United States v. Kellogg Brown & Root Services, Inc. ( 2012 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
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UNITED STATES OF AMERICA, )
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Plaintiff, )
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v. ) 10-cv-530 (RCL)
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KELLOGG BROWN & ROOT SERVICES, INC. )
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Defendant. )
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MEMORANDUM OPINION
Before the Court is plaintiff’s Motion [61] to Dismiss KBR’s Counterclaim and to Strike
KBR’s First Affirmative Defense. Upon consideration of the Motion, Opposition, Reply, the
entire record, and the applicable law, the Court will grant plaintiff’s Motion, dismiss defendant’s
first counterclaim without prejudice, and strike its first affirmative defense.
I. BACKGROUND
As is explained more fully in an earlier opinion of this Court, the United States sued
Kellogg Brown & Root Services, Inc. (“KBR”) to recover civil penalties and treble damages on
over $100 million in allegedly false claims arising from the war in Iraq. See U.S. v. Kellogg
Brown & Root Servs., Inc., 800 F. Supp. 2d 143, 146–47 (D.D.C. 2011). The government
alleges that, in violation of a logistical services contract awarded to KBR in 2001 (the “LOGCAP
III” contract), the company knowingly billed the government for the cost of private security
contractors in Iraq. Id. at 147. Early in the case, KBR filed a Motion to Dismiss, which the
Court granted in part by dismissing the government’s claims for unjust enrichment and payment
by mistake. Id. at 161. However, the Court denied KBR’s Motion as to the government’s False
Claims Act and breach of contract claims. Id.In August 2011, shortly after the Court ruled on KBR’s Motion to Dismiss, KBR
answered the Complaint, asserting as an affirmative defense that the government materially
breached the LOGCAP III contract by “failing to provide the contractually-required force
protection.” Answer [58] ¶39, Aug. 17, 2011. KBR also brought a counterclaim for
recoupment, “arising out of the Government’s failure to provide the requisite force protection, in
breach of the Government’s obligations under LOGCAP III.” Id. ¶86. The United States then
filed the instant Motion, asking the Court to dismiss KBR’s counterclaim and to strike its first
affirmative defense. Pl.’s Mot. Dismiss [61] 1, Sept. 12, 2011. The government asserts a
number of independent barriers to KBR’s counterclaim and affirmative defense, including
judicial estoppel, the political question doctrine, failure to exhaust administrative remedies, and
failure to state a claim. Pl.’s Mem. [61] 1–3.
II. ANALYSIS
The Court finds that KBR’s recoupment counterclaim must be dismissed for failure to
exhaust administrative remedies and for failure to state a claim. The Court also finds that KBR’s
first affirmative defense of material breach must be struck as precluded by the LOGCAP III
contract. However, anticipating that KBR may correct the jurisdictional and other defects in its
counterclaim and seek leave to amend its answer to include a revised version of that claim, the
Court will briefly address other arguments in the parties’ briefs, not necessary to the Court’s
decision, that may emerge again at a later stage of this case, should KBR amend its pleading.
A. KBR’s Counterclaim and First Affirmative Defense Are Not Barred by
Judicial Estoppel.
The government’s principal argument in its Motion to Dismiss concerns the doctrine of
judicial estoppel. Both KBR’s recoupment counterclaim and first affirmative defense of material
breach depend upon the allegation that the government breached LOGCAP III by failing to
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provide adequate force protection. See Answer [58] ¶¶39, 45, 47, 50, 86, 88. The government
argues that KBR is “judicially estopped from disputing the adequacy of the military’s measures
for the provision of force protection for KBR and its subcontractors in Iraq” based upon
positions it has taken, allegedly inconsistent with its present position, in previous cases. Pl.’s
Mem. [1] 1. The Court disagrees.
