United Pacific Insurance Company v. United States

United States Court of Appeals for the Federal Circuit
06-5023
UNITED PACIFIC INSURANCE COMPANY,
RELIANCE INSURANCE COMPANY,
and RELIANCE NATIONAL,
Plaintiffs-Appellants,
v.
UNITED STATES,
Defendant-Appellee.
Gary A. Wilson, Post & Schell, PC, of Philadelphia, Pennsylvania, argued for
plaintiffs-appellants.
Michael N. O’Connell, Trial Attorney, Commercial Litigation Branch, Civil Division,
United States Department of Justice, of Washington, DC, argued for defendant-appellee.
With him on the brief were Peter D. Keisler, Assistant Attorney General, David M. Cohen,
Director, and James M. Kinsella, Deputy Director.
Appealed from: United States Court of Federal Claims
Judge Nancy B. Firestone
United States Court of Appeals for the Federal Circuit
06-5023
UNITED PACIFIC INSURANCE COMPANY,
RELIANCE INSURANCE COMPANY,
and RELIANCE NATIONAL,
Plaintiffs-Appellants,
v.
UNITED STATES,
Defendant-Appellee.
__________________________
DECIDED: September 20, 2006
__________________________
Before SCHALL, LINN, and DYK, Circuit Judges.
SCHALL, Circuit Judge.
United Pacific Insurance Company, Reliance Insurance Company, and Reliance
National (collectively, “United Pacific”) brought suit against the government in the United
States Court of Federal Claims under the Tucker Act, 28 U.S.C. § 1491(a)(1). In its suit,
United Pacific, which had acted as a Miller Act surety in connection with a government
construction project, sought to recover in quantum meruit the amount over and above
the original contract price that it was required to pay in order to complete the project
after the contractor defaulted. United Pacific alleged that it was entitled to quantum
meruit recovery because the contract at issue was illegal and therefore void ab initio.
According to United Pacific, the contract was illegal because it was entered into in
violation of two statutes, 10 U.S.C. § 2805 (1994) (amended 2000) and 10 U.S.C.
§ 2811 (1994) (amended 2000), which set forth expenditure limitations and require
oversight in connection with certain military construction projects.1 United Pacific now
appeals the decision of the Court of Federal Claims dismissing its suit pursuant to Court
of Federal Claims Rule 12(b)(6) for failure to state a claim upon which relief could be
granted. United Pac. Ins. Co. v. United States, 68 Fed. Cl. 152, 162 (2005) (“Trial Court
Opinion”). We affirm.
BACKGROUND
I.
On October 5, 1995, the United States, through the Contracting Squadron at
McGuire Air Force Base in New Jersey, entered into a contract with Castle Abatement
Corporation (“Castle”). Under the contract, the government agreed to pay Castle
$3,152,174 to provide labor, material, and equipment to renovate three buildings at
McGuire Air Force Base.
In accordance with the Miller Act, 40 U.S.C. §§ 270a-d (1994) (current version at
40 U.S.C. §§ 3131-3134 (2000 & Supp. 2002)), United Pacific issued a performance
bond in the penal sum of $3,152,174 and a labor and material bond in the penal sum of
$1,576,087 to the government as obligee.2 On July 21, 1997, the government
1
In this opinion, we cite to the versions of sections 2805 and 2811 that
were in effect in 1995 when the contract at issue was formed.
2
“The Miller Act requires prime contractors to post performance bonds on
all federal construction contracts.” Ins. Co. of the W. v. United States, 243 F.3d 1367,
1370 (Fed. Cir. 2001) (citing 40 U.S.C. § 270a). “Under a performance bond, a surety
guarantees that the project will be completed if a contractor defaults.” Dependable Ins.
Co. v. United States, 846 F.2d 65, 66 (Fed. Cir. 1988) (citing Aetna Cas. & Sur. Co. v.
06-5023 2
terminated its contract with Castle for default. In response to the government’s demand
to United Pacific under the performance bond, United Pacific entered into a written
takeover agreement with the government in which it agreed to complete the contract
work. United Pacific then hired a contractor, Lattimer & Associates, to complete the
work. Lattimer eventually completed the contract work at a total cost to United Pacific of
$3,525,757.25. At the same time, United Pacific only received a total of $661,512.31 in
payments from the government under the contract. That sum apparently represented
the balance of the original contract price.
II.
