Free Cross Motion [Dispositive] - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ___________________________________________________________________________ No. 03-1216C (Senior Judge Wiese) ___________________________________________________________________________ PLACID HOLDING COMPANY, Plaintiff, v. THE UNITED STATES, Defendant. ___________________________________________________________________________ PLAINTIFF'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND OPPOSITION TO DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT ___________________________________________________________________________

J. Keith Burt Mayer, Brown, Rowe & Maw LLP 1909 K Street, N.W. Washington, D.C. 20006 (202) 263-3208 (Phone) (202) 263-5308 (Fax) Attorneys for Plaintiff Placid Holding Company Of Counsel: Michael J. Farley Mayer, Brown, Rowe & Maw LLP 1909 K Street, N.W. Washington, DC 20006 September 25, 2003

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TABLE OF CONTENTS Page TABLE OF AUTHORITIES .........................................................................................................iv QUESTIONS PRESENTED.......................................................................................................... 1 STATEMENT OF THE FACTS ................................................................................................... 2 ARGUMENT................................................................................................................................. 7 I. PLACID IS ENTITLED TO JUDGMENT AS A MATTER OF LAW................ 9 A. DESC Illegally Established The Price Of Fuel In Placid's Contracts .................................................................................................. 10 1. 2. 3. 4. Barrett Refining Corp. v. United States Establishes The Illegality Of DESC's Prices ......................................................... 10 DESC Has Admitted The Illegality Of Its Prices ........................ 15 The Drafters Of The FAR Expressly Rejected DESC's Interpretation Of The FAR........................................................... 17 DESC's Attempt To Defend Its Illegal Prices Disregards the Plain Language Of FAR Subpt. 16.2 ..................................... 20 a. b. The Limitations Provisions Of FAR § 16.203-3 Do Not Authorize DESC's Prices.......................................... 21 The Provisions Of FAR § 16.203-1(a), Permitting Price Adjustments Based On Established Prices, Do Not Authorize DESC's Prices ........................................ 26

B.

DESC's Purported Deviations, Like Its Prices, Are Illegal..................... 32 1. 2. 3. The Regulatory History And Framework Applicable To Deviations From The FAR........................................................... 33 DESC's Purported Individual Deviation Violates FAR § 1.403 And DLAR § 1.403(a) ....................................................... 34 DESC's Purported Deviation Violates Section 22 Of The Office Of Federal Procurement Policy Act, FAR Subpt. 1.5 And DLAR § 1.490(b) ................................................................. 37 The DAR Council Did Not Approve Any Deviations ................. 40 DESC's Purported Deviation Violates FAR § 52.103(b) And FAR § 52.252-5................................................................... 41 DESC's Purported Deviation Violates The Regulatory Flexibility Act .............................................................................. 42

4. 5. 6. C.

Placid Is Entitled To Recover Under Quantum Valebant The Fair Market Value Of The Fuel It Delivered To DESC .................................. 46

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TABLE OF CONTENTS (continued) Page D. Pursuant To Principles Of Judicial Estoppel, Placid Is Entitled To Calculate Fair Market Value Using The Same Formula To Which DESC Stipulated And Which This Court Adopted In Pride Cos. v. United States ................................................................................ 50

II.

DESC'S MOTION FOR SUMMARY JUDGMENT SHOULD BE DENIED............................................................................................................... 56 A. If DESC's Prices Are Not Illegal As A Matter Of Law, Placid Has At Least Established Material Issues Of Fact Concerning Their Legality .................................................................................................... 56 If DESC's Deviation Is Not Illegal As A Matter Of Law, Placid Has At Least Established Material Issues Of Fact Concerning Its Legality .................................................................................................... 57 DESC Fails To Establish The Absence Of Material Issues Of Fact Concerning The Existence Of Harm To Placid ....................................... 59 1. 2. Placid Is Not Required To Prove "Harm" To Establish DESC's Liability.......................................................................... 60 Placid Is Seeking General Damages, And Thus Is Not Required To Provide Additional Proof That It Was "Harmed" By DESC's Breach..................................................... 62 In Any Event, Placid Has Produced Evidence From Which A Reasonable Fact-Finder Could Find That Placid Was Harmed By DESC's Breach......................................................... 66 As A Matter of Law, Placid Could Not Waive Its Right To A Remedy For DESC's Illegal Prices.......................................... 71 a. b. 2. E. DESC Cannot Profit From Its Own Violation Of The Law ...................................................................... 72 DESC's Authorities Are Inapposite ................................. 76

B.

C.

3.

D.

Placid Did Not Waive Its Claims ............................................................. 70 1.

As A Matter of Fact, Placid Did Not Waive Its Right To A Remedy For DESC's Illegal Prices.............................................. 85

DESC May Not Seek To Preserve The Benefit Of Its Illegal Prices By Using The Bid Price As A Measure Of Fair Market Value ............... 86 1. 2. The Bid Price Is Tainted By DESC's Violation Of The Law ...... 87 DESC Fails To Meet Its Burden To Offer Evidence That The Bid Price Reflects Fair Market Value................................... 91

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TABLE OF CONTENTS (continued) Page 3. DESC Wrongly Asserts That Barrett and Beta Systems Compel Use Of The Bid Price In Calculating Fair Market Value ............................................................................................ 93

CONCLUSION............................................................................................................................ 97

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TABLE OF AUTHORITIES Page(s) Cases: A.B. Dick Co. v. Burroughs Corp., 713 F.2d 700 (Fed. Cir. 1983) ...............................................51 AT&T Co. v. United States, 177 F.3d 1368 (Fed. Cir. 1999)..................................................passim AT&T Co. v. United States, 307 F.3d 1374 (Fed. Cir. 2002), reh'g en banc denied (Jan. 27, 2003)...............................................................24, 79, 82, 83 Allen v. Zurich Ins. Co., 667 F.2d 1162 (4th Cir. 1982) ................................................................51 Allenfield Assocs. v. United States, 40 Fed. Cl. 471 (1998) ..........................................................61 American Fire & Cas. Co. v. Finn, 341 U.S. 6 (1951) ..................................................................10 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ...........................................................passim Applied Devices Corp. v. United States, 591 F.2d 635 (1979) ................................................74, 79 Barrett Ref. Corp. v. United States, 42 Fed. Cl. 128 (1998), aff'd in part and rev'd in part, 242 F.3d 1055 (Fed. Cir. 2001)..................................passim Barrett Ref. Corp. v. United States, 45 Fed. Cl. 166, 171 & n.3 (1999), aff'd in part, vacated in part, 242 F.3d 1055 (Fed. Cir. 2001) ...................................passim Barrett Ref.Corp.v. United Stat es, 50 Fed.Cl. 567 (2001) ............................................................42 Barrett Refining Corp. v. United States, 242 F.3d 1055 (Fed. Cir. 2001) ..............................passim Bell v. Hood, 327 U.S. 678 (1946).................................................................................................96 Bender v. Williamsport Area Sch. Dist., 475 U.S. 534 (1986) ......................................................10 Beta Sys., Inc. v. United States, 838 F.2d 1179 (Fed. Cir. 1988)............................................passim Bradley v. TNT Skypack, Inc., 983 F. Supp. 1147 (N.D. Ill. 1997) ...............................................61 Calcasieu Refining Co. v. United States, No. 02-1219C (Fed. Cl. July 31, 2003) ........................37 In re Cassidy, 892 F.2d 637 (7th Cir. 1990) ............................................................................51, 55 Cessna Aircraft Co. v. Dalton, 126 F.3d 1442 (Fed. Cir. 1997) ..................................45, 71, 72, 79 Chaveriat v. Williams Pipe Line Co., 11 F.3d 1420 (7th Cir. 1993) .............................................51