As is well known, judicial estoppel “is an equitable doctrine invoked by a court at its
discretion.” New Hampshire v. Maine, 532 U.S. 742, 750 (2001) (quoting Russell v. Rolfs, 893
F.2d 1033, 1037 (9th Cir. 1990)); see also Moses v. Howard Univ. Hosp., 606 F.3d 789, 792
(D.C. Cir. 2010). Its purpose is to “protect the integrity of the judicial process” by “prohibiting
parties from deliberately changing positions according to the exigencies of the moment.” New
Hampshire, 532 U.S. at 750 (citations omitted).
“[S]everal factors typically inform the decision whether to apply the doctrine in a
particular case.” Id.(1) “First, a party’s later position must be ‘clearly inconsistent’ with its earlier
position.” Id.(2) “Second, courts regularly inquire whether the party has succeeded in
persuading a court to accept that party’s earlier position, so that judicial
acceptance of an inconsistent position in a later proceedings would create ‘the
perception that either the first or the second court was misled.’” Id. (citations
omitted).
(3) “A third consideration is whether the party seeking to assert an inconsistent
position would derive an unfair advantage or impose an unfair detriment on
the opposing party if not estopped.”
Id. at 751. These factors are not “inflexible prerequisites,” and “[a]dditional considerations may
inform the doctrine’s application in specific factual contexts.” Id.In light of these factors, the Court finds that exercising its discretion to estop KBR from
challenging the government’s performance of its force protection obligation in the LOGCAP III
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contract would be inappropriate. KBR’s position in this litigation is not “clearly inconsistent”
with its position in the tort cases cited by the government, where KBR successfully argued that
the political question doctrine barred judicial scrutiny of the military’s judgments regarding the
provision of force protection in wartime. See, e.g., Carmichael v. Kellogg, Brown & Root Servs.,
Inc., 572 F.3d 1271, 1282–83 (11th Cir. 2009); see also Pl.’s Ex. 1 [61-1] at 4–5). Carmichael,
for example, involved negligence claims brought against KBR by the wife of a U.S. soldier who
was seriously injured in Iraq while providing convoy protection. See Carmichael, 572 F.3d at1275–76. KBR persuaded both the district court and the court of appeals that since, at trial, the
district could not adjudicate the plaintiff’s claims “without reexamining numerous core military
decisions”—such as the convoy commander’s decisions concerning how fast the convoy would
move and the route it would take—the case would unavoidably involve nonjusticiable political
questions. Compare Pl.’s Ex. 2 [61-2] 31–32 with Carmichael, 572 F.3d at 1282–83.
Furthermore, KBR successfully argued that the courts were incompetent to develop liability
standards for the military. Compare Pl.’s Ex. 2 [61-2] 41–42 with Carmichael, 572 F.3d at1288–92.
Although the government argues, correctly, that judicial estoppel is not precluded simply
because the claims brought in previous litigation are different from the claims in this case, Pl.’s
Reply [71] 4–5, the tort settings of KBR’s prior litigating positions nevertheless inform the
question of whether, in this contract dispute, KBR is “playing fast and loose with the courts” by
arguing that this Court can review the military’s compliance with the force protection obligation
in the contract. See New Hampshire, 532 U.S. at 750 (quoting Scarano v. Central R. Co., 203
F.2d 510, 513 (3d Cir. 1953)). Both formally and functionally there are significant differences
between using tort standards to challenge a military’s decision making and using contract
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standards to challenge the military’s performance of its obligations. Whereas the policies
underlying tort law include the deterrence of tortious conduct, see Piamba Cortes v. Am.
Airlines, Inc., 177 F.3d 1272, 1302 (11th Cir. 1999), contract law focuses upon enforcement of
“the bargain that the parties themselves freely made, as . . . expressed in their agreement.”
Hershon v. Gibraltar Bldg. & Loan Ass’n, Inc., 864 F.2d 848, 853–54 (D.C. Cir. 1989). These
differing policies result in important differences in the way tort and contract cases are litigated
and decided. While, in a tort setting, the government’s conduct would be judged by reference to
duties set out in the common law or arising from a statute, in a contract setting the relevant
standards are defined by the parties in their contract, and the court’s role is to enforce their intent
as evidenced by the language of the contract, as illuminated (if necessary) by extrinsic evidence.
