Sufi Network Servs., Inc. v. United States
| Decision Date | 08 November 2012 |
| Docket Number | No. 11-804C,11-804C |
| Parties | SUFI NETWORK SERVICES, INC., Plaintiff, v. THE UNITED STATES, Defendant. |
| Court | U.S. Claims Court |
Non-Appropriated Funds Contract for Telephone Services on U.S.
Air Force Bases in Germany; Wunderlich Act Review of Board
of Contract Appeals Decision; Burden of Proof on Damages;
Standards of Review for Legal and Fact Issues; Wilful Breach of Contract.
Frederick W. Claybrook, Jr., with whom was Brian T. McLaughlin, Crowell & Moring LLP, Washington, D.C., for Plaintiff.
Douglas T. Hoffman, with whom were Stuart F. Delery, Acting Assistant Attorney General, Jeanne E. Davidson, Director, and Harold D. Lester, Jr., Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, Washington, D.C., for Defendant.
This case is before the Court for review of the decision of the Armed Services Board of Contract Appeals ("ASBCA" or "Board") in SUFI Network Services, Inc., ASBCA No. 55306, 09-1 BCA ¶ 34,018 (Nov. 21, 2008) ("SUFI VIII").1 Our Court normally operates as a trial tribunal, but in this case, involving a non-appropriated fund instrumentality, the Court is performing an appellate function under the review standards of the Wunderlich Act, 41 U.S.C. §§ 321-22. The Contract Disputes Act, 41 U.S.C. §7101 et seq., does not apply. Under the Wunderlich Act, our Court reviews issues of law de novo, but the ASBCA's fact findings are final unless they are arbitrary or capricious, or not supported by substantial evidence. See, e.g., Vista Scientific Corp. v. United States, 808 F.2d 50, 51 (Fed. Cir. 1986).
The disputes here stem from an April 26, 1996 contract between SUFI Network Services, Inc. ("SUFI") and the Air Force Non-Appropriated Funds Purchasing Office ("AFNAFPO") to provide telephone service in the guest lodging rooms on U.S. Air Force bases in Germany. Under the contract, SUFI agreed to provide the necessary telephone equipment and system operations at its own expense. In return, SUFI would share the telephone service revenues with the United States. The "financial purpose of the contract" was the sharing of revenues from outgoing long-distance calls by lodging guests. SUFI Network Servs., Inc., ASBCA No. 54503, 04-2 BCA ¶ 32,714 (Aug. 17, 2004) ("SUFI II") at 161,867-68. The parties understood that guests would use long-distance carriers selected by SUFI, and that other methods of long-distance calling would be blocked. Id. As amended, the contract would be in place for fifteen years.
The AFNAFPO added lodging facilities to the contract by means of delivery orders. At the time of award, three air bases were covered by the contract: Ramstein (602 guest rooms); Rhein Main (266 guest rooms); and Aviano (53 guest rooms). One month after award, the AFNAFPO added Landstuhl (275 guest rooms), and Vogelweh/ Kapaun (361 guest rooms). In July 1998, the AFNAFPO added Spangdahlem/Eifel West (180 guest rooms), and in August 1998, the AFNAFPO added Sembach Annex (563 guest rooms). SUFI VIII, at 168,218. Prior to SUFI's contract, with one exception, none of the guest rooms at these air bases had any telephone service.2 The only guest facility telephones were located in the hallways and lobbies.
Many of the ensuing disputes resulted from Air Force actions that frustrated or undermined the use of SUFI's network, and thus prevented the generation of revenues in which SUFI would share. The ASBCA determined that the Air Force materially breached the contract when it directed SUFI in November 2003 to grant access from guest rooms to other long-distance providers. SUFI II, at 161,869. The Board concluded that the Air Force's material breach entitled SUFI to stop performance and cancel the contract. Id. On August 25, 2004, SUFI notified the contracting officer that it intended to stop performance. Through negotiations and a partial settlement agreement, SUFI stopped work on the contract on May 31, 2005, and the following day, the Air Force assumed ownership and operation of SUFI's telephone system at each base.
On July 1, 2005, SUFI submitted 28 monetary claims to the contracting officer totalling $130,308,071.53 in damages. On January 5, 2006, SUFI appealed to the ASBCA from the deemed denial of its claims, since the contracting officer had failed toissue a final decision. On April 17, 2006, the contracting officer denied SUFI's claims in their entirety except for a small portion of one claim totalling $132,922. See SUFI Network Servs., Inc., ASBCA No. 55306, 06-2 BCA ¶ 33,444 (Nov. 8, 2006) ("SUFI IV") at 165,772. The Board held 23 days of hearing in Falls Church, Virginia and Ramstein Air Base, Germany from February 26, 2007 to May 10, 2007. During the Board proceedings, SUFI amended its claim to more than $163,000,000. In the decision on the merits, the Board granted SUFI partial relief on 21 of 28 claims, but awarded damages of only $3,790,496.65, plus interest. SUFI VIII, at 168,291. As a result of SUFI's three motions for reconsideration, the Board ultimately adjusted SUFI's award to $7,416,751.52. See SUFI Network Servs., Inc., ASBCA No. 55306, 10-1 BCA ¶ 34,415 (Apr. 5, 2010) ("SUFI XI") at 169,887.