On April 12, 2000, United Pacific filed a request for an equitable adjustment with
the contracting officer, claiming that the contract between Castle and the government
was void ab initio because it was illegal. United Pacific asked the contracting officer to
terminate the contract for the convenience of the government and to pay it the sum of
$3,194,490.59. This sum represented the costs United Pacific allegedly incurred in
completing the contract work, less the $661,572.31 in payments that it had received
from the government. After the contracting officer denied the claim, United Pacific filed
an appeal with the Armed Services Board of Contract Appeals (“Board”).
On July 20, 2001, the Board issued a decision holding that United Pacific was
without standing to assert Castle’s pre-takeover claim that the contract was illegal. In re
(Cont’d. . . .)
United States, 845 F.2d 971, 973 (Fed. Cir. 1988)). The bond “is designed to ensure
‘that the government is not left with a partially completed project because of an insolvent
contractor.’” Id. at 66-67 (quoting Morrison Assurance Co. v. United States, 3 Cl. Ct.
626, 632 (1983)). In addition to the performance bond requirement of 40 U.S.C.
§ 131(b)(1), the Miller Act also requires prime contractors to secure a payment bond
with a surety satisfactory to the government “for the protection of all persons supplying
labor and material . . . .” 40 U.S.C. § 3131(b)(2).
06-5023 3
United Pac. Ins. Co., ASBCA No. 53051, 01-2 B.C.A. ¶ 31,527, at 155,640, 2001 WL
865380 (July 20, 2001). Shortly thereafter, however, we decided Fireman’s Fund
Insurance Fund Co. v. England, 313 F.3d 1344 (Fed. Cir. 2002). In Fireman’s Fund, we
held that the Contract Disputes Act, 41 U.S.C. §§ 601-613, did not give the Board
jurisdiction over equitable subrogation claims based on events that took place before a
takeover agreement. 313 F.3d at 1352. Based upon Fireman’s Fund, the Board issued
a reconsideration decision in which it rejected United Pacific’s claim on jurisdictional
grounds, ruling that United Pacific was not a “contractor” within the meaning of the
Contracts Disputes Act with respect to pre-takeover agreement events. In re United
Pac. Ins. Co., ASBCA No. 53051, 03-2 B.C.A. ¶ 32267, at 159,622, 2003 WL 21350374(June 4, 2003). In United Pacific Insurance Co. v. Roche, 380 F.3d 1352, 1358 (Fed.
Cir. 2004), we affirmed the Board’s decision. We held that because “[a]ll of these
alleged overpayments to Castle . . . were made prior to the takeover agreement, at a
time when United [Pacific] was not yet a ‘contractor’ with the United States,” the Board
“correctly concluded that it lacked jurisdiction over the claims.” Id. at 1356.
On January 12, 2005, United Pacific filed suit in the Court of Federal Claims
under the Tucker Act, alleging that the contract between Castle and the government
was illegal, and therefore void ab initio, because it was in violation of 10 U.S.C. §§ 2805and 2811. Consequently, United Pacific urged, as the completing surety, it was entitled
to recover its excess costs of completion on a quantum meruit basis. On September
28, 2005, the Court of Federal Claims dismissed United Pacific’s suit under Court of
Federal Claims Rule 12(b)(6) for failure to state a claim upon which relief could be
granted. Trial Court Opinion, 68 Fed. Cl. at 162. The court did so, inter alia, on the
06-5023 4
ground that United Pacific’s suit was foreclosed by our decision in American Telephone
& Telegraph Co. v. United States, 177 F.3d 1368 (Fed. Cir. 1999) (en banc) (“AT&T Ill”).
Trial Court Opinion, 68 Fed. Cl. at 156-59. At the same time, the court rejected United
Pacific’s reliance on United States v. Amdahl, 786 F.2d 387 (Fed. Cir. 1986), and
Godley v. United States, 5 F.3d 1473 (Fed. Cir. 1993). Trial Court Opinion, 68 Fed. Cl.
at 159 & n.3. This appeal followed. We have jurisdiction pursuant to 28 U.S.C.
§ 1295(a)(3).
DISCUSSION
I.
“A motion to dismiss . . . for failure to state a claim upon which relief can be
granted is appropriate when the facts asserted by the plaintiff do not entitle him to a
legal remedy.” Boyle v. United States, 200 F.3d 1369, 1372 (Fed. Cir. 2000). “In
reviewing a dismissal for failure to state a claim, we must assume all well-pled factual
allegations are true and indulge in all reasonable inferences in favor of the nonmovant.”
