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

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No. 03-1798C (Chief Judge Damich) IN THE UNITED STATES COURT OF FEDERAL CLAIMS AMERICAN RENOVATION AND, CONSTRUCTION COMPANY, Plaintiff, v. THE UNITED STATES, Defendant. DEFENDANT'S OPPOSITION TO CLASSICAL FINANCIAL SERVICES, LLC'S MOTION TO INTERVENE Peter D. Keisler Assistant Attorney General David M. Cohen Director ROBERT E. KIRSCHMAN, JR. Assistant Director Michael N. O'Connell TRIAL ATTORNEY Commercial Litigation Branch Civil Division Department of Justice ATTN: Classification Unit 8th Floor, 1100 L St. NW Washington, D.C. 20530 Tele: (202) 307-0282 Fax: (202) 514-8624

December 3, 2004

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TABLE OF CONTENTS Page STATEMENT OF ISSUES . . . . . . . . . . . . . . . . . . . . . 1

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . . 2 I. II. ARGUMENT I. II. Nature Of The Case Statement Of Facts . . . . . . . . . . . . . . . . . 2 . . . . . . . . . . . . . . . . . 2

. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 The Standard . . . . . . . . . . . . . . . . . . . . 6 . . . . . 8 10 13 14 16

Classical Has Not Acted In A Timely Manner

III. There Has Been No Valid Assignment To Classical By ARC . . . . . . . . . . . . . . . . IV. V. CONCLUSION This Court Lacks Jurisdiction To Consider Classical's Complaint . . . . . . . . . . . . . . . There Has Been No Waiver Of Sovereign Immunity For Classical's Claim As A Judgment Lien Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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TABLE OF AUTHORITIES Page(s) American Maritime Transport, Inc. v. United States, 870 F.2d 1559 (Fed. Cir. 1989) . . . . . . . . . . . . . Banco Bilbao Vizcaya-Puerto Rico v. United States, 48 Fed. Cl. 29 (2000) . . . . . . . . . . . . . . . 7

10, 11 8 16 15 10

Belton Industrial, Inc. Inc. v. United States, 6 F.3d 756 (Fed. Cir. 1993) . . . . . . . . . . . . . . . Cascade Natural Gas Corp. v. El Paso Natural Gas Corp., 386 U.S. 129 (1967) . . . . . . . . . . . . . . . . . . Department of the Army v. Blue Fox, Inc., 525 U.S. 255 (1999) . . . . . . . . . . . . . . . . . . Fireman's Fund v. England, 313 F.3d 1344 (Fed. Cir. 2002) Freeman v. United States, 50 Fed. Cl. 305 (2001) Houston v. United States, 60 Fed. Cl. 507 (2004) . . . . . . . . . . . .

. . . . . . . . . . . . . . .

7, 14 14 15 7

. . . . . . . . . . . . . . . .

Lalic v. Chicago, Burlington & Quincy Railroad Co., 263 F. Supp. 987 (N.D. Ill. 1967) . . . . . . . . . . . Orion Scientific Systems v. United States, 28 Fed. Cl. 669 (1993) . . . . . . . . . . . . . . . . .

Riviera Finance of Texas, Inc. v. United States 58 Fed. Cl. 528 (2003) . . . . . . . . . . . . . . . .
Smith v Gales 144 U.S. 509 (1892) . . . . . . . . . . . . . . . . . .

10
7 16 14

United States v. El Paso Natural Gas Corp., 376 U.S. 651 (1964) . . . . . . . . . . . . . . . . . . United States v. King, 395 U.S. 1 (1969) . . . . . . . . . . . . . . . . . . .

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United States v. Sherwood, 312 U.S. 584 (1941) . . . . . . . . . . . . . . . . . . FEDERAL STATUTES 41 U.S.C. § 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

10 13 10

28 U.S.C. § 1491(b)(2) 31 U.S.C. § 3727

. . . . . . . . . . . . . . . . . . . . . .

