Sufi Network Servs., Inc. v. United States
| Decision Date | 21 July 2015 |
| 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 Fund Contract; Wunderlich Act Review; Finality of Board of Contract Appeals' Decision.
Frederick W. Claybrook, Jr., with whom was Brian T. McLaughlin, Crowell & Moring LLP, Washington, D.C., for Plaintiff.
Douglas T. Hoffman, with whom were Benjamin C. Mizer, Acting Assistant Attorney General, Robert E. Kirschman, Jr.,, Director, and Steven J. Gillingham, Assistant Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, Washington, D.C., for Defendant.
This case is before the Court at the Government's request following remand proceedings at the Armed Services Board of Contract Appeals ("ASBCA" or "Board"). The additional Board proceedings resulted from the decision of the U.S. Court of Appeals for the Federal Circuit in SUFI Network Services, Inc. v. United States, 755 F.3d 1305 (Fed. Cir. 2014), where the appellate court instructed this Court "to remand to the Board for further factual findings consistent with this opinion." Id. at 1326. The Board followed these instructions and has issued two new decisions, the first on February 2, 2015, SUFI Network Services, Inc., ASBCA No. 55306, 15-1 BCA ¶ 35,878, and the second on motions for reconsideration on May 20, 2015, SUFI Network Services, Inc., ASBCA No.55306, 15-1 BCA ¶ 35,992. The Government has indicated that it is not satisfied with the Board's remand decisions, and it wants to have this Court, and presumably the Federal Circuit, review the merits of the Board's recent rulings.
On May 29, 2015, SUFI filed in this Court a notice indicating its full satisfaction with the Board's remand decision. On June 8, 2015, however, Defendant filed a 49-page "Notice Regarding Dissatisfaction with the Armed Services Board of Contract Appeals' Final Decision," with 704 pages of attachments. On June 9, 2015, the Court requested further briefing from the parties on the question of whether additional proceedings in this case are permitted or necessary, citing S & E Contractors, Inc. v. United States, 406 U.S. 1 (1972). Those briefs have been submitted, and the question is ready for ruling.
Under the Contract Disputes Act, 41 U.S.C. § 7101 et seq., promulgated in 1978, there would be no doubt that Defendant could request further review in this Court and the Federal Circuit. However, this case involves an Air Force non-appropriated fund activity, and the parties included in their contract the disputes procedures of the Wunderlich Act, 41 U.S.C. §§ 321-22. Under the Wunderlich Act, only the contractor has the right to appeal from a Board decision. Since SUFI has indicated its full satisfaction with the Board's remand decisions, the Court must address whether the Government has any legal basis to seek further review of the Board's decision.
The Court described the facts of this case in an earlier ruling, SUFI Network Services, Inc. v. United States, 108 Fed. Cl. 287 (2012), aff'd in part, rev'd in part, 755 F.3d 1305 (2014). A brief summary and update of the procedural history is provided below.
This dispute originated from an April 26, 1996 contract between 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. As amended, the contract would be in place for fifteen years. During contract performance, however, the Air Force frustrated and undermined the use of SUFI's network, and thereby prevented the expected generation of revenues in which SUFI would share. Upon SUFI's request for declaratory relief, 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 Network Servs., Inc., ASBCA No. 54503, 04-2 BCA ¶ 32,714 (Aug. 17, 2004). The Board concluded that the Air Force's material breach entitled SUFI to stop performance and cancel the contract. Id. at 161,869. On August 25, 2004, SUFI notified the contracting officer that it intended to stop performance. Through negotiations and a partial settlement agreement, SUFI stopped workon 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 claims to the contracting officer totaling $130,308,071.53 in damages. On January 5, 2006, SUFI appealed to the ASBCA from the deemed denial of its claims, and the case proceeded to a 23-day hearing in 2007 in Falls Church, Virginia and Ramstein Air Base, Germany. During the Board proceedings, SUFI amended its claims to more than $163,000,000. On November 21, 2008, the Board issued its decision granting partial relief on 22 of 28 claims, but the Board awarded damages to SUFI of only $3,790,495.65, plus interest. SUFI Network Servs., Inc., ASBCA No. 55306, 09-1 BCA ¶ 34,018. After SUFI's three motions for reconsideration, the Board increased SUFI's award to $7,416,751.52. SUFI Network Servs., Inc., ASBCA No. 55306, 10-1 BCA ¶ 34,415 (Apr. 5, 2010).
