Lee's Ford Dock, Inc. ( 2014 )

ARMED SERVICES BOARD OF CONTRACT APPEALS
Appeal of -- )
)
Lee's Ford Dock, Inc. ) ASBCA No. 59041)
Under Contract No. DACW62-1-00-0105 )
APPEARANCES FOR THE APPELLANT: Alan I. Saltman, Esq.
Evangelin L. Nichols, Esq.
Smith, Currie & Hancock LLP
Washington, DC
Karl F. Dix, Jr., Esq.
Smith, Currie & Hancock LLP
Atlanta, GA
APPEARANCES FOR THE GOVERNMENT: Thomas H. Gourlay, Jr., Esq.
Engineer Chief Trial Attorney
Thomas M. Browder III, Esq.
Engineer Trial Attorney
U.S. Army Engineer District,
Nashville
OPINION BY ADMINISTRATIVE JUDGE CLARKE ON THE
GOVERNMENT'S MOTION TO DISMISS
The United States Army Corps of Engineers (COE) moves to dismiss this appeal ,
alleging that Lee's Ford Dock, Inc. (Lee's Ford) raised a new claim for the first time on
appeal, failed to certify the new claim, and filed the claim more than six years after
accrual. We have jurisdiction pursuant to the Disputes clause of the lease at issue and the
Contract Disputes Act of 1978 (CDA), 41 U.S.C. §§ 7101-7109. We grant the motion on
the first basis.
STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTION 1
1. The COE and Lee's Ford entered into Lease No. DACW62-1-00-0105 on
29 August 2000 for a commercial concession (marina) at Wolf Creek Dam-Lake
Cumberland project, Kentucky, commencing on 1 September 2000 and lasting
1
The COE's motion includes numerous other facts relating to bankruptcy and other
matters that are not relevant to the central issue in the motion for the Board to
decide.
25 years (R4, tab 3 at 1, 17). Paragraph 32 of the lease, the Disputes clause, stated
that, except as provided in the CDA, all disputes arising under or related to the lease
were to be resolved under this clause and the provisions of the CDA. The Disputes
clause provided that claims were to be submitted to the district engineer. The district
engineer's decision was to be final unless the lessee appealed as provided in the CDA.
See 41 U.S.C. § 7104. Claims over $100,000 required certification. (Id. at 14-15)
2. The lease provided that the United States had the right "to manipulate the
level of the lake or pool in any manner whatsoever ... and the lessee shall have no claim
for damages on account thereof against the United States" (R4, tab 3 at 6). On
19 January 2007 the COE decided that the dam was at high risk of failure and
emergency measures were necessary "to reduce imminent risk of human life, health,
property, and severe economic loss" (R4, tab 15 at 1). The COE concluded that it
would incrementally lower the "pool" to elevation 680 to achieve maximum risk
reduction while continuing hydropower and water supply operations (id.).
3. On 12 July 2007, as a result of lowering the water level in the "pool," the
COE reduced rent payments to one dollar for the period 1 July 2007 through 30 June
2008 (R4, tab 7). Regular rents were reinstated on 1 July 2008 (gov't mot. at 4, ~ 15).
4. On 18 January 2013, Lee's Ford's attorney emailed a claim to the COE's
district engineer and on 19 January 2013 a copy of the claim was placed in the
U.S. mail (gov't mot. at 4, ~ 18; app. opp'n at 2, ~ 18). The claim includes the
following:
As discussed below, Lee's Ford asserts that the very
purpose of the Lease contract has been frustrated by the
now six-year drawdown of Lake Cumberland caused by
the Corps' decision to lower the Lake on January 19, 2007.
As a result, Lee's Ford demands that the Lease contract be
reformed in one or more of the following ways to
compensate Lee's Ford for the damages it has incurred due
to the drawdown: (a) rent owed by Lee's Ford to the
Corps under the Lease should be fully abated until such
time as the abated rent equals at least $4,000,000.00, which
is the amount of Lee's Ford's disaster loan debt to the
U.S. Small Business Administration ("SBA"); (b) the
Corps will pay the SBA the sum of $4,000,000.00, plus all
accrued interest and loan fees, in satisfaction of Lee's
Ford's disaster loan debt to neutralize the detrimental
effect that the frustrated contract continues to have on
Lee's Ford; and/or (c) the Corps will commit to working
with the SBA to develop a federal government policy that
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would allow the SBA to hold the disaster loan debt fully
satisfied by offsetting Lee's Ford's damages arising out of
its frustrated Lease against its disaster loan debt under the
unitary creditor doctrine.