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS AMERICAN RENOVATION AND, CONSTRUCTION COMPANY, Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) No. 03-1798c ) (Chief Judge Damich) ) ) ) ) )

DEFENDANT'S OPPOSITION TO CLASSICAL FINANCIAL SERVICES, LLC'S MOTION TO INTERVENE Defendant, the United States, respectfully submits this opposition to the motion to intervene filed by Classical Financial Services, LLC ("Classical"). 1 STATEMENT OF ISSUES 1. Whether Classical has a sufficient interest in this

lawsuit which requires the Court to allow it to intervene. 2. 3. Whether Classical's motion to intervene is timely. Whether Classical has identified an assignment to it by

ARC which meets the requirements of the Anti-Assignment Act and its implementing regulations. 4. Whether the Court possesses jurisdiction to consider

Classified's complaint because it seeks declaratory relief. 5. Whether Classified has identified a waiver of sovereign

immunity which would allow it to assert its claims against the United States.
If the Court grants Classical's motion, defendant respectfully requests that the Court grant defendant 30-days from the date of the order to respond to Classical's complaint.
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STATEMENT OF THE CASE I. Nature Of The Case

American Renovation and Construction Company ("ARC") was the general contractor for the Air Force on contract no. F08602-99CK-006, which provided for the construction of multi-family housing units at MacDill Air Force Base. This is an action by

ARC seeking reversal of the Air Force's termination of the contract for default. Court. II. Statement Of Facts There is no money claim pending before the

The Air Force awarded the contract to ARC in April, 1999, and issued a notice to proceed in August, 1999. The Air Force The Air Force

terminated the contract for default in July, 2002.

and ARC's surety, St. Paul Fire and Marine Insurance Co., Inc. ("St. Paul"), thereafter entered into a takeover agreement which provided for the completion of the contract work. As indicated in Classified's motion to intervene, ARC maintained for several years a lender-borrower relationship with Classified. By approximately April 2000, however, the On April 19,

relationship between ARC and Classical soured.

2000, Classical forwarded to the Air Force "six Executed Instruments of Assignment and six Notices of Assignment" purportedly for the MacDill contract. Appendix ("App.") 1.

Acceptance of the instrument of assignment was executed by Dennis R. Terhune, Chief Manager of Classical. App. 3. Two days later,

ARC wrote to the Air Force stating that it had terminated its
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relationship with Classical, that checks from Classical to ARC's vendors and suppliers had been returned for insufficient funds, and that ARC expected Classical to contact the Air Force, which, in fact, Classical had already done. stated: Any ARC contract moneys, information, equipment, and/or property for which you have control should under no circumstances be released to Classical or any of its agents. Id. (Emphasis in original). On April 26, 2000, ARC wrote to the Air Force stating that ARC "offers official notice that it is not its intent to assign ANY of the contract proceeds/moneys on the" MacDill contract. App. 5. ARC further stated that "any Instrument of Assignment Id. App. 4. The letter further

irrespective of the date signed - should be disregarded."

ARC wrote to the Air Force again on April 27, 2000, stating that any assignments to Classical "are not valid." App. 6. ARC

enclosed a September 16, 1999 letter from ARC to Classical. App. 7. The September letter stated that ARC was forwarding an

assignment for the MacDill contract and several others to Classical "as you requested, for your upcoming audit." Id. ARC

further stated in the September letter that the contract was "backed by Soltek Pacific, Mr. Steve Thompson, and as you know, he will not allow these projects to be assigned to any other entity. . ." Id. ARC's September 4letter concluded "I

reiterate, these Assignments CANNOT be executed for any reason." Id.
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In a May 1, 2000 letter to the Air Force, ARC restated that it did not intend to assign the contract to Classical as evidenced by the September 16, 1999 letter to Classical. 9. App. 8-

ARC further pointed out that FAR 32.805 requires that an

assignment be attested by the secretary or assistant secretary of a corporation, and that the purported assignment lacked such an attestation. Id.

The Air Force contracting officer wrote to Classical on May 23, 2000, explaining that the assignment did not meet the requirements of FAR 32.805(a)(1)(ii) which requires the assignment be attested by the secretary or assistant secretary of ARC. App. 10. On May 24, 2000, Dennis Terhune of Classical (Financial) wrote to the Air Force on Classical Receivables Funding Co., LLC letterhead, forwarding to the Air Force a new instrument of assignment dated May 24, 2000. App. 11. Mr. Terhune stated in

the letter that ARC, in an "Assignment and Security Agreement" dated July 15, 1996, granted Classical Receivables an irrevocable power of attorney "to execute such documents on behalf of" ARC. Id. Mr. Terhune executed the instrument of assignment upon

behalf of ARC and executed acceptance of the assignment upon behalf of Classical Receivables. App. 12.

