Massachusetts Bay Transportation Authority v. United States

NOTE: Pursuant to Fed. Cir. R. 47.6, this disposition is not
citable as precedent. It is a public record.
United States Court of Appeals for the Federal Circuit
05-5017
MASSACHUSETTS BAY TRANSPORTATION AUTHORITY,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
__________________________
DECIDED: February 8, 2006
__________________________
Before MICHEL, Chief Judge, SCHALL and GAJARSA, Circuit Judges.
MICHEL, Chief Judge.
Massachusetts Bay Transportation Authority (“MBTA”) appeals the decision of
the United States Court of Federal Claims awarding damages in the amount of
$1,075,242.03, arguing that it was entitled to the full $3,964,567.21 sought, plus
interest. Mass. Bay Transp. Auth. v. United States, No. 283-89C, slip op. (Fed. Cl.
Oct. 8, 2004) (“Damages Decision”). MBTA also appeals the denial of its motion to
disqualify the trial judge for bias and prejudice. Mass. Bay Transp. Auth. v. United
States, No. 283-89C, slip op. (Fed. Cl. Aug. 16, 2002) (“Disqualification Decision”).
Because the Court of Federal Claims did not abuse its discretion in assessing the
damages owed to MBTA but nonetheless failed to award interest, contrary to our
previous remand instructions, we affirm-in-part, vacate-in-part and remand for further
calculations. Additionally, we affirm the denial of MBTA’s motion to disqualify because
the Court of Federal Claims did not abuse its discretion in concluding that the trial
judge’s adverse legal rulings and courtroom remarks reflecting disagreements with
MBTA’s legal arguments were an insufficient basis for recusal.
I. BACKGROUND
This government-contract case reaches us after a long and tortured history,
including two appeals to this court. The factual background was explained in our prior
opinions and will not be repeated in similar detail here. See Mass. Bay Transp. Auth. v.
United States, 129 F.3d 1226 (Fed. Cir. 1997) (“MBTA I”); Mass. Bay Transp. Auth. v.
United States, 254 F.3d 1367 (Fed. Cir. 2001) (“MBTA II”).
As part of its implementation of the Northeast Corridor Improvement Project for
passenger rail service and stations from Washington D.C. to Boston under the Railroad
Revitalization and Regulatory Reform Act of 1976, 45 U.S.C. § 801 et. seq., the Federal
Railroad Association (“FRA”) entered into the Boston South Station Improvement
Project Design Agreement (“the Design Agreement”) with MBTA in 1980. This
agreement established the scope of improvements to be made to South Station, which
is owned by MBTA. In 1983, MBTA and FRA entered into the Boston South Station
Transportation Center Project Cooperative Construction Agreement (“the Construction
Agreement”), which required MBTA to implement the renovations set forth in the Design
Agreement. Significantly, MBTA could not deviate from the design documents provided
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by the architect-engineers (“A/Es”) FRA had hired without first obtaining written approval
from FRA.
The Construction Agreement contained several provisions directed to potential
liability issues. Most relevant to this current dispute, § 222(c) obligated FRA to seek
insurance endorsements from the A/Es for the benefit of MBTA:
FRA shall secure from each of its consultant architect-engineers (“A/E’s”)
an endorsement to the benefit of the MBTA on the professional liability
insurance policy or policies carried by such A/E’s with respect to any A/E
errors, omissions, or acts of negligence in the design of the Facility. FRA
shall furnish the MBTA evidence of such endorsements.
After the Construction Agreement was executed, FRA did not secure insurance
endorsements from the A/Es and did not notify MBTA of its failure to do so.