B. THE LOWERING OF LAKE CUMBERLAND
As you are aware, Lake Cumberland is dammed by Wolf
Creek Dam. On January 19, 2007, LTC Steven J. Roemhildt
and Brigadier General Bruce A. Berwick signed the
Memorandum for Record on the subject of "Wolf Creek Dam
Interim Risk Reduction Measures" (the "January 19th Memo"),
which discussed concerns with the possible failure of
Wolf Creek Dam and the need to repair it. The January 19th
Memo concluded that the Lake must be substantially lowered
in order to accomplish the necessary repairs. Recognizing the
impacts of the lowering on the Lake region, the Memo
provided that "[p]lans are being developed to mitigate to the
maximum extent possible those impacts." Memo, p. 14. The
Memo also included a commitment that the "Nashville District
[of the Corps] will work with Lake Cumberland stakeholders to
minimize to the extent practicable the impact to recreation,"
which was said to include the "relocation of marinas" and the
"relaxation of user fees." Id. at 15. On January 22, 2007, the
Corps began to lower the Lake water levels by a total of
43 feet.
As the District Engineer for the Nashville District of the
Corps, Lee's Ford is submitting this letter to you to
formally assert its "claim" against the Corps and to
demand reformation of the frustrated Lease contract in
such a manner as to compensate Lee's Ford for the
damages it has incurred as a result of the drawdown
through payment, the adjustment of Lease terms, and/or
similar relief relating to the Lease ....
As the lessee under the Lease, Lee's Ford expected to
have a certain water level at its dock and the business
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traffic that has historically followed that water level.
While the Lease does contemplate that the Corps has the
right "to manipulate the level of the lake or pool," the
parties could not have envisioned at the time that they
entered into the Lease that the Lake would be drawn down
to such an extreme degree for such a long period of time,
as the Lake has only been lowered to 680' once in its more
than fifty year history. Instead, all that the parties could
have anticipated was perhaps a short-term drawn [sic]
down for repairs to the Dam - not a seven-year term of
drastically lowered levels that required Lee's Ford to
relocate its entire dock system within the leased area.
[Footnotes omitted]
(R4, tab 8 at 1, 2, 5) The claim included other facts relating to SBA involvement
(id. at 2) and COE actions following the lowering of the lake (id. at 3).
5. By a 26 August 2013 final decision, signed by both the district engineer and
the contracting officer (CO), sent by certified mail, the COE denied the claim (R4, tab
2). Lee's Ford received the final decision on 29 August 2013 (Bd. corr. file). On
27 November 2013, Lee's Ford timely appealed the final decision to the Board
(R4, tab 1 at 1). Lee's Ford's complaint, filed with its appeal, included one count,
Breach of Contract-Nondisclosure of Superior Knowledge, and itemized alleged
breach damages of $5,755,212.
6. On 2 December 2013, the Board docketed the appeal as ASBCA No. 59041.
7. On 5 February 2014, the COE filed its motion to "dismiss appellant's
complaint," which it referred to in the body of the motion as one to dismiss the appeal.
We treat the motion as one to strike the complaint. The COE contends that the claim
for "nondisclosure of superior knowledge was raised for the first time on appeal" and
was "never presented to the [CO] for decision as required by the CDA." (Gov't mot.
at 7, `` 34, 35)
8. On 21March2014, Lee's Ford filed its opposition to the COE's motion. On
29 April 2014, the COE notified the Board that it had decided not to file a reply to the
opposition.
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DECISION
Initial Jurisdictional Considerations
The leases's Disputes clause invokes the CDA. Parties cannot, by contractual
agreement, confer CDA jurisdiction upon the Board if CDA jurisdiction does not
otherwise exist. See Florida Power & Light Co. v. United States, 307 F.3d 1364, 1371
(Fed. Cir. 2002); Patriot Pride Jewelry, LLC, ASBCA No. 58953, 2014 ASBCA Lexis
at *15 (9 June 2014). However, the Board has jurisdiction to entertain this appeal
under the Disputes clause alone, which incorporates procedures for appeal to the
Board. See, e.g., Donald M Lake, dlbla Shady Cove Resort & Marina, ASBCA
No. 54422, 05-1BCA~32,920. We also have jurisdiction under the CDA because a
lease involves the disposal of personal property within the CDA's coverage.