On June 8, 2000, the contracting officer informed Mr. Terhune that the new assignment still lacked an attestation from ARC's secretary or assistant secretary, as well as the signature of an authorized representative of ARC.
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App. 14.

The

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Air Force returned the documents to Mr. Terhune without action. Id. After receiving a request from Classical that it reconsider its decision, the Air Force reexamined the issue and reviewed the Assignment and Security Agreement. App. 15. On July 17, 2000, The

the contracting officer again denied Classical's request. contracting officer agreed that the Assignment and Security

Agreement granted Classical [Receivables] a power of attorney, but pointed out that the MacDill contract was not included on the list of "Designated Contracts" to which the grant of a power of attorney applied. Id.

By letter dated July 14, 2000, Classical's attorneys informed the Air Force that "our client regrets that it now has no alternative to file suit against the Department of the Air Force, and such action will be commenced shortly." App. 16-19.

Attached to the letter was yet another instrument of assignment. In this assignment, Mr. Terhune again executed the instrument of assignment upon behalf of ARC and executed acceptance upon behalf of Classical (Financial). App. 20.

By letter to the Air Force dated August 24, 2000, Robert G. Watt, attorney for St. Paul, stated that: the assignments presented by Classical are not valid and that payments should continue to be made to ARC in order to ensure continued project performance and timely payments to ARC's subcontractors and suppliers. App. 22-25. Mr. Watt further stated that St. Paul had not

received notice of the assignments and that this rendered the
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assignments void to the extent that St. Paul was prejudiced. App. 23-24. ARC thereafter submitted to the Air Force an assignment of claims to First Union National Bank. Upon review, the Air Force

recognized the assignment by contract modification 14 on June 22, 2001. App. 26-28. ARGUMENT I. The Standard Rule 24 of the Rules of the Court of Federal Claims ("RCFC") provides two bases for intervention of right pursuant to RCFC 24(a).
The first basis for intervention pursuant to RCFC 24(a),

intervention pursuant to a statute which confers an unconditional right to intervene, does not appear to be applicable here because Classical cites no statute which grants it an unconditional right to intervene and we are aware of none.

RCFC 24(a)(2) allows

Classical to intervene if it claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect the interest, unless the applicant's interest is adequately represented by existing parties. RCFC 24(b)(2)

allows permissive intervention when an applicant's claim or defense and the main action have a question of law or fact in common. In considering a motion for permissive intervention the

Court "shall consider whether the intervention will unduly delay

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or prejudice the adjudication of the rights of the original parties." RCFC 24(b)(2).

"Intervention is only proper to protect those interests which are 'of such a direct and immediate character that the intervenor will either gain or lose by the direct legal operation of the judgment.'" American Maritime Transport, Inc. v. United

States, 870 F.2d 1559, 1561 (Fed.Cir. 1989) (quoting Smith v. Gale, 144 U.S. 509, 518 (1892)). either indirect or contingent." "The interest thus may not be Id.

Intervention in this Court has historically been disfavored because the Court does not possess jurisdiction to consider disputes between private parties. 50 Fed.Cl. 305, 308 (2001). "public rights." Id. Freeman v. United States,

The Court is limited to adjudicating

An intervenor accorded full party status

may have the power to interfere with, burden or prolong the adjudication of the pending suit by: expanding the scope of discovery beyond that required by the original suit; filing a counterclaim; filing motions on issues extraneous to the claim properly before the Court; and opposing and preventing a settlement agreed to by the original parties. Orion Scientific

Systems v. United States, 28 Fed.Cl. 669, 672 (1993). The threshold question for the Court is whether the applicant's request to intervene is timely. Id. at 308. In

evaluating timeliness, the Court considers three factors: (1) the length of delay in making the application for intervention; (2) the prejudice to existing parties from intervention versus the
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prejudice to the would-be intervenor if intervention is denied; and (3) any other unusual circumstances militating in favor of or against intervention. Id. at 309 (citing Belton Indus., Inc.

