Eyak Services, LLC ( 2014 )


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  •                ARMED SERVICES BOARD OF CONTRACT APPEALS
    Appeals of--                                    )
    )
    Eyak Services, LLC                              )   ASBCA Nos. 58556, 58557
    )
    Under Contract Nos. W912HZ-10-C-0112 )
    W912HZ-10-C-0116 )
    APPEARANCES FOR THE APPELLANT:                      Paul F. Khoury, Esq.
    Roderick L. Thomas, Esq.
    John R. Prairie, Esq.
    Samantha S. Lee, Esq.
    Wiley Rein LLP
    Washington, DC
    APPEARANCES FOR THE GOVERNMENT:                     Thomas H. Gourlay, Jr., Esq.
    Engineer Chief Trial Attorney
    Katherine D. Denzel, Esq.
    Engineer Trial Attorney
    OPINION BY ADMINISTRATIVE JUDGE MELNICK
    ON APPELLANT'S MOTION FOR SUMMARY JUDGMENT OR, IN THE
    ALTERNATIVE, TO DISMISS GOVERNMENT CLAIM, AND ON THE
    GOVERNMENT'S CROSS-MOTION FOR SUMMARY JUDGMENT
    These are appeals from contracting officer final decisions claiming a total of
    $3,049,163.42 from Eyak Services, LLC (ESL). The amount reflects alleged contract
    overpayments made to ESL by the United States Army Corps of Engineers (Corps) as a
    result of a fraudulent scheme masterminded by a Corps employee, which also involved an
    employee ofESL's sister company, Eyak Technology, LLC (EyakTek), and various
    subcontractors. ESL seeks dismissal on the ground that the government's claims
    improperly assert fraud. The government cross-moves for summary judgment, claiming
    the undisputed facts show that it overpaid ESL and that it is entitled to recover the
    overpayments. Both motions are denied.
    STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTIONS
    The following facts are not in dispute:
    1. Between 2011 and 2012, eleven individuals, including two former government
    employees and one former employee ofEyakTek, pled guilty to certain crimes after being
    charged with participating in a bribery and kickback scheme involving contracts with the
    Corps (SUMF -,r-,r 1-9; ex. A-9 at 2-3). 1 In summary, two Corps contracting officials
    facilitated the award of subcontracts to corrupt companies in return for payments. The
    subcontractors then included false or inflated amounts in their invoices to the Corps'
    prime contractors, which were then forwarded to the two Corps officials for payment
    approval. (SUMF -,r-,r 4-12) The final judgments against many of the defendants included
    orders to pay restitution for disbursal to the Corps as the victim of their crimes
    (SUMF -,r-,r 10-12; exs. A-14, -16, -23, -24, -26, -27, -37). 2 Among those orders was one
    issued to the purported leader of the conspiracy, former Corps employee Kerry Khan,
    which requires him to pay restitution in the amount of$32,553,252.93 (ex. A-37 (Minute
    Order entry 7/1112013)). ESL has also been informed by the Department of Justice that it
    is under investigation respecting the scheme. It has met with the Department to discuss
    resolution of potential claims under the False Claims Act and the Anti-Kickback Act.
    (Ex. A-32)
    2. On 20 December 2012, a Corps contracting officer issued final decisions to
    ESL, asserting government claims for the return of payments made on Contract
    Nos. W912HZ-10-C-0112 and W912HZ-10-C-0116. The decisions refer to the criminal
    conspiracy and allege that an ESL subcontractor and Mr. Khan acted to artificially inflate
    subcontractor purchase orders. They describe markups ESL added to the subcontractor's
    invoices that it then forwarded to the Corps for payment, accompanied by certifications
    that the identified work was performed. They calculate that the Corps ultimately
    overpaid ESL. Together, the decisions seek payment of$3,049,163.42 from ESL.
    (Exs. A-9, -10) ESL filed a notice of appeal to this Board from the decisions on
    15 February 2013.
    3. ESL now moves for summary judgment, or dismissal of its appeals for lack of
    jurisdiction, on the ground that the contracting officer's decisions are based upon the
    fraudulent conduct of particular individuals. It relies upon a statutory prohibition upon
    agencies settling or compromising fraud claims on their own to contend that the decisions
    are nullities. Alternatively, ESL suggests that the government's claims should be
    dismissed to avoid the possibility of inconsistent decisions between this forum and those
    adjudicating the fraud.
    4. The government cross-moves for summary judgment, claiming that the
    undisputed facts show that the amounts it seeks represent overpayments made on the
    1
    "SUMF" refers to the Statement of Undisputed Material Facts in Support ofMotion
    for Summary Judgment or to Dismiss Government Claim" filed by ESL with its
    motion. Exhibits A-I to A-32 were filed by ESL with its motion.
    2
    Ex. A-37 was filed with ESL's Second Supplemental Memorandum in Support of
    Motion for Summary Judgment or to Dismiss Government Claim, which includes
    this appeal in its heading along with Eyak Technology, LLC, ASBCA Nos. 58552,
    58553,58554,58555.