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TABLE OF AUTHORITIES -- (Continued) Page(s) Chris Berg, Inc. v. United States, 426 F.2d 314 (Ct. Cl. 1970) .........................................76, 77, 81 Cities Service Gas Co. v. United States, 205 Ct. C 500 F.2d 448 (1974)......................................48 Clark v. United States, 95 U.S. 539 (1877) ...........................................................................passim Clarke v. Securities Indus. Ass'n, 479 U.S. 388 (1987) .................................................................46 Colorado State Bank v. United States, 18 Cl. Ct. 611, 632 (1989)................................................45 Commodity Futures Trading Commission v. Schor, 478 U.S. 833 (1986) ..............................77, 78 Cornetta v. United States, 851 F.2d 1372 (Fed. Cir. 1988) ...........................................................86 Craft Mach. Works, Inc., ASBCA No. 35167, 90-3 BCA ¶ 23,095 .........................................24, 72 Crater Corp. v. Lucent Tech., Inc., 255 F.3d 1361 (Fed. Cir. 2001) .............................................93 Crocker v. United States, 240 U.S. 74 (1916) ...............................................................9, 47, 87, 96 Cubic Applications, Inc. v. United States, 37 Fed. Cl. 345 (1997) ....................................79, 84, 85 Davis v. Wakelee, 156 U.S. 680 (1895) .........................................................................................50 E. Walters & Co. v. United States, 576 F.2d 362 (Ct. Cl. 1978) .............................................79, 81 In re Elter, S.A., ASBCA No. 52451, 2001-1 BCA ¶ 31,373 ........................................................63 Essex Electro Engineers, Inc. v. United States, 960 F.2d 1576 (Fed. Cir. 1992) ..........................40 Firestone Tire & Rubber Co. v. United States, 444 F.2d 547 (Ct. Cl. 1971) ................................24 Flast v. Cohen, 392 U.S. 83 (1968) ...............................................................................................45 Florida Power & Light Co. v. United States, 307 F.3d 1364 (Fed. Cir. 2002) .............................11 Gardiner v. Tarr, 341 F. Supp. 422 (D.D.C. 1972) .......................................................................40 Gilbert Assocs., Inc., EBCA No. 157-4-81, 83-1 BCA ¶16,404 ...................................................29 Gold Line Ref., Ltd. v. United States, 43 Fed. Cl. 291 (1999) ................................................passim Gold Line Refining, Ltd. v. United States, 54 Fed. Cl. 285 (2002) .........................................passim Hartford Accident & Indemnity Co. v. United States, 127 F. Supp. 565 (Ct. Cl. 1955) .....................................................................................................................79 v

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TABLE OF AUTHORITIES -- (Continued) Page(s) Hartley v. Mentor Corp., 869 F.2d 1469 (Fed. Cir. 1989).............................................................15 Henry S. Miller Co. v. Bynum, 836 S.W.2d 160 (Tex. 1992) ........................................................63 Integrated Logistics Support Sys. Int'l, Inc. v. United States, 47 Fed. Cl. 248 (2000), aff'd mem., 2002 WL 1291856 (Fed. Cir. 2002) ...................................................24 Interactive Gift Express, Inc. v. CompuServe Inc., 256 F.3d 1323 (Fed. Cir. 2001).....................17 International Order of Job's Daughters v. Lindeburg & Co., 727 F.2d 1087 (Fed. Cir. 1984) ..................................................................................................................51 J&H Reinforcing & Structural Erectors, Inc. v. United States, 50 Fed. Cl. 570 (Fed. Cl. 2001) ...................................................................................................................42 Jackson Jordan, Inc. v. Plasser Am. Corp., 747 F.2d 1567 (Fed. Cir. 1984) ............................8, 50 John Reiner & Co. v. United States, 325 F.2d 438 (Ct. Cl. 1963).................................................80 Kaiser Steel Corp. v. Mullins, 455 U.S. 72 (1982) ........................................................................77 Kraft, Inc. v. United States, 30 Fed. Cl. 739 (1994) ............................................................8, 52, 56 Kugler v. Helfant, 421 U.S. 117 (1975) .........................................................................................85 LaBarge Products, Inc. v. West, 46 F.3d 1547 (Fed. Cir. 1995) ............................................passim La Gloria Oil & Gas Co. v. United States, 56 Fed. Cl. 211 (2003) .......................................passim Lake Mohave Boat Owners Ass'n v. National Park Serv., 78 F.3d 1360 (9th Cir. 1995)....................................................................................................................40 Lewis v. Weinberger, 415 F. Supp. 652 (D.N.M. 1976) ................................................................40 Ling-Temco-Vought, Inc. v. United States, 475 F.2d 630 (Ct. Cl. 1973).......................................79 Lockheed Corp. v. Widnall, 113 F.3d 1225 (Fed. Cir. 1997).........................................................21 Lowery v. Stovall, 92 F.3d 219 (4th Cir. 1996)..............................................................................55 MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405 (1992) ............................passim MAPCO Alaska Petroleum, Inc. v. United States, 30 Fed. Cl. 153 (1993) .............................5, 6, 7 Mast Indus., Inc. v. United States, 822 F.2d 1069 (Fed. Cir. 1987) ..............................................18

