England v. Sherman R. Smoot Corp., 388 F.3d 844, 848 (Fed. Cir. 2004). We will not set aside a factual determination of the Board "unless the decision is fraudulent, or arbitrary, or capricious, or so grossly erroneous as to necessarily imply bad faith, or if such decision is not supported by substantial evidence." 41 U.S.C. § 609(b). We review the Board's determination on equitable estoppel for abuse of discretion. A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1028 (Fed. Cir. 1992) (en banc).
Equitable estoppel requires:
(1) misleading conduct, which may include not only statements and actions but silence and inaction, leading another to reasonably infer that rights will not be asserted against it; (2) reliance upon this conduct; and (3) due to this reliance, material prejudice if the delayed assertion of such rights is permitted.
Lincoln Logs Ltd. v. Lincoln Pre-Cut Log Homes, Inc., 971 F.2d 732, 734 (Fed. Cir. 1992) (citing Aukerman, 960 F.2d at 1028).
The Board analyzed estoppel under a different standard. Specifically, it determined that equitable estoppel requires that: "(1) [General Dynamics] knew the facts; (2) it intended that its conduct be acted upon or acted such that the Navy had a right to believe it was so intended; (3) the Navy was ignorant of the true facts; and (4) the Navy relied upon appellant's conduct to its injury," citing Rel- Reeves, Inc. v. United States, 534 F.2d 274, 296-97 (Ct. Cl. 1976). It held that the Navy could not establish element (1), that General Dynamics knew the facts. Board Opinion at 15. Specifically, it held that the Navy could not establish that General Dynamics appreciated the contract's restrictions regarding email delivery during the term of the contract. It also determined that because the Navy is charged with knowing the contents of its contracts, it could not establish element (3), that the Navy was ignorant of the email prohibition. Based on the failure to establish these elements, the Board rejected the Navy's estoppel defense.
The Navy argues that the Board based its analysis on the wrong standard, and under the proper test, we should reverse. Regarding the first factor, it argues that General Dynamics misled it by filling orders for years before rejecting them based on the Ordering Clause. Regarding the second factor, the Navy argues that it clearly relied on General Dynamics' conduct by continuing to send DOs via email throughout the life of the contract. The Navy asserts that if General Dynamics had notified it earlier, before the end of the contract, then it could have re-issued the orders in paper form. Regarding...
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