Therefore, KBR’s position now is not “clearly inconsistent” with its position before, since a
persuasive argument can be made that the political question doctrine is more likely to pose a
problem in tort cases involving the military, where second-guessing its decisions would be the
name of the game, than in contract cases, where all the Court would be doing is holding the
parties to their bargain. Given these differences, allowing KBR to litigate its counterclaim and
assert its first affirmative defense will not create the perception that either this Court or the courts
in the tort cases cited by the government have been misled by KBR, nor will it have any negative
impact on the integrity of the judicial process. See New Hampshire, 532 U.S. at 750. Nor will
KBR obtain an unfair advantage here as a result of its taking its current position on the
justiciability of its counterclaim. Id. at 751.
Accordingly, the Court rejects this aspect of the government’s Motion.
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B. The Government Has Failed to Demonstrate (at this Stage) that the
Political Question Doctrine Bars KBR’s Counterclaim or First
Affirmative Defense.
The government also contends that KBR’s position in the previously cited tort cases—
namely, that the political question doctrine bars judicial second-guessing of the military’s
decision making as regards the provision of force protection in Iraq—is the correct position in
this case, and that KBR’s challenge to the military’s performance of its contractual obligation to
provide force protection is nonjusticiable. Pl.’s Mem. [61] 11. However, the Court finds that
although this case may potentially generate nonjusticiable political questions, absent some
discovery, and more detailed briefing by the parties specifically concerning the political question
problem, the Court cannot perform the “discriminating analysis” required to resolve this
problem. See El Shifa Pharm. Indus. Co. v. U.S., 607 F.3d 836, 841 (D.C. Cir. 2010).
The political question doctrine “excludes from judicial review those controversies which
revolve around policy choices and value determinations constitutionally committed for resolution
to the halls of Congress or the confines of the Executive Branch.” Japan Whaling Ass’n v. Am.
Cetacean Soc’y, 478 U.S. 221, 230 (1986). The doctrine originates in Article III of the
Constitution, which limits the judicial power to “cases” or “controversies.” U.S. Const. art. III;
see also El Shifa, 607 F.3d at 840–41. No justiciable “controversy” exists when the issue to be
adjudicated is “political” in nature. Massachusetts v. EPA, 549 U.S. 497, 516 (2007).
As outlined by the Supreme Court in Baker v. Carr, there are six circumstances in which
an issue may present a political question:
(1) “a textually demonstrable constitutional commitment of the issue to a
coordinate political department”;
(2) “a lack of judicially discoverable and manageable standards for resolving it”;
(3) “the impossibility of deciding without an initial policy determination of a kind
clearly for nonjudicial discretion”;
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(4) “the impossibility of a court’s undertaking independent resolution without
expressing lack of the respect due coordinate branches of government”;
(5) “an unusual need for unquestioning adherence to a political decision already
made”; or
(6) “the potentiality of embarrassment from multifarious pronouncements by
various departments on one question.”
Baker v. Carr, 369 U.S. 186, 217 (1962). To find that a political question exists, only one of
these factors need be present, not all. El Shifa, 607 F.3d at 841. However, courts must conduct
“a discriminating analysis of the particular question posed” in the “specific case” to determine
whether the political question doctrine bars a claim. Id.The government contends that the military’s decision making, as it relates to providing
force protection for KBR in Iraq, involves “quintessential military judgments” in areas such as
intelligence gathering and analysis, as well as the development of risk assessments and risk
management strategies that consider the military’s limited resources and threat levels. Pl.’s
Mem. [61] 12. The military’s judgments include, the government says, decisions to use less, or
less visible, force to protect convoys and installations so as to minimize their perceived
importance to the enemy. Id. The political question doctrine bars the courts from “second-
guessing these military decisions and other judgments confided in the Executive and Legislative
Branches by the Constitution.” Id. The government’s position is that KBR’s counterclaim and
affirmative defense “necessarily require” the Court to second-guess such judgments. Id. at 13.