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TABLE OF AUTHORITIES -- (Continued) Page(s) McCoy Assocs., Inc. v. Nulux, Inc., 218 F. Supp. 2d 286 (E.D.N.Y. 2002) ............................61, 62 McDonnell Douglas Corp. v. United States, 670 F.2d 156 (Ct. Cl. 1982) ....................................15 McMullen v. Hoffman, 174 U.S. 639 (1899)..................................................................................77 Morris v. United States, 33 Fed. Cl. 733 (1995) ............................................................................62 Motor Vehicle Mfrs. Ass'n. of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983).....................................................................................15 NTBS Storage & Retrieval, Inc. v. Kardex Sys., Inc., No. 3:98CV0996-M, 2001 WL 238110 (N.D. Tex. Mar. 8, 2001) ......................................................................63 New England Tank Industries of New Hampshire, Inc. v. United States, 861 F.2d 685 (Fed. Cir. 1988)............................................................................................45 New Hampshire v. Maine, 532 U.S. 742 (2001).....................................................................passim Newell Cos. v. Kenney Mfg. Co., 864 F.2d 757 (Fed. Cir. 1988) ..................................................81 North Carolina Fisheries Ass'n v. Daley, 16 F. Supp. 2d 647 (E.D. Va. 1997) ............................44 Northcoast Environ. Ctr. v. Glickman, 136 F.3d 660 (9th Cir. 1998) ...........................................53 Olympia Hotels Corp. v. Johnson Wax Dev. Corp., 908 F.2d 1363 (7th Cir. 1990)....................................................................................................................61 PCL Construction Services v. United States, 41 Fed. Cl. 242 (1998) ...............................24, 63, 79 Pacific Maritime Ass'n v. United States, 108 F. Supp. 603 (Ct. Cl. 1952) ..............................92, 93 Patel v. Howard Univ., 896 F. Supp. 199 (D.D.C. 1995) ..............................................................61 Pennsylvania Department of Transportation v . United States, 643 F.2d 758 (Ct. Cl. 1981) .....................................................................................................................63 Perry v. Martin Marietta Corp., 47 F.3d 1134 (Fed. Cir. 1995) ...................................................21 Peters v. United States, 694 F.2d 687 (Fed. Cir. 1982) .................................................................24 Phoenix Petroleum Co. v. United States, No. 97-315C (Fed Cl. Apr. 30, 2003) ...................passim Phoenix Petroleum v. United States, 1999 U.S. App. LEXIS 16939 (Fed. Cir. 1999) ..................................................................................................................16

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TABLE OF AUTHORITIES -- (Continued) Page(s) Plaintiffs In Winstar-Related Cases v. United States, 37 Fed. Cl. 174 (1997) ..............................61 Pride Cos. v. United States, No. 95-597C, 2000 U.S. Claims LEXIS 213 (Fed. Cl. May 10, 2000) ..............................................................................................passim Reflectone, Inc. v. Dalton, 60 F.3d 1572 (Fed. Cir. 1995)...........................................17, 18, 20, 57 Reservation Ranch v. United States, 39 Fed. Cl. 696 (1997), aff'd , 217 F.3d 850 (Fed. Cir. 1999) ............................................................................................................76, 77 Reynolds v. Commissioner of Internal Revenue, 861 F.2d 469 (6th Cir. 1988) ............................53 Rough Diamond Co. v. United States, 351 F.2d 636 (Ct. Cl. 1965) ..............................................79 Rumsfeld v. Applied Cos., No. 01-1630, 2002 WL 31757272 (Fed. Cir. Dec. 10, 2002) .............................................................................................61, 62 Salmon River Concerned Citizens v. Robertson, 32 F.3d 1346 (9th Cir. 1994) ............................53 San Carlos Irrigation & Drainage Dist. v. United States, 111 F.3d 1557 (Fed. Cir. 1997) ..................................................................................................................51 Scallon v. U.S. AG Center, Inc., 42 F. Supp. 2d 867 (N.D. Iowa 1999)........................................61 Schonfeld v. Hilliard, 218 F.3d 164 (2d Cir. 2000) .......................................................................62 Seaboard Lumber Co. v. United States, 903 F.2d 1560 (Fed. Cir. 1990) ..........................78, 85, 86 Seravalli v. United States, 845 F.2d 1571 (Fed. Cir. 1988)...........................................................94 Servidone Construction Corp. v. United States, 931 F.2d 860 (Fed. Cir. 1991) ...........................63 In re Sharon Steel Corp., 871 F.2d 1217 (3d Cir. 1989) ...............................................................94 Siebert v. Severino, 256 F.3d 648 (7th Cir. 2001) .........................................................................61 SmithKline Diagnostics, Inc. v. Helena Lab. Corp., 926 F.2d 1161 (Fed. Cir. 1991) ..................................................................................................................................93 Sosna v. Iowa, 419 U.S. 393 (1975) ........................................................................................10, 11 Southern Offshore Fishing Ass'n v. Daley, 995 F. Supp. 1411 (M.D. Fla. 1998) .........................44 Spencer v. Kemna, 523 U.S. 1 (1998)............................................................................................45 St. Paul-Mercury Indemnity Co. v. United States, 238 F.2d 917 (10th Cir. 1956) ..................96, 97 viii

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TABLE OF AUTHORITIES -- (Continued) Page(s) Stueber v. Arrowhead Farm Estates Ltd. Partnership, 519 A.2d 816 (Md. Ct. Special App. 1987).............................................................................................................60 Sunoco, Inc. v. United States, No. 02-0466C (Fed. Cl. 2002) .................................................70, 88 Sweat Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560 (Fed. Cir. 1987) ...............................9 Tesoro Hawaii Co. and Tesoro Alaska Co. v. United States, No. 02-704C (Fed. Cl. Sept. 15, 2003) .............................................................................................passim The Fair v. Kohler Die & Specialty Co., 228 U.S. 22 (1913)........................................................96 Transclean Corp. v. Bridgewood Serv., Inc., 290 F.3d 1364 (Fed. Cir. 2002) ..............................93 Udall v. Tallman, 380 U.S. 1 (1965)..............................................................................................17 Union Pacific Railroad Co. v. United States, 847 F.2d 1567 (Fed. Cir. 1988) .............................79 United International Investigative Services v. United States, 109 F.3d 734 (Fed. Cir. 1997) ..................................................................................................................81 United States ex rel. Building Rentals Corp. v. Western Cas. & Sur. Co., 498 F.2d 335 (9th Cir. 1974) .............................................................................................92 United States ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc., 479 F.2d 638 (4th Cir. 1973) .............................................................................................92 United States v. Amdahl Corp., 786 F.2d 387 (Fed. Cir. 1986).........................................45, 46, 47 United States v. Bedford Associates, 713 F.2d 895 (2d Cir. 1983)................................................52 United States v. Bedford Assocs., 548 F. Supp. 732 (S.D.N.Y. 1982), aff'd, 713 F.2d 895 (2d Cir. 1983)......................................................................................52 United States v. Boeing Co., 802 F.2d 1390 (Fed. Cir. 1986) .........................................................9 United States v. Larionoff, 431 U.S. 864 (1977) ...........................................................................17 United States v. Mississippi Valley Generating Co., 364 U.S. 520 (1961) ...................................47 United States v. Owens, 54 F.3d 271 (6th Cir. 1995) ....................................................................53 United States v. Winstar Corp., 518 U.S. 839 (1996)..............................................................60, 86 Urban Data Sys., Inc. v. United States, 699 F.2d 1147 (Fed. Cir. 1983) ...............................passim

