Free Response to Motion - District Court of Federal Claims - federal

Case 1:07-cv-00815-TCW

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS CALL HENRY INC., Plaintiff, v. THE UNITED STATES, Defendant. PLAINTIFF'S RESPONSE TO DEFENDANT'S PARTIAL MOTION TO DISMISS The Plaintiff, CALL HENRY INC., (hereinafter "CHI" or "Plaintiff"), pursuant to the Rules of the United States Court of Federal Claims ("RCFC"), hereby submits its Response to Defendant's Partial Motion to Dismiss, and in support thereof states as follows: I. Introduction A. Factual Background In December 2004, CHI was awarded a contract for the provision of civil engineering services to the Department of the Air Force at Wright Patterson Air Force Base. The contract was awarded on a "time and materials" basis, with a base year for 2005 and four option years. As a part of its time and materials contract, Defendant did not set forth specific hours that it would order. However, in the solicitation process, the Defendant did address the formula for the bidding of the direct labor and overhead hours to be ordered. In fact, in the solicitation, the Defendant specifically and repeatedly advised bidders as to the formulas to use in order to compute the price for each labor
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category. (Complaint ¶¶ 7-8). In particular, the Defendant directed that the pricing of the required full-time overhead positions and the environmental coordinator were to be incorporated into the ELIN structure. (Complaint ¶ 9). CHI was ultimately awarded the Contract in December 2004 and began performing its obligations in January 2005. (Complaint ¶¶ 15-16). Within the base year and the first option year, the Defendant ordered significantly fewer hours than it had required to be used as the basis for pricing the Contract. (Complaint ¶¶ 17-19).

Significantly, upon realization of the difference in hours to be ordered, CHI requested that the Defendant allow it to take steps to reduce or eliminate the overhead positions no longer needed due to the ordering of significantly fewer hours. The Defendant

specifically denied CHI this relief. (Complaint ¶ 22). By under-ordering the hours, and not allowing CHI to alter the overhead costs incurred as a result, CHI has been substantially damaged and has realized far less in value than the parties contemplated when the Contract was awarded. (Complaint ¶ 23). After unsuccessful attempts to resolve the dispute informally, CHI submitted a formal Claim to the Contracting Officer pursuant to the Contract Disputes Act, dated March 7, 2007, asking the Defendant to reimburse it for the total amount of $537,792.47 plus interest. (Complaint ¶ 29). The Contracting Officer denied CHI's claim.

(Complaint ¶ 30). B. Procedural Background On or about November 20, 2007, CHI filed a five count Complaint against the United States alleging breach of contract and other theories arising from its contract for
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the provision of civil engineering services to the Department of the Air Force at Wright Patterson Air Force Base. Plaintiff and Defendant agreed to several extensions of time in which to allow Defendant to respond to CHI's Complaint. On or about March 7, 2008, Defendant filed its Partial Motion to Dismiss Plaintiff's Complaint. Defendant's Motion contends that this Court does not have subject matter jurisdiction to entertain several counts of the Complaint as the precise legal arguments articulated in the Complaint were not submitted to the Contracting Officer. Additionally, the Motion to Dismiss argues that the Complaint fails to state a claim for which relief can be granted. CHI submits that Defendant's Motion should be denied and in support thereof states the following. II. Legal Standard When evaluating a motion to dismiss, based on either lack of subject matter jurisdiction or for failure to state a claim, the court is "obligated to assume all factual allegations to be true and to draw all reasonable inferences in plaintiff's favor." Omaha Public Power Dist. v. United States, 69 Fed.Cl. 237, 240 (2005) (citing Scheuer v. Rhodes, 416 U.S. 232, 236-37 (1974)). The issue to be considered in such a motion "is not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims." Executive Court Reporters, Inc. v. United States,

29 Fed.Cl. 769, 773 (1993). Furthermore, as a general rule, a motion to dismiss "is viewed with disfavor and should rarely be granted." Balboa Insurance Company v. United States, 3 Cl.Ct. 543, 545 (1983). "Therefore, the question is whether in the light

