Aspen Consulting, LLC v. Secretary of the Army

Case: 21-1381 Document: 40 Page: 1 Filed: 02/09/2022
United States Court of Appeals
for the Federal Circuit
______________________
ASPEN CONSULTING, LLC,
Appellant
v.
SECRETARY OF THE ARMY,
Appellee
______________________
2021-1381
______________________
Appeal from the Armed Services Board of Contract Ap-
peals in No. 61122, Administrative Judge Owen C. Wilson,
Administrative Judge Richard Shackleford, Administra-
tive Judge Timothy Paul McIlmail.
______________________
Decided: February 9, 2022
______________________
IAN CRONOGUE, Baker, Cronogue, Tolle & Werfel, LLP,
McLean, VA, argued for appellant. Also represented by
GERALD HOWARD WERFEL.
CORINNE ANNE NIOSI, Commercial Litigation Branch,
Civil Division, United States Department of Justice, Wash-
ington, DC, argued for appellee. Also represented by BRIAN
M. BOYNTON, MARTIN F. HOCKEY, JR., PATRICIA M.
MCCARTHY; ALLEN SCOTT BLACK, United States Army
Corps of Engineers, Little Rock, AR.
______________________
Case: 21-1381 Document: 40 Page: 2 Filed: 02/09/2022
2 ASPEN CONSULTING, LLC v. SECRETARY OF THE ARMY
Before MOORE, Chief Judge, DYK and CUNNINGHAM,
Circuit Judges.
DYK, Circuit Judge.
Aspen Consulting, LLC, (“Aspen”) appeals a final deci-
sion of the Armed Services Board of Contract Appeals (the
“Board”). The Board denied Aspen’s appeal, which sought
compensation for the U.S. Army Corps of Engineers’ (the
“government’s”) failure to deposit contractually owed pay-
ments in the account designated in the contract. We re-
verse the Board’s finding that the government did not
breach the contract and remand for further proceedings
consistent with this opinion. On remand, the Board must
determine whether the government has established an af-
firmative defense of payment.
BACKGROUND
Aspen is based in San Antonio, Texas. In 2013, Aspen
received a government contract to outfit United States mil-
itary health and dental clinics in Germany (“the contract”
or “the Vilseck project”). The contract contains a payment
clause, incorporating Federal Acquisition Regulation
(“FAR”) 52.232-33 (2003), which states:
The Government shall make payment to the Con-
tractor using the [Electronic Funds Transfer] EFT
information contained in the Central Contractor
Registration (CCR) database. In the event that the
EFT information changes, the Contractor shall be
responsible for providing the updated information
to the CCR database.
J.A. 233. FAR 52.232-33 was promulgated in 1999 to facil-
itate an efficient shift to mandatory federal EFT payments
required by the Debt Collection Improvement Act of 1996,
and was amended in 2003 to require that contractors “pro-
vide certain business information, including
Case: 21-1381 Document: 40 Page: 3 Filed: 02/09/2022
ASPEN CONSULTING, LLC v. SECRETARY OF THE ARMY 3
their . . . (EFT) information only once into a common Gov-
ernmentwide data source.” 68 Fed. Reg. 16,366 (Apr. 3,
2003). The Department of Defense intended for the CCR
database to be the “primary Government repository for
Contractor information required for the conduct of busi-
ness with the Government.” Id. at 16,369. A separate FAR
provision, which was not incorporated into Aspen’s con-
tract with the government, details procedures for govern-
ment payments using EFT information not listed in the
CCR database. See FAR 52.232-34 (2013). The CCR data-
base designated an Aspen Bank of America account as the
proper place for payment. The government directed its
first twelve payments under the contract to that account,
but directed its next two payments, totaling $264,470.70,
to an account at Commerzbank AG (“CZ account”) that was
not listed in the CCR database.
The CZ account was opened in 2008 by Aspen’s Senior
Vice President and Chief Operating Officer, Ben French,
who was based in Germany and was responsible for over-
seeing day-to-day management of the Vilseck project.
French opened the CZ account “with Aspen’s knowledge,”
and “Aspen regularly transferred funds to the” CZ account.
J.A. 262. Aspen used the CZ account to pay employee
wages in Euros, to pay German- and U.S.-based subcon-
tractors and vendors, and to receive payments for other
non-government work that it performed in Germany. Even
though the account was regularly used for Aspen business
in Germany, the company’s U.S.-based owners and officers,
Gaye and Kent Toppert, lacked signatory authority and
could not withdraw funds from the account. Still, Aspen
often requested and promptly obtained copies of the CZ ac-
count statements from French.