On November 30, 2011, SUFI challenged the Board's decisions by filing a complaint in this Court under the Tucker Act, 28 U.S.C. § 1491. Judicial review in this Court proceeded utilizing the standards of the Wunderlich Act, 41 U.S.C. §§ 321-22. In the Court proceedings, the parties filed cross-motions for judgment on the administrative record, and engaged in a full briefing process and oral argument. On November 8, 2012, the Court entered an opinion and judgment granting SUFI's motion and awarding SUFI $114 million in damages above the amount that the Board had previously awarded. SUFI Network Servs., 108 Fed. Cl. at 287.
The Government appealed the Court's judgment to the Federal Circuit in January 2013, and SUFI cross-appealed. After briefing and oral argument, the Federal Circuit on May 29, 2014 issued its opinion, largely upholding this Court's findings of error in the Board's decisions, but ordering that the matter be remanded to the Board to make additional fact-finding and to issue another decision on the damages due SUFI, vacating this Court's quantum award. SUFI Network Servs., 755 F.3d at 1326.
In the remand proceedings before the Board, the parties briefed the damages issues extensively, provided oral argument, and presented proposed findings of fact. On February 2, 2015, the Board issued its final decision, awarding SUFI $111,849,833.33, plus interest. Administrative Judge David James issued the decision, the same judge who had issued the prior Board decisions. The decision was unanimous, as Acting Chairman Mark Stempler and Acting Vice-Chairman Monroe Freeman concurred. SUFI Network Servs., 15-1 BCA ¶ 35,878.
On March 5, 2015, the Air Force moved for reconsideration, and SUFI submitted its own limited motion for reconsideration, to correct computational errors in the lost profits award. After further extensive briefing, the Board on May 20, 2015 issued its decision denying the Air Force's reconsideration motion, but granting SUFI's motion,increasing the award to SUFI by $1,404,665.10. SUFI Network Servs., 15-1 BCA ¶ 35,992. The Board's decision again was unanimous.
In the twelve years since the Air Force's material breach, there have been thirteen Board decisions, two decisions from this Court (including this one), and a Federal Circuit decision. The question is whether, under the Wunderlich Act, the United States may further contest this matter in this Court and the Federal Circuit in circumstances where SUFI accepts the Board's final decision in total.
More than 135 years ago, the U.S. Supreme Court established the principle that the Government may by contract designate an authorized representative to decide disputes between the contracting parties. Kihlberg v. United States, 97 U.S. 398 (1878) (Harlan, J.). In Kihlberg, under a contract for transportation services, the Government paid the contractor according to the distance traveled for each task. The parties concurred in designating the chief quartermaster of New Mexico with the authority to fix the distances that should govern the settlement of the contractor's accounts. Id. at 401. The Supreme Court held that the chief quartermaster's determination was final and binding, absent fraud or gross mistakes implying bad faith, and "cannot, therefore, be subjected to the revisory power of the courts without doing violence to the plain words of the contract." Id. Justice Harlan observed that, without an authorized representative, "disputes might have constantly arisen between the contractor and the government, resulting in vexatious and expensive and, to the contractor oftentimes, ruinous litigation." Id.
Following Kihlberg, the Government's standard practice for settling disputes with contractors involved the use of a "finality" or "disputes" clause that became boilerplate in supply and construction contracts. See Franklin M. Schultz, "Wunderlich Revisited: New Limits on Judicial Review of Administrative Determination of Government Contracts Disputes," 29 Law and Contemporary Problems 115 (Winter 1964). Just as in Kihlberg, the Government's practice was to designate an authorized representative to decide contract disputes, whose decision would be final and binding absent fraud or gross mistakes implying bad faith. Beginning in the 1950s, the designated representative usually was an agency board of contract appeals. By accepting the disputes clause as part of the contract, the contractor agreed that, pending resolution of any dispute, "he will diligently proceed with the work as...
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