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most favorable to the plaintiff and with every doubt resolved in plaintiff's behalf, the complaint states any claim for relief." Id. III. This Court has Subject Matter Jurisdiction as to All the Counts in CHI's Complaint as They Are All Based on the Same Set of Operative Facts Presented to the Contracting Officer. The Defendant argues that CHI did not exhaust the administrative process as to certain claims, and therefore, Counts II, III and V of CHI's Complaint should be dismissed. CHI submits that the Defendant's interpretation of the applicable standard is too narrow. CHI maintains that it has presented all of the instant claims to the

Contracting Officer, who subsequently denied CHI relief, thereby triggering subject matter jurisdiction. Although a "claim" must be submitted to the contracting officer prior to bringing an action in this Court, there is no requirement that the "claim" must be submitted in any particular form or use any specific language specifically delineating legal theories. See Contract Cleaning Maint., Inc., v. United States, 811 F.2d 586, 592 (Fed. Cir. 1987). "All that is required is the contractor submit in writing to the contracting officer a clear and unequivocal statement that gives the contracting officer adequate notice of the basis and the amount of the claim." Id. Furthermore, this Court has found jurisdiction when the contractor submitted a claim notifying the contracting officer of the basis and amount "even if the claims before the court contained slightly different legal arguments and the relief sought before the court was the same relief sought in the plaintiff's claim to the contracting officer." Manuel Brothers Inc. v. United State, 55 Fed.Cl. 8, 33 (2002) (citing Scott Timber Co. v.
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United States, 40 Fed.Cl. 492, 499-500 (1998)).

As the Manuel Brothers Court

suggested, when a jurisdictional challenge is made based upon a claim submitted to the contracting officer, the Court should consider "whether the claim is based on the same common or related set of operative facts brought before the CO" as well as whether the complaint "requests the same relief as requested from the CO." Id. In M.A. DeAtley Construction, Inc. v. United States, 75 Fed.Cl. 575 (2007), this Court again reiterated this principle, stating that: Where the contractor has not presented its claims to the CO in the exact terms of the complaint, the Federal Circuit instructs that a contractor has sufficiently established subject matter jurisdiction in this court when its claims here arise from the same operative facts, claim essentially the same relief, and merely assert differing legal theories for that recovery when compared with its claim presented to the CO. Id. at 579 (citing Scott Timber, 333 F.3d 1358, 1365 (Fed. Cir. 2003)). See also

Celebronics Inc. v. United States, 13 Cl.Ct. 415, 418-419 (1987) (a contractor is entitled to "augment the legal theories underlying its claim"). In the instant matter, the operative facts which CHI presented in its claim to the Contracting Officer are the same as those framed in the Complaint. Furthermore, the monetary relief sought in the Complaint is identical to the amount which was presented to the Contracting Officer in the original Claim. Though admittedly CHI did not articulate all the legal theories upon which it based its arguments in the claim letter, the "operative facts" remain the same. Accordingly, CHI submits that this Court has subject matter jurisdiction over all of the Counts in the Complaint, and as such, respectfully asks this Court to deny Defendant's Motion to Dismiss.
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IV. CHI Has Alleged Sufficient Facts to State a Claim In its Motion, the Defendant suggests that CHI has failed to state a claim for relief for several counts from CHI's Complaint. However, CHI maintains that at this early stage, CHI cannot be pigeon-holed into pursuing only specific theories of its case based upon the Defendant's interpretation of the Contract. To the contrary, CHI may plead alternative theories of liability. RCFC Rule 8(a) ("Relief in the alternative or of several different types may be demanded"); see also International Fidelity Insurance Co. v. United States, 27 Fed.Cl. 107 (1992) (parties may assert inconsistent allegations in complaint and will not be forced to select theory on which to seek recovery). CHI maintains that it has pled sufficient allegations to support its claims, and respectfully submits that it would be premature to dismiss its Complaint at this time. A. CHI Stated a Claim for Breach of Contract and for Breach of the Implied Warranty to Provide Accurate Information In its Motion, the Defendant suggests that CHI fails to state a claim for a breach of contract to the extent that the Air Force did not agree to order a minimum number of hours, and that therefore, the contract does not allow for a remedy. Defendant further alleges that to the extent the hours provided by the government during the solicitation process were merely estimates, CHI cannot recover based upon their speculative nature. CHI maintains that its theories behind the Complaint are predicated on much more than merely an under-ordering of hours. Upon performing the Contract, when it became apparent that the hours to be ordered were inaccurate, Defendant prevented CHI from minimizing its damages, which resulted specifically from the Defendant's directive
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as to how to price the Contract.