In accordance with the Construction Agreement, MBTA solicited bids for the
South Station project and awarded the contract to J.F. White Construction Company
(“White”) in 1984. After construction began, White informed MBTA that the design plans
contained several serious defects. Consequently, the project was completed 956 days
late at a cost of approximately $69 million. In September 1987, White submitted a claim
to MBTA for its increased costs associated with the delay. MBTA subsequently brought
a declaratory action in Massachusetts Superior Court against White, the A/Es, Amtrak,
Boston Edison Company, and the Northeast Railroad Construction Company to resolve
various liability issues (“the White Litigation”). The parties ultimately settled that lawsuit
in 1995 for $3,810,000, with MBTA contributing $1.9 million, the A/Es collectively
contributing $1.8 million, Amtrak providing $100,000 and Boston Edison paying the
remaining $10,000. FRA was not a party, but encouraged the settlement and entered
into mutual releases with the A/Es.
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Meanwhile, in 1989, MBTA brought this suit against the United States. MBTA
alleged, inter alia, that FRA breached § 222(c) of the Construction Agreement by failing
to secure insurance endorsements from the A/Es. MBTA sought recovery of its
expenditures from the White Litigation, with interest, including the $1.9 million paid to
White and $2,064,567 in defense costs. This case was stayed pending resolution of the
White Litigation, but the stay was lifted after that lawsuit settled.
The Court of Federal Claims granted summary judgment in favor of the
government based on its interpretation of a different provision of the contract. This
court reversed, holding that FRA breached its obligation to obtain insurance
endorsements pursuant to § 222(c). MBTA I, 129 F.3d at 1232. We remanded the
case for a determination of the consequences of that breach and an assessment of
damages. Id. at 1233. On remand, the Court of Federal Claims held that MBTA was
not entitled to any damages. See MBTA II, 254 F.3d at 1371 (referencing an
unpublished order dated May 14, 1999). We reversed and remanded again, this time
with specific instructions on calculating the damages stemming from FRA’s failure to
secure insurance endorsements on MBTA’s behalf.
On remand, the Court of Federal Claims has discretion, as it deems
necessary, to reopen and supplement the record to allow for admission of
new evidence from both parties on this issue. Alternatively, the Court of
Federal Claims may make its determination based on the existing record.
When making the proper finding, however, the Court of Federal Claims
must take into account all relevant factors, including, but not limited to,
causation by the parties, what would have been a reasonable or financially
advantageous settlement in light of the original claim for $23.6 million, as
well as the potentially high cost, large amount of time, and nuisance
involved in going to trial. The court must then determine what amount (if
any) a reasonable insurer, i.e., one insuring the A/Es directly and MBTA
via the insurance endorsements, would have paid beyond the $1.8 million
actually paid on behalf of the A/Es alone. Assuming that the insurers
would have paid anything beyond the $1.8 million, the court must then
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ascertain the total damages owed to MBTA, including appropriate
associated legal costs and interest. The court may also consider whether
any additional damages resulted from FRA’s breach of section 222(c) by
failing to notify MBTA in a timely manner that it would be unable to obtain
the insurance endorsements.
Id. at 1377.
Soon thereafter, MBTA filed a motion to disqualify the trial judge for bias and
prejudice pursuant to 28 U.S.C. § 455(a). The Court of Federal Claims denied the
motion concluding that MBTA’s “true complaint regards the court’s legal decisions, not
its conduct.” Disqualification Decision, slip op. at 15.
On March 11, 2003, the Court of Federal Claims held an evidentiary hearing on
damages. Damages Decision, slip op. at 20. It awarded MBTA damages in the amount
of $1,075,242.03. Id., slip op. at 58. The court reasoned that since “MBTA has
conceded that 53.9% of the compensable delays were caused by its own breaches of
contract or negligence,” a reasonable insurer would have paid “no part” of its $1.9
million share in settling the White Litigation and only $775,242.03 of the $2,064,567
incurred in fees and costs. Id., slip op. at 47, 57.1 It also found that each insurer (i.e.,
one for each of the three A/Es) would have paid $100,000 to guarantee MBTA’s
cooperation with the settlement, totaling another $300,000. Id., slip op. at 57.
This appeal followed. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3).