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TABLE OF AUTHORITIES -- (Continued) Page(s) U.S. Philips Corp. v. Sears Roebuck & Co., 55 F.3d 592 (Fed. Cir. 1995) .............................50, 51 W.R. Grace & Co. v. Continental Cas. Co., 896 F.2d 865 (5th Cir. 1990) ...................................94 Wanlass v. General Elec. Co., 148 F.3d 1334 (Fed. Cir. 1998) ....................................................86 Wegman v. Central Transmission, Inc., 499 So. 2d 436 (La. Ct. App. 1986) ...............................87 Whittaker Electronic Systems v. Dalton, 124 F.3d 1443 (Fed. Cir. 1997).........................79, 80, 81 Yosemite Park & Curry Co. v. United States, 582 F.2d 552 (Ct. Cl. 1978) ..................................47 Statutes: RCFC 56(a) ..................................................................................................................................1, 9 5 U.S.C. § 603(a) ...........................................................................................................................42 5 U.S.C. § 611(a)(1).......................................................................................................................45 5 U.S.C. 601 et seq.........................................................................................................................43 5 U.S.C. § 603(a) ...........................................................................................................................42 5 U.S.C. § 605(b) .....................................................................................................................43, 44 41 U.S.C. § 405..............................................................................................................................33 41 U.S.C. § 418(b) (2002) .......................................................................................................37, 38 41 U.S.C. § 605(a) .........................................................................................................................45 41 U.S.C. § 609(a)(3).....................................................................................................................21 DAR § 3.404 ............................................................................................................................20, 24 DFAR 201.402(2)(iv) ....................................................................................................................38 DFAR § 201.402(2)(vii) ................................................................................................................39 DFAR 206.303-1(c) .......................................................................................................................36 DLAR § 1.403....................................................................................................................34, 35, 37 DLAR § 1.490.........................................................................................................................passim DLAR §1.490(b) ......................................................................................................................34, 36 x

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TABLE OF AUTHORITIES -- (Continued) Page(s) DLAR § 16.203-4 ..........................................................................................................................13 FAR § 1.302(a) FAR § 1.304 ...................................................................................................................................33 FAR § 1.401(a) ..............................................................................................................................15 FAR § 1.403 ..............................................................................................................................33,35 FAR § 1.404 .............................................................................................................................34, 35 FAR § 1.501-1 ...............................................................................................................................38 FAR § 1.501-2 ...............................................................................................................................38 FAR § 1.702 ...................................................................................................................................36 FAR § 1.703 ...................................................................................................................................36 FAR § 5.001 .......................................................................................................................34, 35, 37 FAR § 15.804-3 ................................................................................................................ 29, 30, 31 FAR § 16.201 ...................................................................................................................................2 FAR § 16-203..........................................................................................................................passim FAR § 16.203-1 ......................................................................................................................passim FAR § 16.203-3 .............................................................................................................................21 FAR § 52.101(b)(2)(i)(C) ..............................................................................................................41 FAR § 52.103 .................................................................................................................................42 FAR § 52.103(b) ............................................................................................................................41 FAR § 52.252-5 .......................................................................................................................41, 42 FAR § 52.216-2(a) (1991) .......................................................................................................27, 31 FAR § 52.216-3(a) (1991) .......................................................................................................27, 31 FAR § 52.252-5 .........................................................................................................................1, 41 FAR § 201.402(2)(iv) ....................................................................................................................38 xi

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TABLE OF AUTHORITIES -- (Continued) Page(s) FAR § 201.402(2)(vii) ...................................................................................................................39 FAR § 206.303-1(c) .......................................................................................................................36 FAR subpt. 1.5 ...............................................................................................................................59 FAR subpt. 1.7 .........................................................................................................................36, 58 FAR subpt. 5 ..................................................................................................................................34 FAR subpt. 16.2 ......................................................................................................................passim Miscellaneous : 46 Fed. Reg. 42,303 (Aug. 20, 1981).............................................................................................33 48 Fed. Reg. 42,102 (Sept. 19, 1983) ............................................................................................33 59 Fed. Reg. 22,521 (May 2, 1994) ...............................................................................................39 60 Fed. Reg. 10,826 (Feb. 28, 1995) .......................................................................................15, 37 60 Fed. Reg. 15,740 (Mar. 27, 1995) .............................................................................................39 60 Fed. Reg. 46,259 (Sept. 6, 1995) ..............................................................................................39 64 Fed. Reg. 41,834 (Aug. 2, 1999).........................................................................................16, 37 65 Fed. Reg. 34,894 (May 31, 2000) .............................................................................................35 67 Fed. Reg. 5,070 (Feb. 4, 2002) .................................................................................................43 67 Fed. Reg. 13,053 (Mar. 20, 2002) .............................................................................................35 Rand L. Allen and Craig A. Johnson, Escaping the Maze of TINA: No Way Out?, 10(2) The Computer Lawyer 22 (Feb. 1993) .....................................................................30 Cases & Decisions, 39 No. 41 Gov't Contractor ¶ 519 (1997)......................................................81 1 CORBIN ON CONTRACTS §§ 1.18 & 1.18(A )(1993) ......................................................................46 1 CORBIN ON CONTRACTS §20 (1963).............................................................................................46 5 CORBIN ON CONTRACTS (1964) ...................................................................................................91 4 Arthur Linton Corbin, Corbin on Contracts §948 (1951) ..........................................................60 xii

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TABLE OF AUTHORITIES -- (Continued) Page(s) 3 Dan B. Dobbs, Law of Remedies §12.4(1) (2d ed. 1993) ...............................................62, 63, 64 Restatement of the Law, Contracts 2d, §346 .................................................................................60 S. Rep. No. 96-878, reprinted in 1980 U.S.C.C.A.N. 2788 ..........................................................43 Richard Thaler, Anomalies: The Winners Curse, 2(1) Journal of Econ. Perspective 191 (Winter 1998) ..............................................................................................................91 12 WILLISTON ON CONTRACTS §1480 (3d ed.1970) .................................................................46, 92 18B Wright, Miller & Cooper, FEDERAL PRACTICE & P ROCEDURE §4447 (2d ed. 2002) ..................................................................................................................................50

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS PLACID HOLDING COMPANY, Plaintiff, vs. THE UNITED STATES, Defendant ) ) ) ) ) ) ) )

No. 03-1216C (Senior Judge Wiese)

PLAINTIFF'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AND OPPOSITION TO DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT Pursuant to RCFC 56(a), Plaintiff Placid Holding Company ("Placid") hereby move for partial summary judgment on Count I of the Amended Complaint ("Complaint"). Placid also opposes Defendant's motion for partial summary judgment. For the reasons set forth below, Placid respectfully requests that its motion be granted, that the government's motion be denied, and that judgment be entered as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). QUESTIONS PRESENTED 1. Whether the Defense Energy Support Center ("DESC") established the price of

Placid's fuel contracts in violation of law. 2. Whether Placid is entitled to recover under quantum valebant the fair market

value of the fuel it delivered to DESC. 3. Whether, pursuant to principles of judicial estoppel, Placid is entitled to calculate

fair market value using the formula to which DESC stipulated and which this Court adopted in Pride Cos. v. United States, No. 95-597C, 2000 U.S. Claims LEXIS 213 (Fed. Cl. May 10, 2000).