Contrary to the government’s position, the Court is unpersuaded at this time that KBR’s
litigating position will “necessarily require” the Court to define force protection standards or
adjudge the adequacy of the Army’s provision of force protection in Iraq according to some
court-made standard. As stated above in the context of the Court’s discussion of judicial
estoppel, the parties’ own contract provides a standard by which to judge the Army’s
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performance of its force protection obligation, and to the extent that this provision is ambiguous
parol evidence may be permitted to clarify the parties’ intent. In either case, the Court would be
determining and enforcing the parties’ intent, not subjecting the military to standards drawn from
the common law or elsewhere. However, discovery may reveal such conflicting accounts of the
Army’s force protection obligation in LOGCAP III that the judicial process could amount to
judicial identification and application of force protections standards, implicating the political
question doctrine more directly.
Consequently, the Court declines at this time to rule on the applicability of the political
question doctrine to KBR’s counterclaim and first affirmative defense. However, anticipating
that KBR may remedy the defects presented below and seek leave to amend its Answer to
include a similar claim in the future, the Court will, at a later point, following some discovery,
invite briefing specifically on the question of the applicability of the political question doctrine to
KBR’s counterclaim.
C. The Court Lacks Jurisdiction Over KBR’s Counterclaim Because It
Failed to Exhaust Its Administrative Remedies Before Filing Its
Counterclaim.
While the Court declines to dismiss KBR’s counterclaim on judicial estoppel or political
question grounds, it agrees with the government that it lacks jurisdiction over KBR’s
counterclaim because the company failed to exhaust its administrative remedies prior to filing it
in this Court.
Congress, in passing the Contract Disputes Act (“CDA”), sought “to promote the
efficient resolution of contract claims by relying in the first instance upon the contracting
officer’s general experience in the administration of [g]overnment contracts and specific
knowledge of the contract and parties in question.” Blinderman Const. Co. v. U.S., 39 Fed. Cl.
529, 560 (1997) (citations omitted). Accordingly, “[u]nder the CDA, a contractor [must] take
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recourse against the government’s alleged breach by submitting a written claim to the
contracting officer for a final decision prior to commencing suit.” U.S. v. Intrados/Int’l Mgmt.
Group, 277 F. Supp. 2d 55, 63 (D.D.C. 2003) (citing 41 U.S.C. § 605(a)). A federal court “does
not have jurisdiction over a new claim or a claim of different scope that was not previously
presented and certified to the contracting officer for decision.” Armour of Am. v. U.S., 69 Fed.
Cl. 587, 590 (2006). A claim is “new” when it does not “arise from the same set of operative
facts as the claim submitted to the contracting officer.” Id. (citations omitted). While the
exhaustion requirement “does not require rigid adherence to the exact language of the original
administrative CDA claim,” the claim must provide the contracting officer with adequate notice
of the basis and amount of the claim. Scott Timber Co. v. U.S., 333 F.3d 1358, 1365 (Fed. Cir.
2003). A failure to exhaust administrative remedies under the CDA requires dismissal of the
claim. A&S Council Oil Co., Inc. v. Lader, 56 F.3d 234, 236 (D.C. Cir. 1995).
KBR responds to the government’s exhaustion argument by claiming that it “fil[ed] three
claims that provided the contracting officer with . . . notice of the basis of [its] counterclaim . . .
.” Def.’s Opp’n [69] 21. These claims, KBR argues, “informed the Army that it had breached
the LOGCAP III Contract and provide notice of the amount of damages [KBR] was owed.” Id.However, “[o]ut of an abundance of caution,” KBR also filed (after filing its counterclaim) a
“protective claim” with the Army. Id. In the event that the Court determines that KBR’s
counterclaim was not exhausted, KBR suggests, the Court can stay the proceedings until the
Army (as KBR expects) denies the claim. Id. at 22.