SUFI filed suit in this Court for review of the Board's decisions on November 30, 2011. SUFI then filed a motion for judgment on the administrative record on January 21, 2012, and the Government filed its cross-motion for judgment on the administrative record on May 24, 2012. The parties later filed reply briefs, and they have submitted an extensive appendix of the Board's proceedings. The Court heard oral argument on September 11, 2012.3
The Court finds this case to be very odd. The Air Force committed multiple breaches of contract that were mostly wilful, and the existence of damage to SUFI is clear and certain. Yet, a wide gulf exists between the amount SUFI claimed ($163,000,000) and the amount the Board ultimately awarded ($7,416,751.52). One might say that SUFI's claims must have been vastly inflated, but just as easily one could say that the Board harshly reduced SUFI's damages at every opportunity. Indeed, the Board's SUFI VIII decision gives the impression that the Board ruled in every possible way to cut back SUFI's damages. Virtually every Board judgment call went against SUFI and in favor of the Government. In view of the wilfulness of the Air Force breaches, one would expect the outcomes to have been just the opposite, with judgment calls favoring SUFI. Despite these general impressions, the Court must delve into the details of each claim to determine the proper outcome under the law.
The Court's total damages award to SUFI is $118,764,081.34. This amount may seem generous, but after a full and careful review of the Board's record for each of the individual claims, the Court is persuaded that this contract was completely mismanagedby the Air Force, to the severe detriment of SUFI. In view of the dramatically changing telecommunications environment that existed when the parties executed the contract, this agreement may not have made good business sense at the time. With the advantage of perfect hindsight, there are other business alternatives that might have served the Air Force better. Nevertheless, a contract is a contract, and SUFI relied to its detriment on the Air Force's promises that it would perform as required. The damages award simply reflects the magnitude of the program envisioned by the parties and the disaster that it became following the Air Force's material breaches. The Air Force has only itself to blame for a totally botched program of grand proportions.
The Court's review in this case is governed by the Wunderlich Act, 41 U.S.C. § 321-22. Although Congress repealed the Wunderlich Act as part of Public Law No. 111-350, 124 Stat. 3677, 3859 (Jan. 4, 2011), review under the statute is still appropriate because Congress excepted from the repeal "rights and duties that matured, penalties that were incurred, and proceedings that were begun before the date of enactment of this Act." Id. at 3855. Since SUFI began these proceedings at the ASBCA long before the repeal of the Wunderlich Act, the Court must apply the Act's review standards here.
Under the Wunderlich Act, the Court's review is based upon the record developed before the Board and the Board's opinion. See Hydromar Corp. of Del. & E. Seaboard Pile Driving, Inc. v. United States, 25 Cl. Ct. 555, 558 (1992); Titan Pac. Constr. Corp. v. United States, 17 Cl. Ct. 630, 634 (1989). Plaintiff SUFI bears the burden of establishing any legal or factual errors by the Board. See Titan, 17 Cl. Ct. at 634; Marley v. United States, 191 Ct. Cl. 205, 214, 423 F.2d 324, 329 (1970). Wunderlich Act review employs the same standards used in the Administrative Procedures Act and other similar statutes. United States v. Carlo Bianchi & Co., 373 U.S. 709, 715-16 (1963).
The Court's review of Board decisions on questions of law is de novo. Granite Constr. Co. v. United States, 962 F.2d 998, 1001 (Fed. Cir. 1992). Issues of contract interpretation are questions of law, and thus the Court's review is unrestrained. See Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1292 (Fed. Cir. 2002); George Hyman Constr. Co. v. United States, 215 Ct. Cl. 70, 80, 564 F.2d 939, 944 (1977). When a mixed question of law and fact exists, if the law element "is predominant, essential, and in all respects crucial," such as an issue that is "fundamentally a decision interpreting the contract," the Court owes no deference either to the Board's decision or its rationale. Ray D. Bolander Co. v. United States, 186 Ct. Cl. 398, 415-16 (1968).
For fact issues, the Court must apply the "substantial evidence" and "arbitrary and capricious" standards. See Monroe M. Tapper & Assocs. v. United States, 206 Ct. Cl. 446, 460-61, 514 F.2d 1003, 1009-10 (1975) ()....
To continue reading
Request your trial