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

Case 1:03-cv-00623-LSM

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS U.S. FINANCIAL CORP. Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 03-623C (Senior Judge Margolis)

DEFENDANT'S OPPOSITION TO PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT Pursuant to Rule 56 of the Rules of the United States Court of Federal Claims, defendant, the United States, respectfully responds to the motion for summary judgment filed by plaintiff, U.S. Financial Corp. ("U.S. Financial"). For the reasons stated below, U.S. Financial fails to demonstrate that it is entitled to judgment as a matter of law because it offers no evidence that would entitle it to damages. QUESTION PRESENTED Whether U.S. Financial has produced sufficient proof to the Court of its damages to entitle it to recover. STATEMENT OF FACTS On September 29, 1997, the United States Air Force ("Air Force") entered into contract No. F49642-97-C-0030 ("the contract") with The WINN Group, Inc. ("WINN"). Compl. ¶ 1; PPFUF ¶ 1. The contract was for the replacement of an electrical distribution system and main substation. Id. On February 17, 1999, WINN assigned all proceeds from the contract to U.S. Financial. PPFUF ¶ 2. On March 8, 1999, the Air Force issued Modification PO0001 to the contract,

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naming U.S. Financial as the payee. Id. After this modification was issued, the Air Force made two erroneous payments to WINN, totaling $52,686.53. PPFUF ¶ 5, 6. Although it is undisputed that these payments were erroneously made, U.S. Financial has nonetheless failed to offer any evidence supporting its claim of damages in this case. ARGUMENT I. Legal Standards Pursuant to RCFC 56, summary judgment is appropriate where there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Brubaker Amusement Co. v United States, 304 F.3d 1349, 1356 (Fed. Cir. 2002). A dispute over a "material fact" is one "that might affect the outcome of the suit under the governing law." Anderson, 466 U.S. at 248. "[S]ummary judgment will not lie if the dispute about a material fact is 'genuine,' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. II. U.S Financial Has Yet To Prove Damages A. U.S. Financial's Recovery From The Government Is Limited To Those Amounts Loaned By U.S. Financial To The WINN Group, Inc. ("WINN") That Could Have Been Used For Performance Of The Assigned Contract And That WINN Owed U.S. Financial At The Time The Government Failed To Pay U.S. Financial

Pursuant to the Assignment of Claims Act, most assignments of interests in Government contracts are invalid. See 41 U.S.C. § 15 (a). The exception to the Assignment of Claims Act permitting assignment of contract proceeds to financial institutions, which has occurred in this case, permits the "assignment of contracts. . . as collateral for performance loans made by financial institutions." Continental Bank and Trust Company v. United States, 189 Ct. Cl. 99, 103, 416 F.2d 1296, 1299 (1969) (emphasis added). "This was intended to broaden the base of competitive bidders to include small companies which, because of their inability to finance the

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cost of contract performance and the statutory prohibition against assignment of the proceeds of the contract, were unable to undertake the performance of government contracts." Id. (emphasis added). In the event the Government does not pay funds due for performance of an assigned contract to the assignee financial institution, the assignee may bring an action against the Government for wrongful payment to a party other than the assignee. Thomas Funding Corp. v. United States, 15 Cl. Ct. 495, 502 (1988). However, in its action against the Government for failing to comply with the assignment, the assignee is only entitled to recover from the Government to the extent the assignor has an outstanding debt to the assignee. American National Bank and Trust Co. v. United States, 22 Cl. Ct. 7, 13 (1990) ("An assignee's recovery from the United States is limited to the extent of that assignor's outstanding debt to the assignee."). The logic of this principle is consistent with the Assignment of Claims Act's intent to protect financial institutions. If, in fact, the assignor does not owe anything to the assignee financial institution at the time the Government failed to comply with the assignment, then the Government's failure to comply with the assignment by paying the assignee has not harmed the assignee because the assignor did not owe anything. Recovery from the Government under conditions where the assignor is not indebted to the assignee would simply provide the assignee with a windfall. Moreover, beyond the fact that the assignee may only recover from the Government to the extent the assignor is indebted to the assignee, an assignor may only rely upon the assignment to justify recovering funds from the Government that the assignee loaned to the assignor that could have been used for performance of the assigned contracts. Manufacturers Hanover Trust Co. v. United States, 218 Ct. Cl. 563, 569, 590 F.2d 893, 896 (1978); First