41 U.S.C. § 7102(a)(4); Arnold V. Hedberg, ASBCA Nos. 31747, 31748, 90-1 BCA
~ 22,577; accord New London Development Corp., ASBCA No. 54535, 05-2 BCA
~ 33,018; see also Forman v. United States, 767 F.2d 875 (Fed. Cir. 1985).
Jurisdictional Dispute at Issue
Both parties correctly recognize that whether the complaint asserts a new claim
or not depends, in part, on if it relies on the same "operative facts" cited in the claim.
The alleged new claim in this case is failure to disclose superior knowledge.
The elements of proof of superior knowledge are:
( 1) a contractor undertakes to perform without vital
knowledge of a fact that affects performance costs or
duration, (2) the government was aware the contractor had
no knowledge of and had no reason to obtain such
information, (3) any contract specification supplied misled
the contractor or did not put it on notice to inquire, and (4)
the government failed to provide the relevant information.
Scott Timber Co. v. United States, 692 F.3d 1365, 1373 (Fed. Cir. 2012). As reflected
in these elements of proof, the "operative facts'' alleged in the claim must somehow
communicate to the CO a disparity in knowledge between the parties at contract award
of which the government was aware. The theory of superior knowledge is unique in
that it normally relies on "operative facts" in existence before award. Grumman
Aerospace Corp. v. Wynne, 497 F.3d 1350, 1357 (Fed. Cir. 2007) (addressing Board's
determinations about the contractor's knowledge during "pre-award period" and "vital
knowledge or the opportunity to obtain that knowledge before contract entry"
(emphasis added); Bannum, Inc. v. United States, 80 Fed. Cl. 239, 247 (2008) (A
superior knowledge claim ordinarily relates to knowledge regarding contractual
5
specifications that the government failed to impart to a contractor prior to the
contractor's agreement to undertake performance of a contract); Renda Marine, Inc.
v. United States, 66 Fed. Cl. 639, 721 (2005) ('"When analyzing a claim that the
government breached its duty to disclose superior knowledge, "(t]he court ... must focus
its inquiry on the government's knowledge at the time of contracting and its
relationship to the contractor's lack of knowledge)"' (citations omitted). It is the
pre-award disparity in knowledge that distinguishes the operative facts pertinent to
superior knowledge allegations from those of other cases of action.
In Todd Pacific Shipyards Corp., ASBCA No. 55126, 06-2 BCA ii 33,421, cited
by appellant, the contract involved work related to maintenance of U.S. Navy vessels.
In order to perform the contract Todd had to maintain a large dry dock. After award
the Navy transferred several of the vessels and decommissioned another resulting in
less work for Todd. Todd's 18 June 2004 certified claim referred to its 5 March 2004
"Drydock No. 3 Settlement Proposal" that alleged the following operative facts:
Todd stated that, upon concluding contract negotiations in
June, 2001, it had undertaken a five-year repair and
maintenance project to ensure that dry dock No. 3 would
remain certified and ready to support all scheduled and
potential ASBCA No. 55805, 08-2 BCA ~ 33,950 (ATTL), which involved a 21September2002
COE delivery order contract with a small business for sampling and testing dredged
material. After award A TTL submitted its "initial demonstration of capability data" and
"standard operating procedures" on 21 February 2003, 5 September 2003, 30 December
2003, and 18 June 2004 to the Environmental Protection Agency (EPA) for approval. On
12 August 2004 the EPA found the last submission deficient, as it had all of the previous
submissions. As a result, the COE decided not to order more than the contract's
minimum quantity of $5,000 worth of work. ATTL submitted a claim alleging
constructive change based on a 29 October 2002 letter and the EPA's "improper"
rejection of its submissions. During discovery ATTL obtained a memorandum written by
Ms. Beth Nash on 4 December 2001, before contract award, which stated the contract
should not be a Small Business set-aside, because the contract required a high degree of
precision and would be difficult for a small business to perform. A TTL also obtained a
December 2001 memorandum written by Mr. John Hartmann agreeing with Ms. Nash.