In January 2015, citing concerns that Aspen “would not
be able to meet [its] financial obligations . . . related to
[the] Vilseck Project,” J.A. 762, French requested that the
contracting officer send the monthly Vilseck payment
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4 ASPEN CONSULTING, LLC v. SECRETARY OF THE ARMY
“directly into [a] German Aspen Account at Com-
merzbank,” J.A. 863. In an email to the contracting officer
requesting the payment change, French (through his assis-
tant) urged that paying to the CZ account would “make
things much easier” for “tax purposes” and help “keep [As-
pen’s] records straight.” Id. Even though Aspen’s account
as listed in the CCR database never changed, and the con-
tract’s express terms required that all payments be di-
rected to that account, the government made two
payments—in February and March 2015—to the CZ ac-
count.
In May 2015, Mrs. Toppert realized that the Vilseck
project’s two invoices had not been paid to the Bank of
America account designated in the CCR database. She in-
formed the government that its payments to the CZ ac-
count failed to comply with the contract’s FAR clause and
sent the government a request for payment to recover the
funds. When the contracting officer contacted French,
French maintained that the account was “fully legitimate”
and that Mrs. Toppert was “apprised of the fact that it
[was] being used to pay Vilseck [project] related vendor in-
voices.” J.A. 289.
In March 2016, the government denied the request for
payment. The government maintained that it was not im-
proper to pay the CZ account because Aspen held French
out as having “apparent authority to negotiate” on behalf
of Aspen and “to sign contract modifications, submit in-
voices, submit requests for equitable adjustments[,] and
submit delay cost proposals.” J.A. 428. The government
also noted that Mrs. Toppert “was aware of the CZBank
account which was receiving and disbursing funds for As-
pen,” and concluded that “payments which would duplicate
those already made to and received by Aspen Consulting
LLC [could not] be issued.” Id.Case: 21-1381 Document: 40 Page: 5 Filed: 02/09/2022
ASPEN CONSULTING, LLC v. SECRETARY OF THE ARMY 5
In July 2016, Aspen filed a certified claim with the con-
tracting officer to recover $264,470.79 plus interest—the
value of the allegedly misdirected payments. The contract-
ing officer’s final decision denied the claim because French
had apparent authority to direct payment to the CZ ac-
count, and because the payments, despite not complying
with the contract’s payment terms, “were used to satisfy
Aspen[’s] . . . debts and obligations.” J.A. 60. Aspen ap-
pealed to the Board.
In October 2020, the Board issued its final written de-
cision denying Aspen’s appeal. The Board’s decision noted
that the relevant FAR provision stated, “the Contractor
shall be responsible for providing the updated information
to the CCR database.” J.A. 3. The Board concluded that
this implied that a contractor could change its EFT infor-
mation before updating it in the CCR database. The Board
determined also that French had done so, had at least ap-
parent authority to do so, and that any failure to update
the information in the CCR database by the time payment
was made was Aspen’s fault, not the government’s. As a
result, the Board found that the government did not breach
the contract by failing to pay the account listed in the CCR
database. The Board did not reach the question whether
the government’s payments to the CZ account could elimi-
nate the government’s liability if Aspen benefitted from the
payments. Aspen appeals. We have jurisdiction pursuant
to 28 U.S.C. § 1295(a)(10).
DISCUSSION
The Board’s interpretation of a contract, including
“[i]nterpretation and application of the FAR,” Sec’y of Def.
v. Northrop Grumman Corp., 942 F.3d 1134, 1139 (Fed.
Cir. 2019), is a legal question that we review de novo, 41
U.S.C. § 7107(b)(1); Pac. Gas & Elec. Co. v. United States,
838 F.3d 1341, 1350 (Fed. Cir. 2016) (citing S. Nuclear Op-
erating Co. v. United States, 637 F.3d 1297, 1301 (Fed. Cir.
Case: 21-1381 Document: 40 Page: 6 Filed: 02/09/2022
6 ASPEN CONSULTING, LLC v. SECRETARY OF THE ARMY
2011)). The Board’s factual findings are conclusive unless
they are “fraudulent, arbitrary, or capricious,” “so grossly
erroneous as to necessarily imply bad faith,” or “not sup-
ported by substantial evidence.” § 7107(b)(2)(A)–(C).
A
Aspen argues that the Board erred in denying its
breach of contract appeal because the Board erroneously
interpreted the contract’s FAR clause; the government
breached the contract by making payments to the CZ ac-
count; and the government’s breach was material.
