U.K. Ministry Defence v. Trimble Navigation, 04-1129.

• Decision Date: 06 September 2005
• Docket Number: No. 04-1129.,04-1129.
• Citation: 422 F.3d 165
• Parties: UNITED KINGDOM MINISTRY OF DEFENCE, Secretary of State for Defence, as represented by the United Kingdom Ministry of Defence, Defence Procurement Agency, Plaintiff-Appellant, v. TRIMBLE NAVIGATION LIMITED, Defendant-Appellee. United States of America, Amicus Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

422 F.3d 165

UNITED KINGDOM MINISTRY OF DEFENCE, Secretary of State for Defence, as represented by the United Kingdom Ministry of Defence, Defence Procurement Agency, Plaintiff-Appellant, v. TRIMBLE NAVIGATION LIMITED, Defendant-Appellee United States of America, Amicus Curiae.

No. 04-1129.

United States Court of Appeals, Fourth Circuit.

Argued September 29, 2004.

Decided September 6, 2005.

ARGUED:

Richard Osgood Duvall, Holland & Knight, L.L.P., Mclean, Virginia, for Appellant. Alan Arnold Pemberton, Covington & Burling, Washington, D.C., for Appellee.

ON BRIEF:

Jennifer A. Short, David B. Dempsey, Eric L. Yeo, Holland & Knight, L.L.P., McLean, Virginia, for Appellant. Eugene D. Gulland, Jennifer L. Plitsch, Derron J. Blakely, Covington & Burling, Washington, D.C., for Appellee. Peter D. Keisler, Assistant Attorney General, Paul J. McNulty, United States Attorney, Douglas N. Letter, Sushma Soni, United States Department of Justice, Washington, D.C., for Amicus Curiae.

Before WIDENER, TRAXLER, and GREGORY, Circuit Judges.

Reversed and remanded by published opinion. Judge TRAXLER wrote the opinion, in which Judge WIDENER and Judge GREGORY joined.

TRAXLER, Circuit Judge.

The Contract Disputes Act of 1978 (CDA or Act), 41 U.S.C.A. §§ 601-613 (West 1987 & Supp.2004), "is a comprehensive statutory scheme for resolving contractual conflicts between the United States and government contractors." United States v. J & E Salvage Co., 55 F.3d 985, 987 (4th Cir.1995). In general terms, the CDA applies to any "express or implied contract" entered into by an executive agency of the United States Government for the procurement of property, services, or construction. 41 U.S.C.A. § 602(a)(West 1987). District courts do not have subject-matter jurisdiction over claims falling within the scope of the CDA; a CDA claimant may seek relief only through appeals to the appropriate agency or by filing suit in the Court of Federal Claims. See 41 U.S.C.A. § 609(a)(1) (West Supp.2004); J & E Salvage, 55 F.3d at 987 ("[F]ederal district courts lack jurisdiction over government claims against contractors which are subject to the CDA.").

In this case, the United Kingdom Secretary of State for Defence, as represented by United Kingdom Ministry of Defence, Defence Procurement Agency (UK MOD) filed this breach-of-contract action in federal district court against Trimble Navigation Limited (Trimble). UK MOD alleged that it was a third-party beneficiary of certain procurement contracts between Trimble and the United States Government and that Trimble breached those contracts. The district court dismissed the action for lack of subject-matter jurisdiction, concluding that although UK MOD was not a party to the procurement contracts, its claims nonetheless fell within the scope of the CDA. UK MOD appeals.

As we explain below, we conclude that while the CDA applies to disputes involving procurement contracts, its reach is limited to claims by the Government against a contractor, or by a contractor against the Government. Therefore, although UK MOD's claims relate to a procurement contract, this particular action does not fall within the scope of the CDA. Accordingly, we reverse the decision of the district court and remand for further proceedings.¹

I.

Sales of certain military goods and services to foreign governments are authorized by the Arms Export Control Act (AECA), 22 U.S.C.A. §§ 2751-2796d (West 2004). One of the ways that such a sale can be consummated is through a "procurement for cash sale": the foreign government pays the United States Government in advance, the United States Government enters into a contract with the supplier, and the supplier provides the goods to the foreign government. This case involves a dispute arising from just such a transaction.

The NAVSTAR GPS is a space-based, twenty-four satellite radio-navigation system designed and deployed by the United States Department of Defense (U.S. DoD) that provides users with worldwide, all-weather, three-dimensional positioning, velocity, and precise time data. See United States Navy, NAVSTAR GPS, available at http://www.chinfo.navy.mil/navpalib/policy/vision/vis02/ vpp02-ch3x.html (last visited May 9, 2005). The United Kingdom and fourteen other North Atlantic Treaty Organization nations entered into a "Memorandum of Understanding" that permits them to use the GPS system. The Memorandum of Understanding requires foreign governments to buy certain GPS-related equipment, including the auxiliary output chips at issue here, through the Foreign Military Sales Program and a "Letter of Offer and Acceptance."² The Memorandum of Understanding informs participating nations that "[t]he general conditions of the [Letter of Offer and Acceptance] will not be negotiable." J.A. 14.