A TTL moved to amend its complaint to allege a superior knowledge cause of action. The
Board held, "[a]ppellant's original claim alleged operative facts limited to two theories of
recovery - the government changed the contract and the EPA review of appellant's
submittals was faulty." Advanced Technologies, 08-2 BCA ~ 33,950 at 167,975. The
Board held, "[w ]e do not have jurisdiction to the extent that the underlying bases for the
superior knowledge and commercial impracticability theories are the information in the
Discovery Documents (i.e., a small business would find it difficult to complete the
contract)". Id. The operative facts in the claim related to a 29 October 2002 letter and
EPA rejections of ATTL's submissions on 21February2003, 5 September 2003,
30 December 2003, and 18 June 2004. It is significant that all of the operative facts
alleged in the claim were well after the 21 September 2002 award of the contract. Again,
the theory of superior knowledge requires an allegation of operative facts occurring in the
pre-award period.
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Shams Engineering & Contracting Co. and Ramli Co., ASBCA Nos. 50618,
50619, 98-2 BCA ii 30,019, involved a United States Agency for International
Development (USAID) contract to construct residential buildings in Gaza. Shams
submitted claims alleging "unfair settlement of claims submitted to USAID," "extra
difficulties which cost us more than ABB SUSA on purchasing materials from Israel
because of the [border] closure" and "delay of paying the amount of Claims on time
'interest' as per FAR (Clause 52.233-1)." Shams, 98-2 BCA ii 30,019 at 148,523.
Appellant appealed the final decision denying the claims and then moved to amend its
complaint to add six counts. Count 2 was breach of the duty to disclose superior
knowledge. The Board held:
In Count 2, appellants contend that USAID
breached its duty to disclose information vital for
appellants' performance under the contracts, and that it
knew or should have known that appellants did not possess
the information. That information allegedly included
(a) the volatile political and economic conditions in the
region, which USAID should have anticipated, (b) the
terms of the contract written in a language understandable
to appellants and the physical inclusion of FAR provisions
rather than their incorporation by reference into the
contract, and (c) the business and accounting standards to
which USAID would hold appellants. Those contentions
are essentially different than those presented to the
contracting officer in appellants' claims seeking equitable
adjustments. With respect to Count 2, appellants' motion
to amend is denied.
Shams, 98-2 BCA ii 30,019 at 148,526. As before, it is significant that none of the
operative facts cited in the claim involved facts reflecting a disparity of knowledge
between the government and the contractors before award.
Court of Federal Claims cases in this area are also instructive. For example, in
Laidlaw Environmental Services (GS), Inc. v. United States, 43 Fed. Cl. 44 (1999), which
involved a waste disposal (magnesium batteries) contract, the parties filed cross-motions for
summary judgment and the government filed a motion to dismiss for lack of jurisdiction.
The motion to dismiss alleged that Laidlaw raised three theories of entitlement in its
complaint that were not presented in its claim to the CO, including superior knowledge:
As noted supra, the complaint in this court asserts three
basic theories of liability, i.e., i) breach of contract, ii)
constructive change, and iii) failure to disclose superior
8
knowledge. In contrast, the claim previously filed before
the contracting officer asserted, in essence, that-i) CLIN
0502 cannot be used on the contract because it is for state
regulated batteries only; ii) the tests indicating the toxicity
of magnesium batteries are disputable; iii) magnesium
batteries are not regulated in North Carolina; iv) the use of
CLIN 0502 in the contract was erroneous; and v) such use
constituted a change in the contract.
Laidlaw, 43 Fed. Cl. at 50. The operative facts supporting the claim were:
i) The state of North Carolina does not regulate
magnesium batteries so that the use of CLIN 0502 was
erroneous;
ii) The basis of the tests finding the magnesium batteries to
be hazardous is disputable;
iii) The government changed the terms of the contract
when it informed Laidlaw it would use CLIN 0500 or
CLIN 0502 in delivery orders because magnesium
batteries exhibited '"toxicity characteristics for
chromium" making them a RCRA regulated waste;
iv) CLIN 0502 cannot be used on the contract because it is for
state regulated batteries only and magnesium batteries are
not regulated in North Carolina; and
v) A new "'RCRA" CLIN with a unit price based on
supportable data must be added to the contract.
Laidlaw, 43 Fed. Cl. at 48. Focusing on the superior knowledge theory, the court held:
The nature of this last claim is an assertion regarding what
the government and Laidlaw knew in regard to the toxicity
of magnesium batteries, and when they knew it. While
such a claim before the contracting officer need not be
legally precise, if the general nature of this claim had been
presented to the contracting officer, we would expect a
statement in Laidlaw's claim to the effect that Laidlaw was
unaware of the government studies finding that
magnesium batteries were hazardous under the RCRA; that
the government did not inform Laidlaw of the results of
such studies; and that Laidlaw was damaged by this lack
of, or withheld, knowledge. This claim is thus a new claim,
and a variance, based on "operative facts'' beyond those
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presented for the contracting officer's final decision and
must, therefore, be dismissed.