(Complaint ¶ 22).

As such, the Defendant's

characterization of CHI's breach of contract count is unnecessarily narrow given the facts pled. As alleged in the Complaint, the Defendant went so far as to specifically instruct CHI how to price its bid by requiring CHI to utilize the number of hours anticipated in calculating overhead pricing. (Complaint ¶¶ 10-12). Accordingly, CHI's breach of Contract claim is predicated on more than just an under-ordering theory that Defendant suggests. Furthermore, this Court has found that contractors may state a claim for inaccurate and damaging estimates in an indefinite quantity contract. Schweiger

Construction Company, Inc., v. United States, 49 Fed. Cl. 188 (2001). In Schweiger Construction, the plaintiff, a contractor who was awarded an indefinite quantity contract for construction, was specifically instructed in the solicitation to complete its bid based on the price schedule and estimated quantities for each item of labor and material to be factored into the bid. Id. at 189. In finding that the Plaintiff had stated a cause of action, the Court noted that "the question of the government's obligation to order the stated minimum quantity...is entirely distinguishable from whether a plaintiff may maintain a cause of action for inaccurately prepared estimates." Id. at 195. As such, the Schweiger Construction court held that recovery is permitted for inaccurate estimates in an indefinite quantity contract in the event of more egregious governmental conduct. Id. at 197. Moreover, the predecessor to this Court has previously found the government liable "for increased costs resulting from a change in volume from the estimated volume
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given to the contractor as a basis for computing its bid." H.L. Yoh Co. v. United States, 288 F.2d 493, 495 (Ct.Cl. 1961). As articulated by the Court in H.L. Yoh, "the Defendant clearly had the right to make this reduction [under the terms of the contract] but they are obliged to pay for increased costs occasioned by change." Id. Accordingly, CHI

submits that it has sufficiently stated a claim for relief for a breach of contract as well as the breach of the implied warranty to provide accurate information, due to the Defendant's "inaccurate estimates" and subsequent conduct which frustrated CHI's efforts to avoid the damage claimed in this case. In terms of the implied warranty to provide accurate estimates, to the extent that the Defendant's Motion is premised upon the notion that the warranty does not apply to "performance specifications," this argument too must fail. CHI maintains that the pricing instructions regarding the overhead positions for this Contract were detailed, specific and permitted no deviations. By specifying the exact overhead positions that CHI was

required to maintain, and by directing CHI to use the precise numbers and formulas in computing its bid, the Defendant has taken this beyond the realm of performance specifications. Accordingly, CHI submits that the implied warranty to provide accurate information is applicable, and that CHI has pled sufficient allegations to support such a claim. Significantly, at this early stage in the process, no discovery has been conducted by the parties to ascertain the Defendant's basis for the erroneous estimates or the Defendant's decision making process in requiring the staffing of unnecessary overhead

