Palafox St. Assocs., L.P. v. United States

• Decision Date: 18 June 2015
• Docket Number: No. 13-247C,13-247C
• Parties: PALAFOX STREET ASSOCIATES, L.P., Plaintiff, v. THE UNITED STATES, Defendant.
• Court: U.S. Claims Court

PALAFOX STREET ASSOCIATES, L.P., Plaintiff,

v.THE UNITED STATES, Defendant.

No. 13-247C

United States Court of Federal Claims

June 18, 2015

Motion to Dismiss for Lack of Jurisdiction, RCFC 12(b)(1); Election Doctrine; 41 U.S.C. § 7107(d); 41 U.S.C. § 7103(e); 48 C.F.R. 33.211(a)(4)(v)

Nick R. Hoogstraten, Washington, D.C., for plaintiff. Frank M. Rapoport, New York, N.Y., of counsel.

Joshua A. Mandlebaum, Trial Attorney, with whom were Benjamin C. Mizer, Acting Assistant Attorney General, Robert E. Kirschman, Jr., Director, and Bryant G. Snee, Deputy Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant. John S. Tobey, Assistant General Counsel, Office of General Counsel, United States General Services Administration, Washington, D.C., of counsel.

OPINION and ORDER

CAMPBELL-SMITH, Chief Judge

This case involves a contract dispute between Palafox Street Associates, L.P. (Palafox or plaintiff) and the General Services Administration (GSA, government, or defendant). The subject contract pertains to the construction and subsequent lease of a federal courthouse. At issue are the parties' conflicting interpretations of a Tax Adjustment clause in the lease and the propriety of GSA's withholding of rent to collect on an alleged excess obligation of $824,416.01.

On July 22, 2013, defendant moved to dismiss plaintiff's action under Rule 12(b)(1) for lack of jurisdiction and Rule 12(b)(6) for failure to state a claim. Defendant argued, inter alia, that the election doctrine barred the court from hearing a portion ofplaintiff's claim. On February 12, 2014, the court denied defendant's Rule 12(b)(6) motion and granted-in-part and stayed-in-part defendant's Rule 12(b)(1) motion; in its decision, the court requested supplemental briefing from the parties with respect to defendant's election doctrine argument. See Palafox St. Assocs., L.P. v. United States, 114 Fed. Cl. 773, 790 (2014) (Palafox I or the February 2014 decision). On June 30, 2014, the court stayed "the portion of defendant's motion not decided by the Palafox I decision" and directed the parties to submit additional supplemental briefing. See Palafox St. Assocs., L.P. v. United States, 117 Fed. Cl. 324, 325 (2014) (Palafox II or the June 2014 decision).

Currently before the court is the complaint, ECF No. 1, filed April 8, 2013; Defendant's Motion to Dismiss, attached to which is an appendix (Def.'s App'x), ECF No. 7, filed July 22, 2013; Plaintiff's Opposition to Defendant's Motion to Dismiss (Pl.'s Opp'n), ECF No. 12, filed September 23, 2013; Plaintiff's Supplemental Brief in Response to Court's June 30, 2014 Opinion and Order (Pl.'s Br.), ECF No. 52, filed January 9, 2015; Defendant's Third Supplemental Brief in Support of Defendant's Motion to Dismiss for Lack of Jurisdiction (Def.'s Br.), ECF No. 53, filed January 9, 2015; Plaintiff's Supplemental Brief on Consolidation of Claims (Pl.'s Cons. Br.), ECF No. 58, filed February 23, 2015; Plaintiff's Brief in [Response] to Defendant's January 9, 2015 Third Supplemental Brief (Pl.'s Resp.), ECF No. 59, filed March 9, 2015; and Defendant's Response to Plaintiff's Supplemental Briefs Regarding Defendant's Motion to Dismiss for Lack of Jurisdiction (Def.'s Resp.), ECF No. 60, filed March 9, 2015.

For the reasons explained below, the remaining portion of defendant's Motion to Dismiss is GRANTED-IN-PART and DENIED-IN-PART.

I. Background

The background facts and procedural history of this case are set out in detail in the court's February 2014 and June 2014 decisions. Palafox I, 114 Fed. Cl. at 777-79; Palafox II, 117 Fed. Cl. at 325-27. For ease of reference, the court provides an abbreviated version of the relevant background here.

Palafox is the successor in interest to Keating Development Company (Keating) under a lease between Keating and the General Services Administration (GSA) for the construction and lease of a federal courthouse. Compl. ¶ 3. The lease contains a Tax Adjustment clause, which provides, in relevant part: "The Government shall make an annual lump sum adjustment, as additional payment to or deduction from, its share of any increase or decrease in real estate taxes that are assessed over the agreed upon base year or negotiated dollar amount." Def.'s App'x A84 ¶ 1.4. Pursuant to a subsequent amendment to the lease, the Tax Adjustment clause was modified to include the following: "In accordance with this paragraph, the base year real estate taxes for purposes of adjustments are hereby established as $250,000." Id. at A86 ¶ B.