As support for its contention that its counterclaim is properly exhausted, KBR has
attached (under seal) claims submitted to the contracting officer in October 2007, October 2009,
and June 2010. See Bhatia Decl. [69-2] 1. However, each of these claims, filed with the
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contracting officer prior to KBR’s filing of its counterclaim in this Court in August 2011,
concerns only a portion of the $103 million disapproved by the government in an August 2009
notice to KBR. Since KBR’s recoupment counterclaim seeks an offset for everything the
government is asking for in this lawsuit, Answer [58] ¶93, these certified claims for portions of
that amount could not have put the contracting officer on notice of the “amount” of KBR’s
claim, as is required. See Scott Timber, 333 F.3d at 1365. Accordingly, the Court lacks
jurisdiction over KBR’s counterclaim, and the Court will dismiss it. However, this dismissal is
without prejudice, and KBR can seek leave to amend its Answer and reassert its counterclaim
once the exhaustion requirement is satisfied. Also, in view of the fact that discovery on the
government’s claims and KBR’s counterclaim should proceed simultaneously for the sake of
efficiency and judicial economy, the Court will entertain motions from the parties, with fourteen
days of this date, debating the advisability of a stay of the proceedings while KBR’s September
29, 2011 claim is exhausted.
D. KBR Has Failed to State a Counterclaim Upon Which Relief Can Be
Granted.
In addition to the jurisdictional defect identified above, the Court also concludes that
KBR’s counterclaim is legally deficient because it fails to allege facts that would show KBR’s
entitlement to relief.
A motion to dismiss is appropriate when a complaint fails “to state a claim upon which
relief can be granted.” Fed. R. Civ. P. 12(b)(6). To overcome this hurdle, a complaint must
contain “a short and plain statement of the claim showing that the pleader is entitled to relief, in
order to give the defendant fair notice of what the . . . claim is and the grounds upon which it
rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). The
Court must “accept as true all of the factual allegations contained in the complaint,” Atherton v.
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District of Columbia, 567 F.3d 672, 681 (D.C. Cir. 2009), and grant a plaintiff “the benefit of all
inferences that can be derived from the facts alleged.” Kowal v. MCI Commc’ns Corp., 16 F.3d
1271, 1276 (D.C. Cir. 1994). However, the Court may not “accept inferences drawn by plaintiffs
if such inferences are unsupported by the facts set out in the complaint.” Id. In other words,
“only a complaint that states a plausible claim for relief survives a motion to dismiss.” Ashcroft
v. Iqbal, 129 S. Ct. 1937, 1950 (2009); see also Atherton, 567 F.3d at 681.
Turning to KBR’s counterclaim for recoupment, recoupment is the right of a defendant to
have the plaintiff’s claim reduced or eliminated because of the plaintiff’s breach of contract or
duty in the same transaction. Intrados, 277 F. Supp. 2d at 57 n.1 (citing Reiter v. Cooper, 507
U.S. 258, 264 (1993)). To establish such a claim, the defendant must meet three requirements:
(1) “the claim must arise from the same transaction or occurrence as the government’s suit”; (2)
“the relief sought must be of the same kind or nature as the [government’s] requested relief”; and
(3) “any damages sought cannot exceed the amount sought by the government’s claim.” Id. at 60
(citations omitted).
The government argues that KBR’s recoupment counterclaim is inadequately pled
because, while it alleges that the Army breached the LOGCAP III contract by “fail[ing] to
provide the requisite force protection,” Answer [58] ¶86, nowhere does KBR allege “specifics”
concerning “how the military’s force protection supposedly failed to meet the contractual
guidelines.” Pl.’s Mem. [61] 15. Accordingly, the government says, KBR has failed to allege
facts sufficient to give rise to a plausible claim that the Army breached the contract. Id. at 16.