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positions and then refusing to permit CHI to minimize its damages. Dismissal at this stage is unwarranted given the allegations pled. B. CHI Sufficiently Stated a Claim for Breach of Implied Covenant of Good Faith and Fair Dealing and for Breach of Implied Duty to Disclose Superior Knowledge Defendant articulates several reasons why it believes that CHI has failed to state a claim for breach of the implied covenant of good faith and fair dealing. CHI maintains that it has sufficiently pled these allegations and therefore, respectfully asks this Court to deny Defendant's Motion to Dismiss. "The obligation of good faith and fair dealing is an implied covenant in every contract." D.V. Gonzales Electric & General Contractors, Inc., v. United States, 55 Fed.Cl. 447 (2003) (citing Asco-Falcon II Shipping Co., v. United States, 32 Fed.Cl. 595, 604 (1994)). "In substance, this obligation means that each party will cooperate in performance of the contract and will do nothing to hinder the other party's performance or expectations." Schweiger Construction Company, Inc., v. United States, 49 Fed. Cl. 188, 203 (2001). Additionally, in order to demonstrate a breach of the implied duty of good faith and fair dealing, "the plaintiff need not provide evidence that the government acted in bad faith." Rivera Agredano v. United States, 70 Fed.Cl. 564, n.8 (2006) (citing Centex Corp. v. United States, 395 F.3d 1283, 1304-06 (Fed.Cir.2005)). In support of its claim of a breach of the implied covenant of good faith and fair dealing, CHI maintains that it has sufficiently alleged facts to support this Count. CHI has plead numerous facts that would tend to show that it was denied the benefit of its bargain. Specifically, CHI's Complaint alleges that "as a result of the Agency's ordering
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of less hours than it previously indicated, CHI has been substantially damaged and has realized far less in value than the parties contemplated when the bid was submitted and the award was made." (Complaint ¶ 23). As well, CHI pled facts relating to the

substantial erosion of efficiency savings and fees that CHI would have otherwise realized. (Complaint ¶ 27). Accordingly, CHI has sufficiently alleged facts that it was deprived of its benefit of the bargain with Defendant. Additionally, CHI pled facts relating to the Defendant's malice or intent to injure that would support a claim for breach of implied covenant of good faith and fair dealing. Specifically, CHI submits that Defendant's repeated refusal to allow Plaintiff to adjust its overhead, even after being alerted to the damages being realized as a result of vastly different amount of hours ordered, supplies an inference of "bad faith" to support such a claim. (See Complaint ¶ 22). CHI submits that these allegations are sufficient to support a claim for the breach of the implied covenant of good faith and fair dealing. Defendant's Motion also argues that CHI has failed to state a claim for the Breach of the Implied Duty to Disclose Superior Knowledge. Here again, CHI submits that it has sufficiently pled facts to support this allegation, and as such, respectfully asks this Court to deny Defendant's Motion to Dismiss. The superior knowledge doctrine imposes a duty on the Defendant "to disclose to a contractor otherwise unavailable information regarding some novel matter affecting the contract that is vital to its performance. If the government fails to disclose superior knowledge...the contractor may recover costs when the withholding of superior knowledge makes it more difficult to perform under the terms of the contract."
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(emphasis added) (internal citations omitted). Furthermore, the duty to disclose superior knowledge is intrinsically tied to the concepts of good faith and fair dealing. See Rivera Agredano v. United States, 70 Fed.Cl. 564, 574-575 (2006). "Under the implied duty of good faith and fair dealing, the Government maintains an implied duty to disclose information fundamental to the preparation of estimates or contract performance. Nondisclosure of superior knowledge defines this implied duty." Miller Elevator