Inc. v. United States, 6 F.3d 756, 762 (Fed.Cir. 1993) (Construing Court of International Trade Rule 24)). As we establish below, Classical has failed to move to intervene in a timely manner. Moreover, neither intervention as

a matter of right nor permissive intervention are appropriate here because: (1) there was no valid assignment to Classical; (2) Classical's complaint does not assert causes of action which this Court possesses jurisdiction to consider; and (3) there has been no waiver of sovereign immunity which would allow Classical to assert its claims against the United States. II. Classical Has Not Acted In A Timely Manner This lawsuit was filed by ARC on July 28, 2003. Classical Moreover,

waited well over a year before it sought to intervene.

it has been more than four years since Classical informed the Air Force that it would "shortly" commence a lawsuit against the Air Force because the contracting officer refused to recognize the purported assignment as valid. In its brief, Classified does not

explain why it waited more than four years for it to attempt to enforce the alleged assignment. As we establish below, Classical will not be prejudiced if the Court denies its motion to intervene because it has no claims which it can assert in this Court. Conversely, the Air Force has

been prejudiced by the dilatoriness of Classified's actions.
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First, the Air Force clearly would not have recognized ARC's assignment to First Union National Bank in June 2001 if there was already a valid assignment to Classified. Second, from

Classified's threat to sue the Air Force in July 2000 until the termination of ARC in July 2002, the Air Force paid ARC or First Union millions of dollars on the contract. ARC's attempts to

obtain a declaration from the Court that the assignment was valid after the passage of so many years prejudices the Government because, if Classical is correct (and we are incorrect) that the assignment was valid, the Government paid money to ARC that it would not have paid. If Classical is correct and had acted

promptly to enforce its rights, such payments would have been prevented by prompt action by Classical. Third, the Government has been prejudiced because the Government has conducted this litigation under the assumption that ARC and/or St. Paul are authorized to act upon behalf of ARC. The Government has spent significant time and money to

analyze ARC's claims on the project and discuss the claims with ARC's representatives. The Government has dealt exclusively with

the Watt Tieder firm because it represents both ARC and St. Paul. The Government would expect that if Classified is allowed to intervene much of this effort will have been wasted or would have to be duplicated if Classified now joins this lawsuit.

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III. There Has Been No Valid Assignment To Classical By ARC Although Classical argues that it has a direct and substantial interest in the property forming the basis of this action, it does not. As we establish in this section, there has

been no assignment to Classical by ARC which complies with the Anti-Assignment Act and its implementing regulations. The Federal Circuit has explained that what is commonly called the Anti-Assignment Act consists of two statutory provisions. See, Fireman's Fund v. England, 313 F.3d 1344, 1349

(Fed.Cir. 2002); Riviera Finance of Texas, Inc. v. United States ; 58 Fed.Cl. 528 (2003). assignment of contracts. assignment of claims. Title 41 U.S.C. § 15 concerns the Tile 31 U.S.C. § 3727 concerns the

Federal Acquisition Regulation ("FAR") Banco Bilbao

subpart 32.8 implements the Anti-Assignment Act.

Vizcaya-Puerto Rico v. United States, 48 Fed.Cl. 29, 33 (2000);

Riviera Finance , 58 Fed.Cl. at 530.
provides:

FAR 32.802, Conditions,

Under the Assignment of Claims Act, a contractor may assign moneys due or to become due under a contract if the following conditions are met: * * * * *

(e) The assignee sends a written notice of assignment together with a true copy of the assignment instrument to the-- (1) (2) Contracting officer or Agency head; Surety on any bond applicable to the contract; and

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(3) Dispersing officer designated in the contract to make payment. FAR 32.805, Procedure, sets forth the procedural requirements for corporations to assign moneys due or to become due pursuant to contracts as follows: (1) (i) Assignments by corporations shall be-- Executed by an authorized representative;