From August 1997 through December 2011, GSA paid plaintiff the annual base amount of $250,000 in real estate taxes. Compl. ¶ 15. In 2011, GSA conducted an audit of the lease and determined that the real estate taxes actually paid by plaintiff were less than the $250,000 the government had paid yearly. Id. ¶ 17.

On June 8, 2011, the contracting officer sent a letter to the trustee under the lease, the Bank of New York, stating that the discrepancy between the annual real estate taxes paid by plaintiff and the annual $250,000 paid by GSA to plaintiff "created an excess obligation due the government in the amount of $824,416.01." Compl. ¶¶ 14, 17 (internal quotation marks omitted); see also Def.'s App'x A1. On September 29, 2011, Keating responded, also by letter, stating that "the $250,000 is an allowance and that [the contracting officer's] analysis of the lease language does not reflect the matter correctly." Def.'s App'x A3; see also Compl. ¶ 19. The contracting officer replied in an email on October 19, 2011, stating that GSA would likely withhold from future rental payment the $824,416.01 allegedly owed to the government. Def.'s App'x A4-5.

From December 1, 2011 through May 1, 2012, GSA attempted to recoup the amount allegedly owed by sending half of the monthly rent payments due. Compl. ¶ 20. The Bank of New York refused the partial rent payments, essentially effecting a setoff of six full monthly rent payments, or $831,858. Id. ¶¶ 20, 25. On February 7, 2012, plaintiff again set forth, in a letter to the contracting officer, its disagreement with the government's interpretation of the Tax Adjustment clause in the lease. Def.'s App'x A7. Palafox requested a meeting between the parties in an attempt to resolve the matter. Id.

On April 9, 2012, the contracting officer issued a final decision (the April 2012 final decision), finding that "the government [was] entitled to a reimbursement for the difference [between] what was paid and what [was] provided as part of annual and monthly rent . . . and [confirming] the excess obligation due [to] GSA . . . as $824,416.01." Def.'s App'x A9-10.

Palafox appealed the April 2012 final decision to the United States Civilian Board of Contract Appeals (the Board or the CBCA) on July 2, 2012. See Compl. ¶ 26. Defendant filed a motion to dismiss for lack of jurisdiction, arguing that the Board lacked jurisdiction because plaintiff had not submitted a certified claim to the contracting officer. Def.'s App'x A26. The Board did not rule on the question of jurisdiction, but issued an order directing plaintiff to "consider whether [its] correspondence with the contracting officer rises to the level of a claim that was . . . properly certified," and suggested that the parties should jointly request to withdraw the appeal "[i]f the answer is no." Id. at A37-38.

Plaintiff initially opposed the Board's recommended course, asserting that certification was unnecessary because Palafox was appealing a government claim. Id. atA39-41. Nonetheless, plaintiff subsequently acquiesced, and the parties filed a joint motion to dismiss without prejudice "so that Palafox [could] obtain a contracting officer's final decision on its claim." Id. at A52.

The Board granted the parties' joint motion on October 17, 2012, Def.'s App'x A53, and five days later plaintiff submitted a certified claim to the contracting officer for $831,858 withheld by the government as a setoff (plaintiff's certified claim). Compl. ¶ 30; Def.'s App'x A54-80. Plaintiff advanced several arguments in support of its position, including breach of contract, estoppel, waiver, laches, and the expiration of the statute of limitations. See Def.'s App'x A54-80.

The contracting officer issued a final decision denying the certified claim on December 20, 2012 (the December 2012 final decision). Id. at A81-83. The December 2012 final decision, similar to the earlier April 2012 final decision, identified as the issue in dispute the government's claimed entitlement to the $824,416.01 that it was withholding in rent payments. Compare id. at A9 ("To summarize, you are challenging GSA's independent analysis that since the actual real estate taxes [Palafox] has paid for each year of the lease since full assessment of 1999 has been less than the[] actual tax obligation of ownership. GSA's summary is that this has created an excess obligation due the government in the amount of $824,416.01."), with id. at A81 (similar). The December 2012 final decision also addressed the various legal arguments set forth in plaintiff's certified claim; the contracting officer denied each argument in turn. Id. at A81-82. The December 2012 final decision, also similar to the earlier April 2012 final decision, advised plaintiff of its right to appeal the decision to the Board within ninety days or "[i]n lieu of appealing to the Board of Contract Appeals, . . . [to] bring an action directly to the U.S. Court of Federal Claims[] within twelve months." Id. at A83; accord 48 C.F.R. 33.211(a)(4)(v) (governing notification of appeal rights that must be included in a contracting officer's final decision).

Plaintiff filed a complaint in this court on April 8, 2012. Plaintiff's complaint asserts nine counts: (1) breach of contract - illegal setoff, (2) breach of contract - premature setoff, (3) breach of contract - setoff in excess of claimed debt¹, (4) breach of contract -...