“A party breaches a contract when it is in material non-
compliance with” its terms. Gilbert v. Dep’t of Just., 334
F.3d 1065, 1071 (Fed. Cir. 2003). “What was required by
way of contract performance” is a question of law, and what
the “allegedly breaching party . . . did or did not do” in re-
lation to that required performance is a question of fact.
Id. at 1071–72 (citing Mass. Bay Transp. Auth. v. United
States, 129 F.3d 1226, 1231 (Fed. Cir. 1997)). Whether a
party’s “non-compliance with the terms of a contract is ma-
terial, so as to constitute a breach, is a mixed question of
fact and law.” Id. at 1071.
To assess whether the government breached the con-
tract, we start with the text of the FAR clause, the “plain
and unambiguous” meaning of which controls. Arko Exec.
Servs., Inc. v. United States, 553 F.3d 1375, 1379 (Fed. Cir.
2009) (quoting Hercules Inc. v. United States, 292 F.3d
1378, 1380–81 (Fed. Cir. 2002)). The incorporated FAR
clause states, in part, “[t]he Government shall make pay-
ment to the Contractor using the EFT information con-
tained in the Central Contractor Registration (CCR)
database.” J.A. 233. The plain language unambiguously
requires the government to pay Aspen using the EFT infor-
mation contained in the CCR database. Its use of manda-
tory language, that payments “shall” be made “using the
EFT information . . . in the [CCR] database,” indicates that
Case: 21-1381 Document: 40 Page: 7 Filed: 02/09/2022
ASPEN CONSULTING, LLC v. SECRETARY OF THE ARMY 7
the contract afforded the government no discretion to pay
an account other than the one listed in the CCR database.
Other language in the payment clause addresses
changes to a party’s EFT information and states, “In the
event that the EFT information changes, the Contractor
shall be responsible for providing the updated information
to the CCR database.” Id. The Board concluded that this
language contemplates that a contractor could change its
EFT information “by requesting that payments be made to
a ‘new’ bank account [] before updating that information in
CCR.” J.A. 3. The fact that the payment clause contem-
plates that a party’s EFT information could change—i.e.
that the location where a party wishes to receive its depos-
its could change—does not mean that the payment clause
permits a party to change its contractually-relevant EFT
information by any process other than updating it in the
CCR database.
It is undisputed that when the government made the
two payments to the CZ account, no one from Aspen had
changed its EFT information in the CCR database from the
Bank of America account to the CZ account. Indeed,
French could not have changed the EFT information be-
cause he did not possess the login credentials required to
access the CCR database. While French may have had ap-
parent authority to change the contract’s payment provi-
sion (for example, to incorporate FAR 52.232-34 (discussed
below) instead of 52.232-33), no such contractual change
was ever made.
Alternatively, the government claims that its failure to
pay the account listed in the CCR database was an imma-
terial non-compliance with the FAR clause, which did not
breach the contract. We conclude that the government’s
breach was material because the FAR clause serves an im-
portant purpose for both parties: it protects the govern-
ment and the contractors who do business with it. The
Case: 21-1381 Document: 40 Page: 8 Filed: 02/09/2022
8 ASPEN CONSULTING, LLC v. SECRETARY OF THE ARMY
CCR database provides a central location for the govern-
ment to check for a contractor’s EFT information, and it
relieves contractors of the burden of providing that infor-
mation to the government more than once. Under the
Board’s interpretation, a contractor would have discretion
to request that outstanding payments be directed to un-
listed accounts. The government would carry the burden
of assessing whether the individual making the request
possessed the requisite authority to change the location of
payment. As a result, the government would be exposed to
increased liability for paying into wrong accounts (if the in-
dividual lacked authority) or for failing to pay the newly
requested account (if the individual had the requisite au-
thority). Adhering to the account listed in the CCR data-
base allows contractors to easily change and oversee the
accuracy of their payment information and benefits the
government “by streamlining where” it can find a contrac-
tor’s “pertinent EFT information.” Government’s Br. 31.
So too, the fact that the parties’ contract did not incor-
porate FAR 52.232-34, which allows for payments to ac-
counts other than those listed in the CCR database, is
significant evidence that the contract did not contemplate
the use of an account other than the one listed in the CCR
database. 1
1 FAR 52.232-34 states, in relevant part:
(a) Method of payment. (1) All payments by
the Government under this contract shall
be made by electronic funds transfer (EFT)
except as provided in paragraph (a)(2) of
this clause. . . .