    2
    contracts for goods that were not delivered. It contends it is entitled to recover the
    overpayments as a matter of law.
    DECISION
    I.     ESL' s Motion
    These appeals are from government claims contained in the two decisions issued
    against ESL. Under the Contract Disputes Act (CDA), 
    41 U.S.C. §§ 7101-7109
    , we may
    only entertain an appeal from a final decision on a proper CDA claim. See Northrop
    Grumman Computing Sys., Inc. v. United States, 
    709 F.3d 1107
    , 1111-12 (Fed. Cir.
    2013). In this context, the adequacy of the claim does not pertain to whether it is
    meritorious; it relates to whether the claim complies with the requirements of the CDA.
    "If a purported claim is found to be insufficient for any reason, the insufficiency is fatal
    to jurisdiction under the CDA." !d. at 1112. Because ESL's arguments implicate our
    jurisdiction, we consider them through the lens of a motion to dismiss for lack of
    jurisdiction. See Raytheon Missile Sys., 
    ASBCA No. 58011
    , 13 BCA ~ 35,241 at 173,015
    (treating a request for a declaration that a government claim is time barred under the
    CDA as a motion to dismiss for lack of jurisdiction).
    The CDA forbids agencies from relying upon it "to settle, compromise, pay, or
    otherwise adjust any claim involving fraud." 
    41 U.S.C. § 7103
    (c)(l). Thus, contracting
    officers may not pursue claims for penalties or forfeitures arising from fraud in their final
    decisions, and this Board lacks jurisdiction over appeals involving such claims. See
    Martin J Simko Constr., Inc. v. United States, 
    852 F.2d 540
     (Fed. Cir. 1988); Public
    Warehousing Co. K.S.C., 
    ASBCA No. 58078
    , 13 BCA ~ 35,460 at 173,896-97. ESL
    contends that the government's claims against it involve fraud because they arise from its
    criminal prosecution of the conspirators and involve their false subcontractor charges
    (app. mot. at 7-9). ESL suggests that the government does not have a contractual basis
    for its claims because the government does not allege that it paid ESL more than the fixed
    prices of its delivery orders. Instead, it says the decisions allege that the amounts paid
    were inflated by fraud.
    The government's claims against ESL do not arise from any alleged fraud by ESL.
    The government simply seeks the return of alleged overpayments that it claims ESL was
    not entitled to receive. The claims allege that an established, fraudulent conspiracy by
    others caused the government to make overpayments to ESL in amounts that were
    unjustifiably inflated (SOF ~ 2). The government does not base its claims upon any
    alleged responsibility ESL bears for that scheme. The fact that ESL is the subject of a
    fraud investigation by the Department of Justice is irrelevant. Whatever that
    investigation may lead to, the government's claims here are not premised upon fraud.
    3
    Contrary to ESL's suggestion, the government's claims assert a cognizable,
    non-fraud basis for recovery based upon the established doctrine that the government is
    required to recover amounts paid to a contractor that the contractor was not entitled to
    receive. FAR 32.601-605; Acme Process Equip. Co. v. United States, 
    347 F.2d 538
    ,
    551-52 (Ct. Cl. 1965) (acknowledging that the government can recover "funds which its
    agents have wrongfully, erroneously, or illegally paid"); Fansteel Metallurgical Corp. v.
    United States, 
    172 F. Supp. 268
    , 270 (Ct. Cl. 1959) (holding that it is the duty of the
    government to sue for recovery of erroneous payments), accord Altos Fed. Grp., 
    ASBCA No. 53523
    , 07-2 BCA ~ 33,657 at 166,678. ESL attempts to distinguish this precedent,
    arguing that it never invoiced for more than the contract price. Thus, the government is
    not really seeking the return of erroneous payments, but instead claiming the contracts'
    prices were fraudulently inflated. (App. opp'n and reply at 7-8) As already noted, the
    government is not contending that it was defrauded by ESL. It is alleging that it paid
    ESL more than it was entitled to receive due to the fraudulent acts of others. ESL has not
    established that the government must prove ESL itself committed fraud in order to
    recover overpayments made to it. As was the situation in Medica, S.A., ENG BCA No.
    PCC-142, 00-2 BCA ~ 30,966 at 152,812, a case relied upon by ESL, "[w]hether fraud or
    other illicit acts were committed in the course of the events underlying the Government's
    claims are separate matters," and "[t]he Board is not deciding whether fraud ... occurred."
    The government's claims implicate the parties' contract rights, not whether ESL
    committed fraud. We have jurisdiction to decide these issues. See M&M Servs., Inc.,
    
    ASBCA No. 28712
    , 84-2 BCA ~ 17,405 at 86,688.