Anaheim Gardens v. United States, 444 F.3d 1309, 1314-15 (Fed. Cir. 2006) (quoting
Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed. Cir. 1991)). We review de novo
whether the Court of Federal Claims properly dismissed a complaint for failure to state a
claim. Id. at 1314 (citing Boise Cascade Corp. v. United States, 296 F.3d 1339, 1343
(Fed. Cir. 2002); Dehne v. United States, 970 F.2d 890, 892 (Fed. Cir. 1992)).
II.
At the time Castle and the government entered into their contract, section 2805,
titled “Unspecified minor construction,” provided in relevant part:
(a)(1) Except as provided in paragraph (2), within an amount
equal to 125 percent of the amount authorized by law for
06-5023 5
such purpose, the Secretary concerned may carry out minor
military construction projects not otherwise authorized by
law. A minor military construction project is a military
construction project (1) that is for a single undertaking at a
military installation, and (2) that has an approved cost equal
to or less than $1,500,000.
(2) A Secretary may not use more than $5,000,000 for
exercise-related unspecified minor military construction
projects coordinated or directed by the Joint Chiefs of Staff
outside the United States during any fiscal year.
(b)(1) A minor military construction project costing more
than $500,000 may not be carried out under this section
unless approved in advance by the Secretary concerned.
(2) When a decision is made to carry out a minor military
construction project to which paragraph (1) is applicable, the
Secretary concerned shall notify in writing the appropriate
committees of Congress of that decision, of the justification
for the project, and of the estimated cost of the project. The
project may then be carried out only after the end of the 21-
day period beginning on the date the notification is received
by the committees.
(c)(1) Except as provided in paragraph (2), the Secretary
concerned may spend from appropriations available for
operation and maintenance amounts necessary to carry out
an unspecified military construction project costing not more
than $300,000. . . .
10 U.S.C. § 2805 (emphases added). Section 2811, titled “Repair of facilities,”
provided in relevant part:
(a) Repairs using operational and maintenance funds.—
Using funds available to the Secretary concerned for
operation and maintenance, the Secretary concerned may
carry, out repair projects for an entire single-purpose facility
or one or more functional areas of a multipurpose facility.
(b) Approval required for major repairs.—A repair project
costing more than $5,000,000 may not be carried out under
this section unless approved in advance by the Secretary
concerned. In determining the total cost of a repair project,
the Secretary shall include all phases of a multi-year repair
06-5023 6
project to a single facility. In considering a repair project for
approval, the Secretary shall ensure that the project is
consistent with force structure plans, that repair of the facility
is more cost effective than replacement, and that the project
is an appropriate use of operation and maintenance funds.
(c) Prohibition on new construction or additions.—
Construction of new facilities or additions to existing facilities
may not be carried out under the authority of this section.
10 U.S.C. § 2811 (emphasis added).
On appeal, as it did in the Court of Federal Claims, United Pacific contends that
[t]he [g]overnment voided the [c]ontract through its violation
of public policy by illegally using repair and maintenance
funds for new construction in clear violation of 10 U.S.C.
§ 2805, which absolutely prohibited use of operation and
maintenance funds (“O&M funds”) for unspecified repairs
exceeding $300,000, and 10 U.S.C. § 2811, which prohibited
use of O&M funds in any amount for any new construction.
Appellant’s Br. at 10. According to United Pacific, the contract between Castle and the
government was illegal, and therefore void ab initio, for violating 10 U.S.C. §§ 2805 and
2811 in three ways:
(1) By characterizing over $2 million of the Project as
Operations and Maintenance work rather than new
construction, when the vast majority of the work constituted
new construction as defined by Air Force Regulations;
(2) By engaging in contract splitting by claiming that the
Project was three separate buildings when the facts show
that there was one Project involving interrelated buildings (in
order to stay under the $300,000 limit); and
(3) By accepting an unjustified bid of $3,000 for
constructing the connectors for the buildings when its own
estimate was $134,000 and the next two lowest bids were
$290,000 and $344,000, respectively, (to keep each
artificially divided project under $300,000).
Id. at 4-5.