(b) Mandatory submission of Contractor’s
EFT information. (1) The Contractor is re-
quired to provide the Government with the
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ASPEN CONSULTING, LLC v. SECRETARY OF THE ARMY 9
In sum, we conclude that the government breached the
contract by making its payments to an account other than
the one listed in the CCR database, and that this breach
was material.
B
The government presents an alternative ground for af-
firming the Board: that “Aspen’s use of, and benefit from,
the [CZ] account” in conjunction with “evidence that the al-
leged misdirected payments were . . . used to pay Aspen’s
obligations” establish the affirmative defense of payment,
which extinguishes the government’s contractual liability.
Government’s Br. 35.
A defendant may defend against a claim for breach of
its payment obligations if the defendant proves that the
plaintiff was paid. See U.C.C. § 3-602. Payment is an af-
firmative defense, and the defendant bears the burden of
proof. See 5 Charles Alan Wright & Arthur R. Miller, Fed-
eral Practice and Procedure § 1270 (4th ed. 2021). A debtor
who makes contractually required payments to a third
party or to a different account will have a “valid defense”
to a breach of contract claim if it can show that the
information required to make payment by
EFT (see paragraph (j) of this clause). . . .
(j) EFT information. The Contractor shall
provide the following information to the
designated office. The Contractor may sup-
ply this data for this or multiple contracts
(see paragraph (b) of this clause). The Con-
tractor shall designate a single financial
agent per contract capable of receiving and
processing the EFT information using the
EFT methods described in paragraph (c) of
this clause.
Case: 21-1381 Document: 40 Page: 10 Filed: 02/09/2022
10 ASPEN CONSULTING, LLC v. SECRETARY OF THE ARMY
misdirected payments benefitted the creditor. 2 Weiss v.
Dist. Title. Ins. Co., 121 F.2d 900, 901–02 (D.C. Cir. 1941).
In Weiss, faced with a creditor’s claim that a debtor
breached the parties’ written agreement by misdirecting
funds to an unauthorized recipient, the D.C. Circuit held
that the debtor pled a valid payment defense because the
misdirected funds were later “applied in payment of [the
creditor’s] debt” such that the creditor received “the benefit
of the payment.” Id. at 902.
The parties dispute whether depositing funds into the
CZ account benefitted Aspen. This is not an issue we can
properly resolve on appeal. The question whether Aspen
benefitted from the misdirected payments “is necessarily a
fact-intensive task” that the Board must address in the
first instance. Cmty. Health Choice, Inc. v. United States,
970 F.3d 1364, 1379–80 (Fed. Cir. 2020). If the government
establishes that the misdirected funds in the CZ account
were subsequently used for Aspen’s benefit, Aspen must
“incorporat[e] those cost savings into its damages calcula-
tion,” Boston Edison Co. v. United States, 658 F.3d 1361,
1369 (Fed. Cir. 2011), and the Board is “required to credit
the government” with the value of those funds used for As-
pen’s benefit, Cmty. Health, 970 F.3d at 1379. See also
Kan. Gas & Elec. Co. v. United States, 685 F.3d 1361, 1367
(Fed. Cir. 2012) (“[W]here the defendant’s wrong or breach
2 Aspen relies on In re S.A.S. Bianchi Ugo fu Gabbri-
ello, ASBCA No. 53800, 05-2 B.C.A. ¶ 33,089, to establish
that payment to an incorrect account that benefits the cred-
itor cannot satisfy the government’s payment obligations.
This decision, of course, is not binding on this court. To the
extent that Bianchi holds that the government cannot pre-
vail on a payment defense even if it proves that the creditor
“obtained a financial benefit from” the misdirected pay-
ment, id., that decision is inconsistent with our decision
here.
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ASPEN CONSULTING, LLC v. SECRETARY OF THE ARMY 11
of contract . . . has also conferred a benefit . . . the value of
this benefit must be credited to defendant in assessing the
damages.” (quoting LaSalle Talman Bank, F.S.B. v. United
States, 317 F.3d 1363, 1372 (Fed. Cir. 2003))); S. Nuclear,
637 F.3d at 1304 (“[A] defendant must move forward by
pointing out the costs it believes the plaintiff avoided be-
cause of its breach. . . . Only then does the burden shift to
the plaintiff to incorporate those saved costs. . . .” (citing
Mech-Con Corp. v. West, 61 F.3d 883, 886 (Fed. Cir. 1995))).
CONCLUSION
We reverse the Board’s finding that the government
did not breach the contract and remand to the Board for
proceedings consistent with this opinion.
REVERSED AND REMANDED
COSTS
No costs.