Laidlaw, 43 Fed. Cl. at 50. Significantly, it was the lack of operative facts reflecting
that Laidlaw was "unaware" of information the government was aware of that caused
the court to dismiss. The court commented, "[ n]o reasonable person could have
inferred, from reading Laidlaw's claim before the contracting officer, that Laidlaw was
alleging that the government had superior information that Laidlaw did not possess,
which it had a duty to disclose." Id. at 51.
The common thread in these and other superior knowledge cases is their
analysis of whether the operative facts in a claim to the CO communicated the
disparity of knowledge between the contractor and the government before contract
award. If they did, there is jurisdiction to consider the claim, if not, there is no
jurisdiction. That is the standard we apply to Lee's Ford. The legal theories asserted
in the claim are "frustration of purpose" and "reformation" (SOF ii 4). The claim cites
the following material operative facts 2 :
• On 19 January 2007 a decision was made to lower
the water level in the lake.
• Lee's Ford expected to have "a certain water level
at its dock and the business traffic that has
historically followed that water level."
• The parties could not have envisioned at the time
they entered into the Lease that the Lake would be
drawn down to such an extreme degree for such a
long period of time, as the Lake has only been
lowered to 680' once in its more than fifty year
history.
(SOF ii 4) The last two bullets relate to pre-award knowledge.
The parties entered into the lease on 29 August 2000 (SOF ii 1). The decision to
lower the water level was made over six years after the lease was executed3 (SOF ii 2).
While two of the operative facts in the claim deal with the parties' knowledge at award
of the lease, they do not reflect the disparity of knowledge between the parties required
to support a superior knowledge theory. Indeed, Lee's Ford's assertion that the parties
could not have envisioned at the time they entered into the Lease that the lake would be
2
The facts presented in the claim relating to the SBA and the Corps' mitigation
efforts are not material to superior knowledge.
3
We do not consider the fact that ownership of Lee's Ford changed in 2003 to be
significant (R4, tab 4).
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drawn down to such an extreme degree for such a long period of time communicates a
common understanding that is inconsistent with the disparity of knowledge required for
superior knowledge. We disagree with the implication in appellant's brief that it alleged
facts supporting superior knowledge, "[f]irst, the claim letter certainly indicates that,
prior to lease execution, the Corps did not provide Lee's Ford with any information
about defects with the Wolf Creek Dam that were likely to result in major
reconstruction." (App. br. at 15) Of critical importance is the complete absence of any
assertion that the COE had information that appellant did not.
There is nothing in Lee's Ford's operative facts alleged in the claim that arguably
supports the theory of superior knowledge. As in Laidlaw, no reasonable person could
have inferred, from reading Lee's Ford's claim, that it was alleging the government had
pre-award superior information that Lee's Ford did not possess. Accordingly, the
complaint incorporated into the appeal constitutes a new claim that has not been
presented to a CO for decision as required by the CDA, 41 U.S.C. § 7103(a)(l), we do
not have jurisdiction to consider it, and we strike it.
Since we do not have jurisdiction over the superior knowledge count, we do not
address the government's other two issues, failure to certify and timeliness.
CONCLUSION
For the reasons stated above, we strike the complaint as it relates to the theory
of superior knowledge without prejudice to the filing of a proper claim with the CO. 4
The appeal, however, remains within the jurisdiction of the Board and Lee's Ford may
amend its complaint to assert theories supported by the operative facts stated in the
claim.
Dated: 23 July 2014
Administr, tive Judge
Armed Services Board
of Contract Appeals
4
Since this claim is not before us we express no opinion on any possible untimeliness
of the filing of the claim, should such occur.
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(Signatures continued)
I concur I concur
c
Administrative Judge aministrative Judge
Acting Chairman Acting Vice Chairman
Armed Services Board Armed Services Board
of Contract Appeals of Contract Appeals
I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 59041, Appeal of
Lee's Ford Dock, Inc., rendered in conformance with the Board's Charter.
Dated:
JEFFREY D. GARDIN
Recorder, Armed Services
Board of Contract Appeals
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