06-5023 7
United Pacific asserts that “[w]hile compensated sureties must complete legal
contracts properly terminated by the Government, a surety would never issue a bond for
or complete a known illegal / void contract.” Id. at 12. It reasons that “where the public
policy was clearly violated and the [c]ontract is determined to be void, [United Pacific],
as the completing surety, is entitled to recover its excess costs of completion, incurred
in good faith, on a quantum meruit basis.” Id. As it did in the Court of Federal Claims,
United Pacific relies on Amdahl and Godley for the proposition that “the [g]overnment
must pay for the benefits it has received and accepted from the surety because . . .
United Pacific completed the illegal / void [c]ontract in good faith without knowledge of
the illegality, costs which would not have been incurred but for the illegal [c]ontract and
violation of public policy.” Id. As seen, United Pacific seeks quantum meruit recovery of
approximately $2,800,000, which is both the amount that it paid above and beyond the
contract price and the amount that it alleges by which the government benefited from its
completion of the contract.
The government responds that neither Castle nor United Pacific was entitled to
have the contract declared void for a violation of either 10 U.S.C. §§ 2805 or 2811.
Moreover, the government asserts that United Pacific’s cause of action is foreclosed by
our en banc decision in AT&T Ill, 177 F.3d 1368.
III.
Quantum meruit is “[a] claim or right of action for the reasonable value of
services rendered.” Black’s Law Dictionary 1276 (8th ed. 2004). In Amdahl, we
explained that
[w]here a benefit has been conferred by the contractor on
the government in the form of goods or services, which it
06-5023 8
accepted, a contractor may recover at least on a quantum
valebant or quantum meruit basis for the value of the
conforming goods or services received by the government
prior to the rescission of the contract for invalidity. The
contractor is not compensated under the contract, but rather
under an implied-in-fact contract.
786 F.2d at 393 (footnote omitted).3
We begin our analysis with the language of the statutes. As can be seen from
the text quoted above, neither section 2805 nor section 2811 provides for the
invalidation of a contract found to violate its provisions. Neither does the legislative
history support United Pacific’s claim.
Prior to 1982, each year, as part of the military construction annual
appropriations bills, Congress enacted provisions similar to sections 2805 and 2811
relating to military construction and military housing. In 1982, Congress codified these
provisions. See Military Construction Codification Act, Pub. L. No. 97-214, § 2, 96 Stat.
153 (1982). The House Report that accompanied the bill explained that the bill’s
purpose was “decentralization,” allowing “greater flexibility” and placement of
responsibility at the lower levels of the agency in obligating military construction funds.
H.R. Rep. No. 97-612 (1982), reprinted in 1982 U.S.C.C.A.N. 441, 444. In its summary
of new annual reporting requirements created by the bill for “unspecified minor
construction,” the House Report stated:
3
Quantum valebant is “[t]he reasonable value of goods and materials.”
Black’s Law Dictionary 1276 (8th ed. 2004). In general, the difference between
quantum meruit and quantum valebant is that “[t]he former is said to apply to services
and the latter to goods . . . .” Urban Data Sys., Inc. v. United States, 699 F.2d 1147,
1154 n.8 (Fed. Cir. 1983). United Pacific does not seek recovery on a quantum
valebant basis.
06-5023 9
Information supplied should enable the appropriate
committees of Congress to monitor the relationships
between budget requests and obligations for unspecified
minor construction projects funded from military construction
appropriations and unspecified minor construction projects
funded from operations and maintenance appropriations.
The maintenance and repair backlog at the end of the prior
fiscal year will be used to evaluate the ratio of expenditures
between minor construction and maintenance and repair.
Data for the two fiscal years prior to the budget year should
be supplied to evaluate trends.
Id. at 446 (emphasis added). The Armed Services Committee report discussing
oversight of the use of operation and maintenance funds under section 2805(c)(1),
stated:
Since the Committee’s objective for minor construction has
been to increase a military department’s flexibility in
managing minor construction, the use of operations and
maintenance funds for minor construction was retained.
However . . . the Committee believes that annual reporting
procedures to provide better oversight on operation and
maintenance expenditures for minor construction is
necessary. The Committee is most concerned that
operations and maintenance funds used for minor
construction may be at the expense of needed repair and
maintenance of facilities.
Id. at 458 (emphasis added). Lastly, a conference report relating to the 1994
amendments to section 2811 provided:
The conferees are concerned that major repairs to facilities,
funded through operation and maintenance accounts, are
conducted without the oversight of the service secretaries or
the Committees on Armed Services of the Senate and
House of Representatives. The conferees believe improved
oversight of the major repairs is required, but do not want to
impose additional reporting requirements.