(ii) Attested by the secretary or the assistant secretary of the corporation; and (iii) Impressed with the corporate seal or accompanied by a true copy of the resolution of the corporation's board of directors authorizing the signing representative to execute the assignment. The instruments of assignment that Classical (Financial and Receivables) sent to the contracting officer were not valid because they did not comply with the procedural requirements of FAR 32.805. This FAR provision requires that the secretary or

assistant secretary of the corporation attest to assignments by corporations. The first assignment from Classical stated on its

face that it had been attested to by Kim McMahon, the treasurer of the corporation. App. 3. Neither of the later assignments App. 12, 20. As evidenced by

were attested to by anyone at ARC.

the record, the Air Force at all times demanded strict compliance with the terms of FAR 32.805. Classical's failure to comply with

the procedural requirements of the FAR, absent a waiver by the Air Force, rendered the assignment invalid as a matter of law. Banco Bilbao, 48 Fed.Cl. at 32-33. -11-

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In its brief, Classical does not argue that any of the three assignments it, or Classical Receivables, submitted to the Air Force in 2000 were valid. Brief at 3. Instead, it argues for

the first time that general language in the assignment and security agreement between ARC and Classical Receivables is sufficient to accomplish an enforceable assignment. Classical

points to language assigning "Designated Contracts" to ARC, but the MacDill contract is not listed as a designated contract in the schedule attached to the agreement. Motion, Tab E.

Classical further points to general language which assigns to Classical ARC's "accounts receivables," and "general intangibles" including "choses in action and causes of action." Id.

Classical simply ignores the requirements of the AntiAssignment Act and the implementing regulations. The arguments

that it now advances in favor of assignment are easily dismissed because Classical makes no argument that the language cited in the assignment and security agreement complies with the provisions of the FAR and, indeed, it could make no such argument. The assignment and security agreement does not purport

to assign the contract at issue, and could not because it predates the contract by approximately three years. Thus, there

was no valid assignment of the MacDill contract to Classical.

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IV.

This Court Lacks Jurisdiction To Consider Classical's Complaint In its proposed complaint (motion at Ex. 1), Classical

attempts to allege three causes of action. seek declaratory judgments from the Court.

Counts one and two Although there is no

claim for money damages before the Court, count one requests that the Court declare, among other things, that Classified is "the rightful owner by assignment of any award of damages to Plaintiff in this litigation." Proposed complaint at 5. Count two

requests that the Court declare, among other things, that Classified "has a continuing security interest in any award of damages to Plaintiff in this litigation." Id. at 6. Count three

also essentially seeks declaratory relief because, although it incorporates paragraphs 1 through 66 of ARC's complaint, it requests that the Court declare that Classified "is the rightful owner by assignment of any award of damages to Plaintiff in this litigation." Id. at 7. This is precisely the relief that

Classified requested in count one. In United States v. King, 395 U.S. 1, 5 (1969), the Supreme Court held that the Court of Claims did not possess declaratory judgment jurisdiction. Although Congress has since provided this

Court with limited jurisdiction to issue declaratory judgments such as in bid protest actions (28 U.S.C. § 1491(b)(2)), the Supreme Court's holding in King otherwise remains valid precedent. E.g., Houston v. United States, 60 Fed.Cl. 507 -13-

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(2004).

Thus, even if the Court granted Classical's motion to

intervene, the complaint should be dismissed for lack of jurisdiction. Finally, the Court also does not possess jurisdiction because Classified's complaint asks the Court to rule that it, and not ARC, is the rightful owner of any award of damages in this action. There is no money claim before the Court, only a

claim relating to the propriety of the termination for default. Even assuming that there is a monetary claim, Classified is requesting that the Court decide a dispute between it and ARC/St.Paul as to which entity would be entitled to payment if the Government in the future makes further payments on this contract. However, the Court does not possess jurisdiction to

decide a dispute between ARC/St. Paul and Classical.

Freeman v.

United States, 50 Fed.Cl. 305, 308 (2001) .