Company, Inc. v. United States, 30 Fed.Cl.662, 674-675 (1994) (emphasis added) (internal citations omitted). Applying this standard, CHI maintains that it has sufficiently pled all the allegations necessary to support its superior knowledge claim. Specifically, CHI was instructed to, and specifically computed its bid with regard to the specifications and formulas provided by the Defendant. (Complaint ¶¶ 12-13). During this bidding process, the Defendant knew that CHI would rely upon the erroneous hours in computing their bid. (Complaint ¶ 21). To the extent that the Defendant had the knowledge as to the lack of credibility concerning the hours estimate and the lack of support for those figures, it was in a position of superior knowledge to that of CHI. Moreover, CHI maintains that Defendant had superior knowledge as to the continued damaging effects that would result from CHI's reliance on these estimates and their inability to minimize damages. (Complaint ¶¶ 21-23, 46-49). As detailed above, Defendant not only knew that CHI would rely upon its estimate of hours, but specifically knew that CHI was required to utilize these hours in pricing the overhead positions. Furthermore, Defendant knew that by not allowing CHI
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to minimize its damages with respect to the overhead positions, CHI would be materially and severely damaged. Defendant's knowledge of CHI's required reliance on these figures provides sufficient support for a superior knowledge claim, and is particularly egregious in light of its knowledge of the continued damages that CHI would be required to suffer as a result. CHI should be entitled to conduct discovery concerning this claim given that the facts pled in the Complaint could support relief under this theory. To the extent that the Defendant attempts to suggest that CHI should have had constructive knowledge that the orders could vary substantially from those described in the solicitation, this argument should also fail. As in Miller Elevator, CHI contends that such constructive knowledge "seems more appropriate to impute to the Government because the Government should have known of the contractor's ignorance of the facts." Id. at 675-676. At the time of awarding CHI the Contract, Defendant knew or should have known that the circumstances were such that they would be ordering significantly less hours than those previously indicated or that, at the very least, the estimates were not supported by adequate data. (Complaint ¶¶ 21, 45-47). Moreover, Defendant knew or should have known of the damaging impact that its estimates would have on CHI given the manner in which the Defendant directed CHI to price the Contract. Accordingly, CHI maintains that Defendant not only failed to disclose its superior knowledge of the actual hours to be ordered, but that it also failed to disclose to CHI its superior knowledge as to the damaging impact that would be felt by their pricing requirements based upon these estimates, coupled with CHI's inability to minimize these damages. By failing to

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disclose these facts to CHI, Defendant breached its implied warranty to provide superior knowledge. C. CHI Sufficiently Stated a Claim for Constructive Change As an additional ground for its Motion to Dismiss, Defendant argues that the Constructive Change doctrine does not apply as the government has ordered less than the specified amount, not more. However, CHI submits that this is too narrow of a reading of the constructive change doctrine. Generally, to establish a constructive change in a government contract, "the contractor must show the performance of work in addition to or different from that required under the contract." (emphasis added) Miller Elevator, 30 Fed.Cl. at 678-79. Furthermore, this Court has previously articulated the standard

posited by legal scholars that five distinct types of "constructive change" exist, "(I) disputes over contract interpretation during performance; (II) Government interference or failure to cooperate; (III) defective specifications; (IV) misrepresentation and nondisclosure of superior knowledge; and (V) acceleration." Id. at 678. Notably, while CHI's constructive change Count can arguably fit within four of the five of these categories, none of these distinct types of constructive change appear to be limited to only a requirement to perform additional work. As such, by materially decreasing the amount of hours to be ordered, Defendant has constructively changed the terms of the contract and caused CHI substantial damage. Accordingly, CHI respectfully requests this court to deny Defendant's Motion to Dismiss on its constructive change theory.

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V. Conclusion CHI submits that in light of the foregoing factual and legal disputes, a motion to dismiss is not the appropriate vehicle to decide the merits of this case. Recognizing that a motion to dismiss is generally disfavored, and considering all facts in the light most favorable to CHI and with all doubts resolved in its behalf, CHI maintains that it has pled sufficient allegations to support each of its claims and to survive a motion to dismiss. Likewise, at this early stage in the case, CHI is permitted to plead alternative theories of liability, particularly in light of the fact that no substantive discovery has been conducted with respect to the allegations contained in its Complaint. Wherefore, in light of the foregoing reasons, CHI respectfully requests that the Court deny Defendant's Partial Motion to Dismiss, and order the Defendant to Answer CHI's Complaint for Relief. Respectfully submitted,

s/ Brian Koji BRIAN KOJI Florida Bar No. 0116297 [email protected] ALLEN, NORTON & BLUE, P.A. Hyde Park Plaza - Suite 225 324 South Hyde Park Avenue Tampa, Florida 33606-4127 (813) 251-1210 (813)253-2006 ­ Fax Counsel for Call Henry, Inc.,
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CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 4th day of April, 2008, I electronically filed the foregoing with the Clerk of the Court by using the CM/ECF system, which will send a notice of electronic filing to the following: Douglas G. Edelschick, Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, Attn: Classification Unit, 8th Floor, 1100 L. Street, N.W. Washington, D.C. 20530.

s/ Brian Koji ATTORNEY

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