06-5023 10
H.R. Conf. Rep. No. 103-701, at 789 (1994), reprinted in 1994 U.S.C.C.A.N. 2224, 2358
(emphasis added).4
We think the relevant legislative history makes it clear that the purposes behind
sections 2805 and 2811 were agency flexibility through decentralization, as well as the
limitation of spending and waste through Congressional oversight. It does not appear
that a purpose was to enable contractors to assert private causes of action to void
contracts with the government that violate the statutes at issue.
IV.
Our en banc opinion in AT&T Ill is dispositive of United Pacific’s appeal. In AT&T
III, we addressed a situation in which, after incurring expenses in excess of a contract’s
fixed price, AT&T attempted to invalidate the contract for failing to comply with federal
statutes. 177 F.3d at 1370. “The Navy awarded the . . . contract to AT&T as a fixed-
price contract just nine days after enactment of section 8118” of the Department of
4
Prior to the 1994 amendments, section 2811 provided:
(a) The Secretary concerned may carry out renovation
projects that combine maintenance, repair, and minor
construction projects for an entire single-purpose facility, or
one or more functional areas of a multipurpose facility, using
funds available for operations and maintenance.
(b) The amount obligated on such a renovation project may
not exceed the maximum amount specified by law for a
minor project under section 2805 of this title.
(c) Construction of new facilities or additions to existing
facilities may not be carried out under the authority of this
section.
06-5023 11
Defense Act, Pub. L. No. 100-202, § 8118, 101 Stat. 1329, 1329-84 (1987).5 Am. Tel. &
Tel. Co. v. United States, 307 F.3d 1374, 1377 (Fed. Cir. 2002) (“AT&T V”).6 Contrary
to section 8118’s provisions, the Navy awarded the contract at issue, which was in
excess of $10,000,000, for the development of a major system or subsystem without the
written determination of the Under Secretary of Defense for Acquisition that program
risk had been reduced such that realistic pricing could occur. Id. Furthermore, the
Navy did not comply with the quarterly reporting provision. See id. “AT&T eventually
5
Section 8118 stated:
None of the funds provided for the Department of Defense in
this Act may be obligated or expended for fixed price-type
contracts in excess of $10,000,000 for the development of a
major system or subsystem unless the Under Secretary of
Defense for Acquisition determines, in writing, that program
risk has been reduced to the extent that realistic pricing can
occur, and that the contract type permits an equitable and
sensible allocation of program risk between the contracting
parties: Provided, That the Under Secretary may not
delegate this authority to any persons who hold a position in
the Office of the Secretary of Defense below the level of
Assistant Under Secretary of Defense: Provided further, That
the Under Secretary report to the Committees on
Appropriations of the Senate and House of Representatives
in writing, on a quarterly basis, the contracts which have
obligated funds under such a fixed price-type developmental
contract.
Department of Defense Act, Pub. L. No. 100-202, § 8118, 101 Stat. 1329, 1329-84
(1987) (emphases added).
6
After AT&T III remanded the case to the “Court of Federal Claims to
determine what remedy, if any, was available to AT&T for the Navy’s violation of section
8118,” the Court of Federal Claims held that “non-compliance with [section 8118] is not
an actionable wrong. . . . [P]laintiffs cannot claim a protectable interest in the proper
application of Section 8118 for Congress intended to give them none.” AT&T V, 307
F.3d at 1377 (quoting Am. Tel. & Tel. Co. v. United States, 48 Fed. Cl. 156, 160 (2000)
(“AT&T IV”)). AT&T V was the appeal to this court from AT&T IV.
06-5023 12
performed [the] contract at a cost of over $91 million, greatly in excess of the contract’s
adjusted final price of about $34.5 million.” Id.One of several purposes of section 8118 was to address the “burden of a fixed
price contract on the contractor when the miscalculation of development cost may have
been that of the government agency as well as the contractor.” AT&T III, 177 F.3d at1372 (citing H.R. Conf. Rep. No. 100-498 at 624 (Dec. 22, 1987)). AT&T argued that
the statute was enacted at least in part for its protection, and that the agency, by failing
to comply with the statute, deprived it of the protection provided by the law. Id. at 1373.