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National City Bank v. United States, 212 Ct. Cl. 357, 366-68, 548 F.2d 928, 934-35 (1977) (en banc). In First National City Bank, the court considered the argument by a financial institution that it was entitled to recover from the Government pursuant to the Assignment of Claims Act because it had loaned money to the assignor and therefore participated in financing the assignor. In its en banc ruling, the court rejected the financial institution's argument that it could rely upon the Act to recover. The court based its ruling upon the fact that none of the money loaned to the assignor by the financial institution could have been used for contract performance. 212 Ct. Cl. at 366-68, 548 F.2d at 934. The Court explained that: This was the theory at the bottom of one of the court's holdings in Coleman v. United States, 158 Ct. Cl. 490 (1962). The question there was whether the contractor had actually received and used the funds to promote the completion of the contract before the court. Laying down its basic premise, the court said: 'The Act was designed to make funds available to a contractor with which he could complete his government contract. If the loan is used for another purpose, the objectives of the Act are not satisfied.' Coleman v. United States, supra, 158 Ct. Cl. at 496 (emphasis added). The court went on to absolve the lender if the contractor, after receiving the money, diverted it to other purposes instead of using it to advance performance of the contract. But it is crystal clear that in the court's view the assignment would be defeated if the lender had reason to know in advance that the loan proceeds could not be used in completing the contract. 212 Ct. Cl. at 367-68, 548 F.2d at 934 (emphasis added). Thus, an assignee may only rely upon an assignment to it under the Act to recover those sums from the Government that the lender loaned to the assignor that could be used for completion of the assigned contract. One year after First National City Bank, the Court of Claims reaffirmed its holding in Manufacturers Hanover Trust Co. v. United States, 218 Ct. Cl. 563, 590 F.2d 893 (1978). In Manufacturers Hanover Trust, the assignee financing institution received an assignment of a Government contractor's right to receive contract proceeds after both the contracts in question 4

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had been fully performed, and after the financing institution loaned funds to the contractor. Citing First National City Bank, the Court stated that "in order for a lending institution to achieve the status of an assignee under the Assignment of Claims Act, it had to be shown that the monies which that institution had advanced to the contractor were actually used in, or at least made available for, the performance of the contract(s) in question." 218 Ct. Cl. at 569, 590 F.2d at 896 (emphasis added). Because the plaintiff/assignee in Manufacturers Hanover Trust was attempting to rely upon the assignment to it to justify recovery of sums loaned by it to the assignor after the contracts were performed, it was denied recovery. In light of the express holdings of First National City Bank and Manufacturers Hanover Trust, in order to recover in this action it is not enough for U.S. Financial to demonstrate that it was the recipient of an assignment from WINN. U.S. Financial's recovery from the Government is limited to those sums loaned by U.S. Financial to WINN that could have been used for performance of the assigned contract and that WINN owed U.S. Financial at the time the Government failed to pay U.S. Financial. B. The Evidence Submitted By U.S. Financial Is Insufficient To Prove Its Damages

U.S. Financial's proposed findings of uncontroverted fact merely allege that the Government erroneously paid WINN instead of U.S. Financial. That finding alone does not entitled U.S. Financial to damages. As demonstrated above, the only damages U.S. Financial is entitled to recover as a result of the Government's mistaken payment would be the amount owed by WINN to U.S. Financial, at the time of the mistaken payment, that stems from loans made by U.S. Financial to WINN that could have been used for performance of the assigned contract. U.S. Financial's motion for summary judgment fails to present any evidence of such damages.

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Because U.S. Financial fails to demonstrate that it has suffered any compensable damages and, therefore, fails to demonstrate that it is entitled to judgment as a matter of law, the Court should deny its motion for summary judgment. C. U.S. Financial Cannot Recover Interest

In its complaint and motion for summary judgment, U.S. Financial asserts that it is entitled to interest pursuant to the Contract Disputes Act, 41 U.S.C. § 601 et. seq., and the Prompt Payment Act, 31 U.S.C. § 3901, et. seq.. Compl. ¶ 10; Pl. Mot. at 3. Even if U.S. Financial could demonstrate that it was damaged in the amount of $52,686.53, it would not be entitled to interest. In the absence of an express statutory or contractual waiver of sovereign immunity, the United States is not liable for interest. Kalan, Inc. v. United States, 944 F.2d 847, 849 (Fed. Cir. 1991), citing Library of Congress v. Shaw, 478 U.S. 310, 315 (1986). First, U.S. Financial cannot recover interest pursuant to the Contract Disputes Act because it is not a contractor within the meaning of that act. See 41 U.S.C. § 601(4); Thomas Funding Corp. v. United States, 15 Cl. Ct. 495, 501 (1988). The Contract Disputes Act provides for interest payments to contractors, not assignees. See 41 U.S.C. § 611. The Contract Disputes Act, therefore, does not constitute a waiver of sovereign immunity that would allow U.S. Financial to recover interest payments. In addition, the Prompt Payment Act, 31 U.S.C. § 3901, et. seq., does not permit U.S. Financial to recover interest. Pursuant to the Prompt Payment Act, "the head of an agency acquiring property or service from a business concern, who does not pay the concern for each complete delivery item of property or service by the required payment date, shall pay an interest penalty to the concern on the amount of the payment due." 31 U.S.C. § 3902(a). Because the Government did not acquire property or services from U.S. Financial, the Prompt Payment Act

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does not constitute a waiver of sovereign immunity sufficient to permit U.S. Financial to recover interest payments. CONCLUSION For these reasons, we respectfully request that the Court deny U.S. Financial's motion for summary judgment. Respectfully submitted, PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director /s Mark A. Melnick MARK A. MELNICK Assistant Director /s Margaret E. McGhee MARGARET E. McGHEE Attorney Commercial Litigation Branch Civil Division Department of Justice 1100 L Street, N.W. Attn: Classification Unit 8th Floor Washington, DC 20530 Tel. (202) 305-3634 Fax. (202) 514-8624 Attorneys for Defendant

October 24, 2003

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NOTICE OF FILING I hereby certify that on October 24, 2003, a copy of the foregoing "DEFENDANT'S OPPOSITION TO PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT " 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/ Margaret E. McGhee