    ESL also contends that "[t]he Government's claims should ... be dismissed to avoid
    the possibility of inconsistent decisions between the Board and the appropriate tribunals
    for pursuing civil and criminal remedies for the fraudulent activity at issue in the Final
    Decisions" (app. mot. at 1-2, 10-11 ). Relying on the fact that it is the subject of a civil
    fraud investigation by the Department of Justice, ESL suggests that there might be an
    inconsistency between the decision of this Board and the actions of the Department of
    Justice or other tribunals. Therefore, the government's claims must be dismissed for lack
    of jurisdiction. ESL cites no authority for the proposition that a government claim
    against a contractor is subject to dismissal if the Department of Justice is also
    investigating the contractor for civil fraud. Nor does ESL support its contention that a
    government claim must be dismissed because there could be inconsistencies between the
    proceedings here and those of other agencies or fora. Under certain circumstances, it
    could be appropriate to stay an appeal here to avoid inconsistencies. See Public
    Warehousing, 13 BCA ~ 35,460 at 173,897. But, given that currently there is only an
    investigation of ESL taking place, ESL has not provided any basis for finding that a
    suspension is necessary, nor has a motion for a stay been filed by either party.
    In supplements to its motion to dismiss, ESL expands upon its inconsistency
    argument, suggesting that a conflict could also arise between the government's claims
    here and the restitution awards the government has already obtained against the
    4
    individual conspirators. It contends that the restitution awards already compensate the
    government for the overcharges the government seeks and therefore these proceedings
    could lead to a double recovery by the government. It emphasizes in its reply that this
    potential for a double recovery is another reason to dismiss the government's claims for
    lack of jurisdiction (app. opp'n and reply at 10-13). We are unaware of authority
    depriving us of jurisdiction over the claims because they pose the risk of a double
    recovery by the government.
    Rather than restricting our jurisdiction, ESL's double recovery concern potentially
    relates to the merits of the government's claims. Though precedent permits the
    government to seek the return of overpayments made to contractors, its ultimate
    entitlement to recover is governed by equitable principles applied in "a case-by-case
    determination designed to avoid injustice." USA Petroleum Corp. v. United States,
    
    821 F.2d 622
    , 625 (Fed. Cir. 1987). Such a review requires the development of a
    thorough record which, among other things, should address the events leading to the
    alleged overpayments, the roles played by government, ESL, and EyakTek personnel in
    those activities, the parties' knowledge of the scheme, what they did or should have done
    to avoid it, and their reliance upon each other's conduct. See 
    id. at 625-27
    . It also should
    provide specifics about the nature and calculation of the restitution awards, the degree to
    which they overlap with the claims here, their potential to be satisfied, and whether ESL
    continues to possess the allegedly overpaid funds.
    Because the government's claims are proper under the CDA, we possess
    jurisdiction to entertain an appeal from them, and since a complete record is necessary to
    rule upon their merits, we deny ESL' s motion.
    II.    The Government's Motion
    For similar reasons, we also deny the government's cross-motion for summary
    judgment. The government cites its final decisions as evidence of its overpayments to
    ESL. It suggests that ESL's complaint implicitly admits to the overpayments and that the
    overpayments reflect undelivered goods. It therefore contends that there is no dispute
    that it paid for goods and services that were not delivered, and that it is therefore entitled
    to recover $3,049,163.42 as a matter oflaw. (Gov't opp'n and cross-mot. at 13-18)
    Summary judgment should be granted if it has been shown that there are no
    genuine issues of material fact and the moving party is entitled to judgment as a matter of
    ·law. Celotex Corp. v. Catrett, 
    477 U.S. 317
    , 322 (1986). Significantly, it should only be
    granted after there has been adequate time for discovery. I d.
    Because these appeals are from government claims, the government bears the
    burden of proof. See Eaton Corp., 
    ASBCA No. 34355
    , 93-2 BCA ~ 25,743 at 128,096,
    aff'd, 
    26 F.3d 140
     (Fed. Cir. 1994) (table). Contrary to the government's arguments,
    5
    ESL's complaint does not admit to the accuracy of the claims' overpayment calculations
    or that they reflect undelivered goods. Indeed, the complaint affirmatively challenges
    some of the government's calculations (compl. ,-r 44). ESL seeks discovery regarding the
    government's calculations, which it has not been able to perform yet (app. reply and
    opp'n at 15). We will permit that discovery. More fundamentally, as noted previously,
    any government entitlement to recover here is governed by equitable principles we
    cannot assess without a thorough development of the record. Accordingly, the
    government's cross-motion for summary judgment is denied.
    CONCLUSION
    Both motions are denied.
    Dated: 1 April2014
    ~&.JL
    MARK A. MELNICK
    Administrative Judge
    Armed Services Board
    of Contract Appeals
    ``
    MARK N. STEMPLER$                               RICHARD SHACKLEFORD
    Administrative Judge                            Administrative Judge
    Acting Chairman                                 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 Nos. 58556, 58557, Appeals of
    Eyak Services, LLC, rendered in conformance with the Board's Charter.
    Dated:
    JEFFREY D. GARDIN
    Recorder, Armed Services
    Board of Contract Appeals
    6