KBR counters that its counterclaim alleges specific facts indicating that Army officials conceded
that the Army had breached its force protection obligation. Def.’s Opp’n [69] 23.
The Court finds that KBR’s counterclaim fails to allege facts that would show a breach of
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the specific standard set out in the contract, which obligates the Army to provide, not “adequate”
force protection generally speaking, but “force protection to contractor employees commensurate
with that given to Service/Agency (e.g., Army, Navy, Air Force, Marine, DLA) civilians in the
operations area unless otherwise stated in each task order.” Compl. [1] ¶21 (quoting Clause H-
16 of the LOGCAP III contract). KBR’s allegations regarding the “adequacy” of the military’s
force protection, including alleged statements by military officials opining that the government
wasn’t living up to its contractual obligation, do not by themselves suggest a violation of Clause
H-16, absent specific allegations that KBR and its subcontractors did not receive the level of
force protection set out in LOGCAP III—namely, force protection “commensurate” with that
given by the military to other Department of Defense civilians in Iraq. KBR’s allegations would
be sufficient if they contained facts suggesting that Department of Defense civilians were
provided with a level of military force protection that was not commensurate with that provided
to KBR, but its Answer contains no such allegations. Accordingly, KBR has not presented a
plausible claim for recoupment based on breach of contract, and the Court will dismiss KBR’s
counterclaim on this independent basis.
E. KBR’s First Affirmative Defense Is Legally Deficient.
The Court also finds that KBR’s first affirmative defense of material breach—based upon
the government’s alleged failure to fulfill the force protection obligation in the contract—must
be struck, since the defense is precluded by the parties’ contract.
Under the doctrine of prior material breach, a party may defend against a breach of
contract claim on the ground that its performance was excused by the other party’s prior breach
of the contract. See Long Island Bank, FSB v. U.S., 503 F.3d 1234, 1251 (Fed. Cir. 2007).
However, in the government’s Motion, it argues that this defense fails as a matter of law because
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the LOGCAP III contract obligates KBR to continue performance “irrespective of any
governmental breach.” Pl.’s Mem. [61] 18. The government points to a regulation, which
LOGCAP III incorporates, that requires KBR to “proceed diligently with performance . . . ,
pending final resolution of any request for relief, claim, appeal, or action arising under the
contract . . . .” Id. at 20 (citing Pl.’s Ex. 6 [61-6] 39 and 48 C.F.R. § 52.233-1). Therefore, the
government asserts, KBR’s defense is legally deficient because, under the LOGCAP III, any
alleged breach by the government could not excuse KBR’s performance of its obligation to not
use private armed security or permit its subcontractors to do so. Id. at 20.
As noted by the government, Pl.’s Reply [71] 21, KBR fails to address this independent
basis for striking its first affirmative defense, and so that argument is deemed conceded. See
Buggs v. Powell, 293 F. Supp. 2d 135, 141 (D.D.C. 2003) (holding that a court may treat as
conceded any arguments raised in a dispositive motion that the plaintiff fails to address in its
opposition). Therefore, pursuant to Federal Rule of Civil Procedure 12(f), the Court will strike
KBR’s first affirmative defense of material breach.
III. CONCLUSION
For the reasons stated above, the Court will grant the government’s Motion [61] to
Dismiss KBR’s Counterclaim and to Strike KBR’s First Affirmative Defense. Furthermore, the
Court will order the parties to file, within fourteen (14) days of this date, motions addressing the
appropriateness of a limited stay of the proceedings pending administrative exhaustion of KBR’s
September 29, 2011 certified claim and the filing of an amended answer that passes muster under
Rule 12(b)(6).
A separate Order consistent with this Memorandum Opinion shall issue this date.
Signed by Royce C. Lamberth, Chief Judge, on April 23, 2012.
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