AT&T argued that section 8118 was a “mandatory statute” restricting the agency’s
authority to obligate and expend funds, and that the Navy’s direct contravention of the
statute rendered its contract void ab initio. Id.Sitting en banc, we rejected AT&T’s contentions, stating that “[i]nvalidation of the
contract is not a necessary consequence when a statute or regulation has been
contravened, but must be considered in light of the statutory or regulatory purpose, with
recognition of the strong policy of supporting the integrity of contracts made by and with
the United States.” Id. at 1374. We explained that “the policy underlying the enactment
must be considered in determining the remedy for its violation, when the statute itself
does not announce the sanction of contract invalidity.” Id.In AT&T III, we examined the statutory language, the legislative history, and the
history of the agency’s administration of the statute. Having done so, we concluded that
it was “clear that Congress did not intend that this enactment would terminate fully
performed contracts because of this flawed compliance.” Id. at 1375. Notably, the
Senate Armed Services Committee explicitly stated:
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It is the intent of the committee that this section be applied in
a manner that best serves the government's interests in the
long term health of the defense industry, and that this
section not be used as the basis for litigating the propriety of
an otherwise valid contract. Nothing in this section shall be
construed to affect the requirements of section 8118 of the
Department of Defense Appropriations Act, 1988.
Id. (quoting S. Rep. No. 100-326, 100th Cong., 2d Sess. at 105 (May 4, 1988))
(emphasis in original). We concluded that these congressional statements, which were
“made with knowledge of the agency’s imperfect compliance with § 8118, negate any
reasonable inference that Congress intended simply to render void ab initio, even after
full performance, any fixed price contract for which the Under Secretary’s review of risk
allocation and the report to the Committees were omitted.” Id. We reasoned, inter alia,
that “Congress cannot have intended to charge the contracting partner with adverse
consequences depending on whether the Defense Department carried out the internal
responsibilities and filed the reports that Congress required.” Id. Lastly, we stated: “Nor
is it the judicial role to discipline the agency’s noncompliance with the supervisory and
reporting instructions of congressional oversight.” Id. (citing Longshore v. United
States, 77 F.3d 440, 443 (Fed. Cir. 1996) (“Congress has undoubted capacity to
oversee the performance of Executive Branch agencies, consistent with its
constitutional authority. It is not for this court to instruct Congress on how to oversee
and manage its creations.”); Nat’l Treasury Employees Union v. Campbell, 654 F.2d
784, 794 (D.C. Cir. 1981) (By statutory requirement that the Comptroller General report
on certain expenditures, “Congress itself is in a position to monitor and enforce its
spending limitations. It is not for us to question the effectiveness of existing remedies
and infer additional remedies.”); E. Walters & Co. v. United States, 576 F.2d 362, 367
(Ct. Cl. 1978) (“The fact that a procurement practice is prohibited does not necessarily
06-5023 14
mean that it is therefore actionable. The discipline to be administered in such cases is a
responsibility of the cognizant procurement officials within the agency [and not] by this
court.”)).
In our view, AT&T III compels the conclusion that United Pacific is not entitled to
the relief it seeks: a determination that the contract between Castle and the government
was illegal, and therefore void ab initio, by reason of non-compliance with 10 U.S.C.
§§ 2805 and 2811.
United Pacific attempts to distinguish AT&T III on the ground that the legislative
history of the statute at issue, section 8118, explicitly barred any private cause of action.
We are not persuaded by this argument. It is true that the legislative history of sections
2805 and 2811 does not reveal a prohibition similar to the one quoted above for section
8118. However, as the Court of Federal Claims recognized, neither section 2805 nor
2811 “specifically provides for the invalidation of contracts that were made in violation of
it.” Trial Court Opinion, 68 Fed. Cl. at 158. We explained in AT&T III that “[t]he
invalidation of a contract after it has been fully performed is not favored.” 177 F.3d at
1375. In fact, “precedent shows that those contracts that have been nullified, based on
a failure to meet a statutory or regulatory requirement, are contracts that have not been
substantially performed.” Id. We added: “Precedent does not favor the invalidation,
based on governmental noncompliance with internal review and reporting procedures,
of a contract that has been fully performed by either contracting party.” Id. at 1376; see
id. (quoting Miss. Valley Generating Co., 364 U.S. at 563) (When a statute “does not
specifically provide for the invalidation of contracts which are made in violation of [its
provisions,]” the court shall inquire “whether the sanction of nonenforcement is
06-5023 15
consistent with and essential to effectuating the public policy embodied in [the
statute].”). Accordingly, AT&T III is not distinguishable on the basis of section 8118’s
explicit bar against a private cause of action.
