Southwest Marine, Inc. v. U.S.
| Decision Date | 06 August 2008 |
| Docket Number | No. 07-55229.,07-55229. |
| Citation | 535 F.3d 1012 |
| Parties | SOUTHWEST MARINE, INC., Petitioner-Appellant, v. UNITED STATES of America, Gordon R. England, United States Secretary of the Navy, in his official capacity, Respondents-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Peter B. Jones, Jones & Donovan, Newport Beach, CA, for the petitioner-appellant.
Peter B. Keiser, Jeanne E. Davidson, Bryant G. Snee, Domenique Kirchner, Commercial Litigation Branch, Civil Division, Department of Justice, for the respondents-appellees.
Appeal from the United States District Court for the Southern District of California; William Q. Hayes, District Judge, Presiding. D.C. No. CV-05-01189-WQH.
Before: ALEX KOZINSKI, Chief Judge, RUGGERO J. ALDISERT* and DOROTHY W. NELSON, Circuit Judges.
Appellant Southwest Marine, Inc., appeals from a judgment of the United States District Court for the Southern District of California granting summary judgment in favor of the United States of America and the Secretary of the Navy. In this appeal, we must determine whether fees incurred by Southwest Marine during its unsuccessful defense of a private party Clean Water Act lawsuit are allowable costs under Subpart 31.2 of the Federal Acquisition Regulation ("FAR"), 48 C.F.R. §§ 31.201-31.205. We hold that Southwest Marine's costs are not allowable and affirm the judgment of the District Court.
Southwest Marine, the operator of a shipyard in San Diego, California, was awarded and performed several contracts with the United States Navy for repairs and alterations to Naval vessels. During the time period relevant to this dispute, some of Southwest Marine's government contracts were cost-reimbursement contracts, which provided that the Government would reimburse Southwest Marine's costs deemed allowable in accordance with Subpart 31.2 of the FAR.
On April 30, 1996, several private parties, including the Natural Resources Defense Council ("NRDC"), notified Southwest Marine and certain state and federal agencies that they believed Southwest Marine was violating the Clean Water Act, 33 U.S.C. §§ 1251-1376. The government agencies declined to act on the complaint, and on August 27, 1996, the NRDC filed suit against Southwest Marine in the United States District Court for the Southern District of California.1 The complaint alleged violations of the Clean Water Act and sought declaratory relief, injunctive relief and civil penalties as authorized by the Act.
After a bench trial, the district court found that Southwest Marine had been in violation of the Clean Water Act since August 26, 1996. In addition to injunctive relief, the district court imposed a $799,000 civil penalty pursuant to 33 U.S.C. § 1319(d). Payment of the penalty was to be made to the United States Treasury. The district court noted, however, that the penalty could be offset by direct costs incurred by Southwest Marine in improving its stormwater diversion system. The district court also found that, as the prevailing party, the NRDC was entitled to an award of its attorneys' fees.2
Southwest Marine appealed the district court's decision, and a panel of this Court affirmed the judgment, injunctive relief and civil penalty. Natural Res. Def. Council v. Southwest Marine, Inc., 236 F.3d 985 (9th Cir.2000). On May 7, 2002, a magistrate judge issued an order finding that Southwest Marine's direct costs of improvements exceeded the amount of the civil penalty imposed by the district court and recommended that no penalty be paid to the United States Treasury. The district court accepted the magistrate judge's findings.
From 1998 to 2001, Southwest Marine incurred $2,761,509 in fees and expenses associated with its unsuccessful defense of the NRDC's lawsuit. Southwest Marine included these expenses in its general and administrative indirect cost pool and assigned the costs to all of its contracts, including its cost-reimbursement government contracts.
In 2001, the Defense Contract Audit Agency ("DCAA") initiated an audit to determine the allowability of Southwest Marine's costs associated with the NRDC's lawsuit. The DCAA audit report questioned the allowability of the costs, and the dispute was assigned to a contracting officer. On December 11, 2002, Southwest Marine submitted a certified claim seeking a decision by the contracting officer that its costs were allowable under the FAR. On May 22, 2003, the contracting officer denied the claim. Southwest Marine filed a timely appeal to the Armed Services Board of Contract Appeals.