Thus, the Court does

not possess jurisdiction to consider Classical's complaint. V. There Has Been No Waiver Of Sovereign Immunity For Classical's Claim As A Judgment Lien Holder In its brief at page 7, Classical alleges that it has "judgment lien rights" against the United States. However,

Classified identifies no waiver of sovereign immunity which would allow it to enforce such rights. The United States, as sovereign, is immune from suit save as it consents to be sued. 586 (1941). United States v. Sherwood, 312 U.S. 584,

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construed, in terms of its scope, in favor of the sovereign. Department of the Army v. Blue Fox, Inc., 525 U.S. 255, 261 (1999). In Sherwood, the Supreme Court held that Congress had not waived sovereign immunity for an action in either a district court or the Court of Claims by a judgment lien holder. U.S. at 589-92. Id., 312

In Blue Fox, the Supreme Court held that an

unpaid subcontractor on a Government project could not enforce a lien against the United States. The Court explained that its

holding was "in accord with our precedent establishing that sovereign immunity bars creditors from attaching or garnishing funds in the Treasury." Id., 525 U.S. at 264.

The cases Classified cites at pages 5 to 8 of its brief are easily distinguished. None of the cases that Classified cites

involves a question of sovereign immunity, the unique jurisdiction of this Court, or the requirements for a valid assignment contained in the Anti-Assignment Act or the FAR. For

example, Classified cites Lalic v. Chicago, Burlington & Quincy Railroad Co., 263 F.Supp. 987 (N.D. Ill. 1967). In Lalic, state

agencies who had paid disability benefits to an injured employee sought to intervene in a lawsuit between the employee and his employer, and to enforce a lien on funds to be paid by the employer to the employee. The court granted the agencies' motion Id., 263

to intervene and ruled that they had valid liens.

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F.Supp. at 989. case.

These facts are entirely dissimilar to this

Classified also cites Cascade Natural Gas Corp. v. El Paso Natural Gas Corp., 386 U.S. 129 (1967). dissimilar to the present matter. Cascade is also entirely

Cascade involved the In an

acquisition of a natural gas company by a competitor.

earlier case, the Supreme Court had ruled that the acquisition violated section 7 of the Clayton Act, and ordered divestiture of this interest. United States v. El Paso Natural Gas Corp., 376 After remand, numerous entities sought to

U.S. 651 (1964).

intervene, including the State of California, which wanted to preserve competition in the natural gas market, and a utility which was a large user of natural gas and also desired to maintain a competitive market. Cascade, 386 U.S. at 132-33. As

these background facts indicate, Cascade did not involve intervenors which sought to assert claims against the United States, did not involve the FAR, and did not involve this Court's predecessor Court. Thus, Cascade does not help Classified. CONCLUSION For the foregoing reasons, defendant respectfully requests that the Court deny Classified's motion to intervene.

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Respectfully Submitted, Peter D. Keisler Assistant Attorney General David M. Cohen Director s/Robert E. Kirschman, Jr. ROBERT E. KIRSCHMAN, JR. Assistant Director

December 3, 2004

s/Michael N. O'Connell Michael N. O'Connell TRIAL ATTORNEY Commercial Litigation Branch Civil Division Department of Justice ATTN: Classification Unit 8th Floor, 1100 L St. NW Washington, D.C. 20530 Tele: (202) 307-0282 Fax: (202) 514-8624

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APPENDIX Document Classical Financial Letter April 19, 2000 Notice of Assignment Instrument of Assignment, September 16, 1999 ARC Letter, April 21, 2000 ARC Letter, April 26, 2000 ARC Letter, April 27, 2000 ARC Letter, September 16, 1999 ARC Letter, May 1, 2000 Air Force Letter, May 23, 2000 Classical Receivables Letter, May 24, 2000 Instrument of Assignment, May 24, 2000 Notice of Assignment Air Force Letter, June 8, 2000 Air Force Letter, June 16, 2000 Baker & Hostetler Letter, July 14, 2000 Instrument of Assignment, July 6, 2000 Instrument of Assignment Watt, Tieder Letter, August 24, 2000 Contract Modification 14 Pages 1 2 3 4 5 6 7 8-9 10 11 12 13 14 15 16-19 20 21 22-25 26-28

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CERTIFICATE OF SERVICE I hereby certify that on December 6, 2004, a copy of foregoing defendant's opposition to Classical Financial Services, LLC's motion to intervene was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system. s/Michael N. O'Connell