We see no error in the Court of Federal Claims’s rejection of United Pacific’s
reliance on Amdahl and Godley. Amdahl involved a situation in which the government
had already received performance in the form of goods or services, but then refused to
pay for them, arguing that the contract was void. Rejecting the government’s position,
we stated:
[I]n many circumstances it would violate good conscience to
impose upon the contractor all economic loss from having
entered an illegal contract. Where a benefit has been
conferred by the contractor on the government in the form of
goods or services, which it accepted, a contractor may
recover at least on a quantum valebant or quantum meruit
basis for the value of the conforming goods or services
received by the government prior to the rescission of the
contract for invalidity. The contractor is not compensated
under the contract, but rather under an implied-in-fact
contract.
Amdahl, 786 F.2d at 393 (emphasis added). We continued:
Even though a contract be unenforceable against the
Government, because . . . not authorized, . . . it is only fair
and just that the Government pay for goods delivered or
services rendered and accepted under it. In certain limited
fact situations, therefore, the courts will grant relief of a
quasi-contractual nature when the Government elects to
rescind an invalid contract. No one would deny that ordinary
principles of equity and justice preclude the United States
from retaining the services, materials, and benefits and at
the same time refusing to pay for them on the ground that
the contracting officer’s promise was unauthorized, or
unenforceable for some other reason. However, the basic
fact of legal significance charging the Government with
liability in these situations is its retention of benefits in the
form of goods or services.
06-5023 16
Id. (emphases added). Thus, Amdahl speaks to the situation in which the government
receives the goods or services for which it contracted, but then seeks to avoid payment
by arguing that the underlying contract was unlawful. That is not what happened here.
Because it is undisputed that the government paid Castle and United Pacific the full
amount required by the contract for the construction performed, Amdahl does not help
United Pacific.
United Pacific’s reliance on Godley also is misplaced. Godley was a breach of
contract case. William C. Godley was the owner of a tract of land in North Carolina. He
entered into a contract with the Postal Service, pursuant to which he built a postal
facility on the tract and then leased the facility to the Postal Service, giving the Postal
Service the option to buy after one year. Godley, 5 F.3d at 1474. After the term of the
lease began, the Postal Service informed Godley that the lease was invalid, the reason
being that Charles D. Paramore, the Postal Service agent who had negotiated with
Godley, had been convicted of bribery and conspiracy in connection with several Postal
Service contracts, although not Godley’s contract. The Postal Service asserted, inter
alia, that Godley’s contract was tainted by Paramore’s illegal conduct. Accordingly, it
stopped paying the lease amount in the contract and offered to renegotiate its
arrangement with Godley. Id. In due course, Godley filed suit in the Court of Federal
Claims seeking the payments required by the original lease. The court granted
summary judgment in favor of Godley, rejecting the government’s argument that
Godley’s contract was void ab initio due to the alleged taint from Paramore’s illegal
conduct. Id. The government appealed.
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On appeal, we stated that “the general rule is that a Government contract tainted
by fraud or wrongdoing is void ab initio.” Id. at 1476 (citing Miss. Valley Generating Co.,
364 U.S. at 564). However, we further stated, “Illegal acts by a Government contracting
agent do not alone taint a contract and invoke the void ab initio rule. Rather, the record
must show some causal link between the illegality and the contract provisions.
Determining whether illegality taints a contract involves questions of fact.” Id.
On this basis, we vacated the decision of the Court of Federal Claims and
remanded the case to the court for a determination as to whether Paramore’s illegal
conduct tainted the contract. We stated that, on the summary judgment record, we
could not determine, and there were genuine issues of material fact as to, “whether Mr.
Paramore’s illegal conduct caused any unfavorable contract terms.” Id. Significantly, in
the course of our analysis, we pointed out that “[a] contract without the taint of fraud or
wrongdoing . . . does not fall within [the rule that a government contract tainted by fraud
or wrongdoing is void ab initio.]” Id. Godley does not help United Pacific. Unlike what
occurred in that case, the government has paid in full the amount it agreed to pay
Castle under the original contract, and it has never been asserted that the government’s
contract with Castle was “tainted by fraud or wrongdoing.”
CONCLUSION
For the foregoing reasons, the decision of the Court of Federal Claims dismissing
United Pacific’s cause of action for failure to state a claim upon which relief could be
granted is affirmed.
COSTS
Each party shall bear its own costs.
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AFFIRMED
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