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STATEMENT OF THE FACTS DESC, 1 part of the Defense Logistics Agency, is the principal purchaser of military fuels for the Department of Defense. From 1980 to 1999, DESC purchased more than $90 billion of military fuel. 2 In the spring and fall of each year, DESC conducted two major procurements of military fuel, and, for each procurement, the Director of DESC authorized the award of a "class of contracts." Compare App. 151 and App. 162 (fall and spring procurements); App. 189-92 (award of a "class" of contracts). 3 Depending on demand, DESC awarded as many as thirty contracts in each procurement, and purchased as much as $4 billion of military fuel annually. App. 196, 198, 204. In purchasing military fuel, DESC utilized a contract type known as a "Fixed Price Contract with Economic Price Adjustment." Federal Acquisition Regulation ("FAR") subpt. 16.2, App. 87-93; App. 468. This contract type is one of the specifically-delineated contract types permitted by the FAR, in particular by FAR subpt. 16.2. A Fixed Price Contract with Economic Price Adjustment provides for an "adjustable price," whereby the price is adjusted upward or downward during the term of the contract based on fluctuations in a supplier's prices or costs. FAR § 16.201, App. 87. The purpose of this contract type is to allocate between the

1

During part of the period at issue, DESC was known as the Defense Fuel Supply Center ("DFSC"). For simplicity, DESC is used throughout.
2

The procurement practices at issue in this case span the early 1980's through the late 1990's. DESC's 1999 Fact Book states that during the 1990's DESC purchased approximately $45 billion of fuel. Given that the 1980's were marked by the height of the Cold War, DESC must have purchased at least as much fuel during the 1980's as it did in the 1990's, for a total of at least $90 billion for the two decades. See Plaintiff's Appendix at 39.
3

"App. __" is a citation to Plaintiff's Appendix accompanying this Motion. "Def.'s App. __" is a citation to Defendant's Appendix to its Motion for Partial Summary Judgment.

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government and the contractor the risk of economic uncertainty associated with a long-term contract. MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405, 413 (1992). Prior to the early 1980's, DESC used a supplier's crude oil costs to adjust the price of military fuel in its contracts. App. 208. Beginning in the early 1980's, DESC observed that crude oil costs did not reflect accurately changes in the market value of refined petroleum products and, thereafter, discontinued the use of crude oil costs to establish prices. App. 208-09. DESC thereby specifically sought to avoid any link between a supplier's principal material cost and the price DESC paid for military fuel. App. 208-09, 458, 461. Instead, DESC began using price indexes to establish fuel prices with the objective of reducing fuel prices. App. 208. See La Gloria Oil & Gas Co. v. United States, 56 Fed. Cl. 211, 214 n.5 (2003) ("When the government shifted in the 1980s to the use of illegal EPA clauses based on price indexes, its purpose was to shift risk off of the government and onto the contractor."). Ultimately, DESC settled on the Petroleum Marketing Monthly Indexes ("PMM Indexes") published by the Department of Energy. The PMM Indexes were not designed for the purpose of measuring market value, but, rather, for use by Congress in addressing national energy policy goals. Barrett Ref. Corp. v. United States, 42 Fed. Cl. 128, 131, 137 (1998), aff'd in part and rev'd in part, 242 F.3d 1055 (Fed. Cir. 2001). Despite the fact that the PMM Indexes were not "adequate . . . for use in determining fair market value" (id. at 137), DESC used the Indexes to adjust prices by as much as sixty percent. Def.'s App. 25. When DESC began using price indexes rather than crude costs to establish prices, DESC ran headfirst into the FAR. In order to allocate the risk of economic uncertainty in long-term contracts fairly, FAR subpt. 16.2 provides that prices must be tied to the supplier's market. FAR §§ 16.203-1, 16.203-3, App. 88, App. 403-05. Accordingly, the FAR permits prices to be

3

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established based only on changes in the individual supplier's established prices or on changes to the supplier's actual material costs or on an index of those costs. FAR §§ 16.203-1, 16-203-3, App. 88. The FAR does not, however, authorize establishing prices with price indexes. Id. DESC's use of price indexes to establish prices met with immediate objection from its suppliers, which characterized as "coerced," DESC's use of standards that were not tied to a supplier's own costs or prices and which did not reflect the supplier's market. 4 App. 211. DESC nonetheless used its market power as the sole purchaser of military fuel to compel use of price indexes, boasting that it had sufficient market power to force even the largest refiners of fuel to accept its prices. App. 213, 215. See La Gloria, 56 Fed. Cl. at 226 ("The government appears to have benefited from its market position with its resort to self- help measures to circumvent the terms of the FAR in the administration of its fuel supply procurements."). 5 By 1983, use of price indexes to establish prices was "not negotiable, as a matter of policy." App. 217. Thereafter, each spring and fall, DESC's procurement authorizations stated under the heading "POTENTIAL PROBLEMS" that "[c]ommon escalation is non- negotiable." 6 In a telling assessment of the inherent inequity of DESC's policy of using the same common price escalator in its contracts, Col. Clarence Lee, DESC's former Director of Contracting and Production, wrote:
4

For example, when DESC purchased fuel from Placid in Louisiana, it used PMM Indexes so geographically diverse that they included Maine. Def.'s App. 24 (providing for price adjustments based on PAD I, which includes Maine); App. 115 (showing geographic boundaries of PAD I).
5

Indeed, the Court noted that DESC's own documents showed that DESC used illegal prices to "shift risk off of the government and onto the contractor." La Gloria, 56 Fed. Cl. at 214 n.5.
6

App. 123, 128, 134, 139, 144, 150, 155, 161, 166, 171, 176, 182. Placid has access to DESC's procurement authorizations only from 1988 through 1992, though, presumably, the authorizations for the remaining years are in the possession of DESC.