In a July 1998 Letter of Offer and Acceptance, U.S. DoD agreed to "procure and furnish . . . on a non-profit basis" for UK MOD more than 2,000 GPS-related "auxiliary output chips" manufactured by Trimble, an approved U.S. company, J.A. 39, and U.S. DoD entered into four contracts with Trimble (the U.S. DoD/Trimble contracts). The U.S. DoD/Trimble contracts were subject to the CDA, which by operation of law applies to every federal procurement contract. See 41 U.S.C.A. § 602(a)(1) ("[T]his chapter applies to any . . . contract . . . entered into by an executive agency . . . for the procurement of property . . . .").

The first chips were delivered to UK MOD in early 2000. According to UK MOD, approximately ninety-five percent of the auxiliary output chips initially delivered by Trimble did not conform to the applicable military specifications or standards and were returned for repair or replacement. Trimble repaired or replaced the chips, but UK MOD found that twenty percent of the repaired or replaced chips were still defective. Problems with the chips persisted throughout 2000 and 2001. The problems caused delays in a UK MOD cruise missile program and led to significantly increased costs on the part of UK MOD.

UK MOD looked to the United States for assistance in recovering its costs from Trimble. The United States Air Force investigated UK MOD's claim, including a review of the chronology of events and the burden of proof required to hold Trimble liable on various causes of action. In January 2003, U.S. DoD released the Air Force's legal opinion (concurred in by the Air Force's General Counsel) explaining that it could not recommend any action against Trimble. The Air Force's opinion stated that "[w]hile this may not be the answer that [UK MOD] wanted, please be assured of [the United States'] continued commitment that [the Defense Security Cooperation Agency] will fully monitor this issue to ensure quality Gondola Auxiliary Output Chips are delivered." J.A. 201.

UK MOD then brought this breach of contract action against Trimble in federal district court, asserting diversity jurisdiction under 28 U.S.C.A. § 1332(a)(4). UK MOD alleged that Trimble breached the U.S. DoD/Trimble contracts by manufacturing defective auxiliary output chips and that Trimble's breach harmed UK MOD, a third-party beneficiary of the U.S. DoD/Trimble contracts. Trimble moved to dismiss UK MOD's complaint. The district court granted Trimble's motion, finding that the Contract Disputes Act divested the court of subject-matter jurisdiction over the dispute.³

UK MOD appeals from the district court's order, arguing that, as a matter of law, the CDA does not apply to its claims against Trimble. UK MOD contends the CDA applies only to disputes between the U.S. Government and its contractors and not to third-party beneficiary suits brought by a foreign government against a contractor such as Trimble.

II.

District courts have subject-matter jurisdiction over controversies between "a foreign state, defined in section 1603(a) of this title, as plaintiff and citizens of a State or of different States," so long as the amount in controversy exceeds $75,000.⁴ 28 U.S.C.A. § 1332(a)(4) (West 1993). Thus, the district court clearly has subject-matter jurisdiction over this case, unless the CDA applies so as to oust the court's jurisdiction. This jurisdictional question presents a legal issue that we review de novo. See Tillman v. Resolution Trust Corp., 37 F.3d 1032, 1034 (4th Cir.1994).

A.

Subject to certain exceptions not relevant here, the CDA applies to "any express or implied contract . . . entered into by an executive agency for . . . the procurement of property." 41 U.S.C.A. § 602(a)(1). Because the U.S. DoD/Trimble contracts were entered into by an executive agency and involve the procurement of property, the contracts are subject to the CDA, a conclusion that no party disputes. There is likewise no dispute that UK MOD's claims against Trimble relate to the CDA-covered contracts—UK MOD claims that Trimble breached the procurement contracts that the United States Government entered into to provide UK MOD with the auxiliary output chips it needed and that, as a third-party beneficiary of those contracts, UK MOD is entitled to bring this breach-of-contract action against Trimble. The question presented by this case, however, is whether a claim made by a third-party beneficiary that is related to a CDA-covered procurement contract must be resolved under the procedures established by the CDA. In our view, the language and framework of the CDA require us to answer that question in the negative. See United States Nat'l Bank of Or. v. Indep. Ins. Agents of Am., Inc., 508 U.S. 439, 455, 113 S.Ct. 2173, 124 L.Ed.2d 402 (1993) (explaining that traditional principles of statutory construction require us to "account for a statute's full text"); Gracey v. Int'l Bhd. of Elec. Workers, Local Union No. 1340, 868 F.2d 671, 675 (4th Cir.1989) ("A court must endeavor to see a statute whole, not to construe statutory sections or phrases in isolation.").

Although the CDA applies to all procurement contracts, it is clear from the structure of the Act...