In making its allowability determination, the Board relied on Boeing North American, Inc. v. Roche, 298 F.3d 1274 (Fed.Cir. 2002). Pursuant to Boeing, the Board determined that Southwest Marine's costs were unallowable because they were similar to the costs disallowed in FAR § 31.205-47(b). Southwest Marine appealed the Board's decision to the District Court. The District Court affirmed the Board's determination and denied Southwest Marine's motion for summary judgment.
Southwest Marine appeals the District Court's denial of its motion for summary judgment and the District Court's determination that its claimed costs are unallowable.
The Board had jurisdiction over the contracting officer's determination of unallowability pursuant to the Contract Disputes Act, 41 U.S.C. §§ 606, 607. Because the contract at issue in this case is a maritime contract, Southwest Marine properly appealed the Board's determination to the District Court. Id. § 603. We have jurisdiction over final orders of the District Court pursuant to 28 U.S.C. § 1291.
"Statutory and regulatory constructions are questions of law, which we review de novo." Lear Siegler Servs., Inc. v. Rumsfeld, 457 F.3d 1262, 1266 (Fed.Cir. 2006); see also 41 U.S.C. § 609(b). Although we need not defer to the Board's or District Court's interpretation of the FAR provisions at issue in this case, Brownlee v. DynCorp, 349 F.3d 1343, 1349 (Fed.Cir. 2003), the Board deserves due respect because of its expertise concerning government contracts, Lear, 457 F.3d at 1266.
The allowability of costs under cost-reimbursement government contracts is governed by FAR Subpart 31.2. Section 31.204, which provides guidance for determining whether specific costs are allowable, states:
(a) Costs shall be allowed to the extent they are reasonable, allocable, and determined to be allowable under 31.201, 31.202, 31.203, and 31.205. These criteria apply to all of the selected items that follow, even if particular guidance is provided for certain items for emphasis or clarity.
* * * * *
(c) Section 31.205 does not cover every element of cost. Failure to include any item of cost does not imply that it is either allowable or unallowable. The determination of allowability shall be based on the principles and standards in this subpart and the treatment of similar or related selected items. When more than one subsection in 31.205 is relevant to a contractor cost, the cost shall be apportioned among the applicable subsections, and the determination of allowability of each portion shall be based on the guidance contained in the applicable subsection. When a cost, to which more than one subsection in 31.205 is relevant, cannot be apportioned, the determination of allowability shall be based on the guidance contained in the subsection that most specifically deals with, or best captures the essential nature of, the cost at issue.
Southwest Marine focuses on FAR § 31.205-33 to contend that its costs are allowable. Section 31.205-33 provides:
(a) Professional and consultant services, as used in this subsection, are those services rendered by persons who are members of a particular profession or possess a special skill and who are not officers or employees of the contractor. Examples include those services acquired by contractors or subcontractors in order to enhance their legal, economic, financial, or technical positions. Professional and consultant services are generally acquired to obtain information, advice, opinions, alternatives, conclusions, recommendations, training, or direct assistance, such as studies, analyses, evaluations, liaison with Government officials, or other forms of representation.
(b) Costs of professional and consultant services are allowable subject to this paragraph and paragraphs (c) through (f) of this subsection when reasonable in relation to the services rendered and when not contingent upon recovery of the costs from the Government (but see 31.205-30 and 31.205-47).
The Government focuses on FAR § 31.205-47(b) to contend that Southwest Marine's claimed costs are unallowable. Section 31.205-47(b) provides:
(b) Costs incurred in connection with any proceeding brought by a Federal, State, local, or foreign government for violation of, or a failure to comply with, law or regulation by the contractor (including its agents or employees), or costs incurred in connection with any proceeding brought by a third party in the name of the United States under the False Claims Act, 31 U.S.C. § 3730, are unallowable if the result is —
* * * * *
(2) In a civil or administrative proceeding, either a finding of contractor liability where the proceeding involves an allegation of fraud or similar misconduct or imposition of a monetary penalty where the proceeding does not involve an allegation of fraud or similar misconduct.
Because no provision of the FAR explicitly addresses Southwest Marine's costs, § 31.204(c) directs us to examine the FAR's treatment of similar or related costs. Id. § 31.204(c). We determine that the costs disallowed in FAR § 31.205-47(b) are similar to the costs at issue in this case. Although the costs for which Southwest Marine seeks reimbursement arose from a lawsuit that was not brought by the government, the Clean Water Act...
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