4

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[C]ommonality of EPA [economic price adjustment] must not be viewed only in terms of its ability to provide an equitable method of EPA, not a goal in and of itself. Equity is a legitimate goal that, for the reasons enumerated above, may not be achieved with the common escalator. The legal consideration of "equity" involves primarily the mechanical procurement process, but may not sufficiently consider the fairness or reasonableness of procurement issues. App. 220 (emphasis added). In 1989, DESC's disregard of the FAR's requirements for equitable pricing wreaked havoc upon MAPCO Alaska Petroleum. Under MAPCO's 1989 contract, DESC's use of the PMM Indexes resulted in the price for military fuel falling by thirty- five percent, while MAPCO's crude oil costs rose by ninety- five percent. MAPCO, 27 Fed. Cl. at 407. When DESC denied MAPCO's request for relief, MAPCO brought suit in this Court, seeking recovery of a $10 million loss resulting from the inversion of prices and costs. Id. Pursuant to a motion for summary judgment, this Court struck down as violative of the FAR and illegal DESC's use of price indexes to establish prices. Id. at 406. DESC's prices, the Court held, did not "divide the risk of economic uncertainty between the parties" in the manner the FAR required. Id. at 413. Following a settlement, this Court further denied DESC's request that the Court vacate its published decision, holding that the decision did not become "the parties' property" by virtue of a settlement. MAPCO Alaska Petroleum, Inc. v. United States, 30 Fed. Cl. 153, 154 (1993). After MAPCO, the Pride Companies, a largely captive DESC supplier, also sought relief from DESC's illegal prices. Pride Cos. v. United States, No. 95-597C, 2000 U.S. Claims LEXIS 213 (Fed. Cl. May 10, 2000). In response to Pride's suit, DESC stipulated to the illegality of its prices and to Pride's right to recover under quantum valebant, leaving the Court to "determine what defendant would have paid for the fuel irrespective of Pride's [illegal] contract." Id. at *3. During trial, DESC further stipulated to a methodology for calculating the market value of fuel 5

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based on a formula using spot prices, a long-term contract premium, and transportation costs. Id. at *3-4. Following trial on the twin issues of the amount of the long-term contract premium and transportation costs, the Court found that DESC's use of price indexes to establish prices resulted in DESC paying on average eight percent less than the fair market value of the fuel it purchased and awarded Pride approximately $45 million. Id. at *12. DESC did not appeal. In the aftermath of MAPCO, and while Pride was pending, DESC sought to preserve its price advantage by requesting an exception, or "deviation," from the FAR to permit its continued use of the very price indexes that this Court had held illegal. From 1993 through 1999, DESC intermittently sought a series of purported deviations, but circumvented required governmental and public review of its deviations. App. 463-66. In response to DESC's efforts to obtain these deviations, the National Security Industrial Association wrote: "We are concerned that the proposed rules . . . err in shifting too much of the risk from the federal go vernment to the contractor. The current regulations, as interpreted by the Court in MAPCO, ensure that each EPA reference reflects a price that is actually available to the contractor." App. 926. 7 Moreover, in an attempt to make its deviations more palatable, DESC altered one of the more egregious aspects of its pricing ­ its use of the PMM Indexes, which did not reflect market value and were nowhere used in commercial transactions. In proposing its deviations, DESC changed its preferred price index from the PMM Indexes to a commercial price index, Platts Oil Price Handbook and Oilmanac ("Platts"). App. 224. Platts had the virtue of being a commercial publication intended to reflect market value of commercial (but not military) fuels. It, however, reflected only one-day spot sales of fuel (which represented most commercial sales by the mid7

DESC thus misstates the facts to the extent it states that there were no objections to DESC's deviations. (Def.'s Mot. at 7.)

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1990s), and it did not report sales made pursuant to long-term contracts, such as the DESC sales here. App. 225-34, 235-37. Between at least 1990 and 1994, DESC awarded Placid five contracts for military fuel.8 DESC established the price of fuel based on the PMM Indexes. Def.'s App. 24. After DESC denied Placid's claims for relief from DESC's illegal and under- market prices, Placid filed suit seeking in Count I of its Complaint recovery under quantum valebant of the fair market value of the fuel it delivered. 9 The government responded to the Complaint by moving for partial

summary judgment. Placid opposes that Motion and cross moves for partial summary judgment on Count I. ARGUMENT In Barrett Refining Corp. v. United States, 242 F.3d 1055 (Fed. Cir. 2001), the United States Court of Appeals for the Federal Circuit found that DESC's prices violated the FAR and were therefore "illegal" and "unenforceable." Id. at 1060, 1064. In Barrett, the Federal Circuit adopted as the rule of decision this Court's holding in MAPCO, id. at 1059, a holding this Court has reaffirmed in granting summary judgment to the plaintiffs in Gold Line Refining, Ltd. v. United States, 54 Fed. Cl. 285 (2002), La Gloria, 56 Fed. Cl. 211, Phoenix Petroleum Co. v. United States, No. 97-315C (Fed Cl. Apr. 30, 2003) (App. 1613), and Tesoro Hawaii Co. and Tesoro Alaska Co. v. United States, No. 02-704C (Fed. Cl. Sept. 15, 2003) (App. 1641). DESC may not relitigate Barrett, MAPCO, Gold Line, La Gloria, Phoenix, and Tesoro and DESC fails

8

DESC awarded the following contracts to Placid: DLA600-90-D-0496, DLA600-91-D-0525, DLA600-92-D-0503, DLA600-93-D-0517, and DLA600-94-D-0579.
9

In its Complaint, Placid pleads six other counts that allege misrepresentation, breach of contract, implied- in-fact-contract, failure of consideration and frustration of purpose, mistake, and a taking. In these counts, Placid alleges not only that DESC's prices were illegal but also that DESC's use of price indexes was contrary to the intent and purpose of the parties. Placid seeks recovery of approximately $12 million.

7

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as a matter of law in attempting to assert, in contravention of regulatory history and precedent, that the relevant portions of the FAR were not mandatory. Beta Sys., Inc. v. United States, 838 F.2d 1179, 1185 (Fed. Cir. 1988). Nor, as this Court recently held in La Gloria, may DESC resurrect its illegal price advantage through a series of FAR deviations, where, through its own hubris, it once again chose to disregard the FAR in order to circumvent applicable governmental and public review of its illegal prices. La Gloria, 56 Fed. Cl. 211. As further established by the Federal Circuit in Barrett, Placid is entitled to recover under quantum valebant the fair market value of the fuel it delivered to DESC. 242 F.3d at 1059. Because only the price of Placid's contracts is illegal, the price is "struck out" and replaced by an implied- in-fact clause requiring DESC to pay fair market value. Id.; see also Urban Data Sys., Inc. v. United States, 699 F.2d 1147 (Fed. Cir. 1983). Every court since MAPCO that has considered the relief available for DESC's illegal prices has upheld a supplier's right to quantum valebant recovery, a recovery that achieves the very purpose DESC claimed for its pricing clause. See, e.g., Gold Line Ref., Ltd. v. United States, 43 Fed. Cl. 291 (1999), La Gloria, 56 Fed. Cl. at 225, Phoenix, slip op. at 5, App. 1613, Tesoro, slip op. at 17, App. 1641. Pursuant to principles of judicial estoppel, Placid is entitled to calculate the fair market value of the fuel it delivered using the same formula to which DESC stipulated, and this Court adopted, in Pride Cos. v. United States. See New Hampshire v. Maine, 532 U.S. 742, 745 (2001). "Courts do not relish the prospect that an adept litigant may succeed in proving a proposition in one suit, and then succeed in proving the opposite in a second." Jackson Jordan, Inc. v. Plasser Am. Corp., 747 F.2d 1567, 1578 (Fed. Cir. 1984). As the sole purchaser and user of military fuel, DESC was uniquely positioned to advance an objective formula to determine the fair market value of military fuel in Pride. Having proposed an objective formula that

subsequently resulted in a substantial judgment against it, DESC may not now advance a different formula merely because "self- interest may dictate a change." Kraft, Inc. v. United States, 30 Fed. Cl. 739, 763 (1994).

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Moreover, DESC's motion for summary judgment must be denied. As Placid establishes in its own motion, DESC errs as a matter of law in asserting that its prices and purported deviations were legal. Because DESC's prices were illegal and unenforceable, DESC cannot claim that Placid suffered no harm. Barrett, 242 F.3d at 1064, 1059-60. Nor may DESC assert that Placid waived its right to recover for DESC's illegal prices. To the contrary, Beta Systems, Inc. v. United States, 838 F.2d 1179 (Fed. Cir. 1988), holds that the government's violation of the very same pricing regulations at issue here may not be waived. Finally, DESC may not seek to retain the benefit of its illegal prices by measuring fair market value based on initial bid prices that are tainted by DESC's violation of the law. Crocker v. United States, 240 U.S. 74 (1916). For these reasons, and as more fully set forth below, Placid's Cross-Motion for Partial Summary Judgment on Count I of the Complaint should be granted and judgment entered as a matter of law and the government's Motion for Partial Summary Judgment should be denied. Anderson, 477 U.S. at 247-48. I. PLACID IS ENTITLED TO JUDGMENT AS A MATTER OF LAW Summary judgment is appropriate when there are no genuine issues of material fact in dispute and the moving party is entitled to judgment as a matter of law. RCFC 56(c); Anderson, 477 U.S. at 247-48. Once a movant has "supported its motion with affidavits or other evidence which, unopposed, would establish its right to judgment, the non- movant may not rest upon general denials in its pleadings or otherwise, but must proffer countering evidence sufficient to create a genuine factual dispute." Sweat Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560, 1562 (Fed. Cir. 1987). A dispute is genuine only if a reasonable trier of fact could find for the nonmoving party. Anderson, 477 U.S. at 248. Because, as Placid establishes below, it is entitled to judgment as a matter of law, its Motion for Partial Summary Judgment should be granted. United States v. Boeing Co., 802 F.2d 1390, 1393 (Fed. Cir. 1986).

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A.

DESC Illegally Established The Price Of Fuel In Placid's Contracts 1. Barrett Refining Corp. v. United States Establishes The Illegality Of DESC's Prices

In Barrett Refining Corp. v. United States, 242 F.3d 1055 (Fed. Cir. 2001), the Federal Circuit considered DESC's use of price indexes to establish fuel prices and found the resulting prices to be "illegal" and "unenforceable." Id. at 1064, 1060. The Federal Circuit found that "the evidence shows that the payments made by the government were based on an illegal price escalation clause." Id. at 1064. The Court noted that in MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405 (1992), "the government's standard price adjustment clause was held to be unenforceable because it failed to comply with the Federal Acquis ition Regulations." Id. at 1058. The Court expressly relied upon MAPCO for its companion findings that DESC calculated price adjustments "according to an illegal method" and that "the price escalation clause was unauthorized and unenforceable." Id. at 1060, 1062. So fundamental were these findings of illegality to the Court's decision that they provided the foundation for the Court's exercise of jurisdiction. 10
10

Barrett's construction of DESC's prices as illegal and Barrett's

DESC's only response to Barrett is to contend that, for present purposes, the decision essentially does not exist. It does so by arguing that the Court in Barrett was never "presented with the issue of the legality of these clauses." (Def.'s Mot. at 8.) That contention is utterly inconsistent with the Federal Circuit's decision.

In Barrett, DESC had challenged the Court's jurisdic tion to grant relief. 242 F.3d at 1059-60. The Court rejected DESC's argument and found that the presence of the "unauthorized" price adjustment clause supported jurisdiction to grant quantum valebant relief based on an impliedin- fact contract. Id. at 1059. The Court's determination that DESC's prices were unauthorized and illegal was necessary and essential to its finding of jurisdiction. In order for the Court to find jurisdiction, the judgment had to rest on an implied-in- fact rather than an implied- in- law contract. For an implied- in-fact contract to exist, there had to be a reason that a portion of the express contract was no longer in force. That reason, of course, was that DESC's prices were illegal. Id. In short, the very rationale of the jurisdictional holding in Barrett required the Court to rule on the legality of the clause. Indeed, the Court had an affirmative obligation to make that finding in order to exercise its jurisdiction. Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986) (courts are obligated to establish the presence of their own jurisdiction); Sosna v. Iowa, 419 U.S. 393, 398 (1975) ("While the parties may be permitted to waive nonjurisdictional defects, they may not by stipulation invoke the judicial power of the United States."); cf. American Fire & Cas. Co. v. Finn, 341 U.S. 6, 17-18 (1951) (subject 10

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adoption of the holding of MAPCO as the rule of decision govern resolution of this case. See Phoenix Petroleum Co. v. United States, No. 97-315C, slip op. at 4 (Fed. Cl. Apr. 30, 2003) (App. 1526) (Court expressly relying on the Federal Circuit's decision in Barrett in finding DESC's fuel prices to be illegal, stating: "the Federal Circuit recently noted that `[t]he

determination in MAPCO that only the price escalation term was unenforceable and invalid . . . is consistent with our case law.'") (quoting Barrett, 242 F.3d at 1060 n.2 (alteration in original)). In MAPCO, the United States Court of Federal Claims held that DESC's prices were illegal because they were prohibited by the FAR. 27 Fed. Cl. at 406. DESC had used the PMM Indexes to reduce the price it paid MAPCO for fuel by thirty-five percent, notwithstanding that the market price for crude oil had increased by ninety- five percent. Id. at 407. When MAPCO filed suit, DESC alleged, as it does here, that its prices were legal and that it paid fair market value for the fuel it purchased. Id. The Court in MAPCO rejected DESC's assertion that its prices were legal, holding that FAR § 16-203 prohibited the manner in which DESC had established prices. Quoting FAR § 16.203-1, the Court found that DESC was permitted to adjust the contract price only as follows: (a) Adjustments based on established prices. These price adjustments are based on increases or decreases from an

matter jurisdiction must be present at all stages of the case, including at the time of judgment). The Court could not, as DESC asserts, find subject matter jurisdiction merely because one of the parties stipulated to a jurisdictional prerequisite, such as the government's violation of the law. Sosna, 419 U.S. at 398; see also Florida Power & Light Co. v. United States, 307 F.3d 1364, 1370 (Fed. Cir. 2002) (parties cannot agree to confer jurisdiction on the Court of Federal Claims). Moreover, given the Federal Circuit's warm embrace of MAPCO, it is simply not credible to assert, as DESC does, that in Barrett the Federal Circuit expressed no opinion concerning the illegality of DESC prices. 242 F.3d at 1060, 1062. In any event, despite DESC's stipulation, the judge below in Barrett (the same judge who decided MAPCO) also independently found DESC's prices to be illegal. 50 Fed. Cl. 567, 568 (2001) ("In Barrett I, we determined that the EPA clause was invalid and that Barrett should receive at least fair market value.").

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agreed-upon level in published or otherwise established prices of specific items or the contract end items. (b) Adjustments based on actual costs of labor or material. These price adjustments are based on increases or decreases in specified costs of labor or material that the contractor actually experiences during contract performance. (c) Adjustments based on cost indexes of labor or material. These price adjustments are based on increases or decreases in labor or material cost standards or indexes that are specifically identified in the contract. MAPCO, 27 Fed. Cl. at 408. The Court concluded that DESC had not established prices in one of these three permissible ways. Id. at 408-11 The Court found that DESC's price adjustments were not based on established prices as permitted by FAR § 16.203-1(a), because the PMM Indexes did not base price adjustments on the contractor's own established prices. Id. at 408-1011 The Court also

found that DESC's price adjustments were not based on cost indexes as permitted by FAR § 16.203-1(c), because the PMM Indexes were indexes of prices and not costs. Id. at 411. (The Court was not called upon to address whether DESC's price adjustments based on actual cost were permitted by FAR § 16.203-1(b), because it was undisputed that the price adjustment clause did not refer to MAPCO's own costs. Id. at 411 n.7.) The Court in MAPCO expressly rejected DESC's assertion that price adjustments based on "established prices" under FAR § 16.203-1(a) need not reflect the "contractor's" own prices and therefore may be based on price indexes. Id. at 408-10. The Court observed that the

11

DESC's expert, Dr. George Schink, asserts that "contractor established prices" could not be used "to adjust contracts in the petroleum industry because sellers do not necessarily make substantial volumes of sales at these prices." Schink Decl. ¶ 11, Defendant's Appendix to its Motion for Partial Summary Judgment at 12. Dr. Schink's statement is factually incorrect. When these contracts were being awarded, the suppliers were making substantial commercial sales of jet fuel pursuant to commercial airport contracts at established prices. See generally, Reilly Test. at 61-64.

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"Limitations" provisions of FAR § 16.203-3,12 as well as the FAR's standard price adjustments clauses and the FAR's general definition of "established prices," all expressly use the word "contractor's" to define "established prices." Id. 13 DESC, the Court h eld, could not write the word "contractor's" out of FAR § 16.203 or the general definition of established prices. Id. 14 The Court further rejected DESC's alternative assertion that the PMM Indexes were "cost indexes" encompassed by FAR § 16.203-1(c). The Court noted that the provisions of FAR § 16.203-1(c) "specifically use the word `index' to refer to cost but not price, considering the two as separate terms." Id. at 411 (citing the separate and distinct definitions of "cost analysis," "price," and "price analysis" in FAR § 15.801). The Court reasoned that the specific

authorization of "cost" indexes necessarily precluded the use of "price" indexes, because, as the Court noted in a companion discussion, "`[w]here particular language is used in one section [of the regulations] but not in another, the term or its equivalent should not be implied where it is excluded.'" Id. at 411 (quoting United States v. Heller, 635 F.2d 848, 855 n.12 (Temp. Emer. Ct. App. 1980) (brackets in original)).

12

As the Court in MAPCO noted, the "Limitations" provisions in FAR § 16.203-3, which expressly referenced the "contractor's" established prices, originally preceded FAR § 16.203-1, which sets forth the three types of permissible economic price adjustment clauses. Id. Thus, as originally promulgated, the word "contractor's" as found in the "Limitations" provisions did not need to be repeated in the description of the clauses thereafter. The subsequent reversal of the order of these two provisions was not intended to effect a substantive change. MAPCO, 27 Fed. Cl. at 409-10; see also Gold Line, 54 Fed. Cl. at 295 n.19.
13

Indeed, even Defense Logistics Acquisition Regulation ("DLAR") § 16.203-4, as effective at the time of MAPCO, defined "established prices" in terms that necessitated the use of the contractor's own prices. App. 113-114.
14

The Court also found that, because the PMM Indexes did not reflect any particular company's current prices, but rather were an "an amalgamation of the previous month's petroleum sales data," the PMM Indexes did not reflect an "established" price within the plain meaning of that term. MAPCO, 27 Fed. Cl. at 410.

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Recently, MAPCO's holding that DESC's standard pricing clause was illegal was adopted as the rule of decision in Gold Line Refining, Ltd. v. United States, 54 Fed. Cl. 285 (2002). The Court in Gold Line characterized MAPCO as follows: After careful analysis of the relevant FAR provisions, review of the legislative history of the provisions, examination of the record, and consideration of the parties' arguments, the Court of Federal Claims determined that the EPA clauses were "plainly inconsistent with the FAR." The court found that, "having chosen to use the mechanism of an economic price adjustment clause, defendant [was] obligated to comply with applicable regulations limiting its use . . . [but that defendant] offered no principled reason for not doing so." Id. at 289-90 (brackets in original, citations omitted). After expressly rejecting the very same challenges to MAPCO that Defendant asserts here (and which are discussed further below), the Court in Gold Line held: "Seeing no salient distinction between the legal arguments addressed in MAPCO and advanced by defendant here, the court concludes that Clause B19.33 [DESC's standar