1
In reaching this figure, the Court of Federal Claims found FRA’s expert,
who had directly reviewed approximately 55% of the cost bills, to be more credible than
MBTA’s expert, who had reviewed none of the bills. Id., slip op. at 53, 56. The former
testified that a reasonable insurer would have made adjustments to the “really high”
billing rates, excessive copy fees and other charges. Id., slip op. at 53-55. Consistent
with this testimony, the requested amount of $1,392,000 in attorney’s fees was reduced
by 27.5% to $1,009,499 and added to the $672,154 paid to expert witnesses and
consultants for a total of $1,681,653 in allowable costs. Id., slip op. at 55. The court
then determined that MBTA would have been responsible for 53.9% of this sum, while a
reasonable insurer would have paid 46.1%, or $775,242.03. Id., slip op. at 57.
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II. DISCUSSION
A.
We review a trial court’s findings about the general type of damages to be
awarded (e.g., lost profits), their appropriateness (e.g., foreseeability), and rates used to
calculate them (e.g., discount rate, reasonable royalty) for clear error. Home Sav. of
Am. v. United States, 399 F.3d 1341, 1347 (Fed. Cir. 2005). The methodology for
calculating rates and amounts, however, is reviewed for an abuse of discretion. Id.Likewise, a decision to admit or exclude expert testimony is reviewed for abuse of
discretion. Gen. Elec. Co. v. Joiner, 522 U.S. 136, 141 (1997). Here, the Court of
Federal Claims was expressly instructed as to the type of damages to be awarded,
namely, the amount that a reasonable insurer would have paid to settle the White
Litigation. Because we are now asked to review the methodology for making that
determination, we apply the abuse of discretion standard.
MBTA’s arguments concerning the damages award can be summarized as
follows. First, with respect to the $1.9 million paid to White, MBTA argues that the Court
of Federal Claims failed to consider “all relevant factors” as it had been instructed to do.
MBTA II, 254 F.3d at 1377. Specifically, it contends that the Court of Federal Claims
ignored the potential liability of $23.6 million in considering what would have been a
reasonable settlement and focused only on the actual settlement paid to White.
Second, MBTA asserts that the Court of Federal Claims erred in reducing its costs
because the A/E insurers would have had to defend it on any direct liability counts (as
well as vicarious liability counts) in the White Litigation. See Aetna Cas. & Sur. Co v.
Cont’l Cas. Co., 604 N.E.2d 30, 32 n.1 (Mass. 1991). Third, MBTA argues that the
05-5017 6
court abused its discretion in allowing FRA to introduce expert testimony at the
evidentiary hearing when no such evidence had been proffered at the 1998 trial.
Fourth, MBTA claims that the court abused its discretion in sustaining FRA’s objection
to rebuttal testimony by its own expert. Fifth, MBTA complains that its expert’s
testimony should have been given more weight. These arguments are unpersuasive.
With respect to its determination of the amount a reasonable insurer would have
paid to settle the White Litigation, the Court of Federal Claims was free to use the
settlement amount actually paid to White (i.e., $3.8 million) as a starting point for its
calculations and conclude that MBTA’s portion thereof (i.e., $1.9 million) corresponded
to the percentage of delay (i.e., 53.9%) that it conceded had been “caused by its own
breaches of contract or negligence.” Damages Decision, slip op. at 47. The court
reasoned that even if FRA had secured insurance endorsements on MBTA’s behalf in
accordance with § 222(c) of the Construction Agreement, “MBTA would have acquired
only derivative or vicarious coverage.” Id., slip op. at 56. As MBTA proffered no
evidence that any portion of the $1.9 million was instead attributable to its vicarious
liability for the design errors by the A/Es rather than its own direct liability, the court did
not abuse its discretion in determining that no reasonable insurer would have
compensated MBTA for its contribution to the White settlement. Id., slip op. at 46, 57.
MBTA’s argument to the contrary appears to confuse an insurer’s duty to indemnify with
its duty to defend. See Boston Symphony Orchestra v. Commercial Union Ins. Co., 545
N.E.2d 1156, 1158 (Mass. 1989) (holding that the duty to defend is broader because the
duty to indemnify depends on whether the judgment is within the policy coverage).
05-5017 7
Making downward adjustments to MBTA’s legal fees in light of what a reasonable
insurer would have allowed was also within the court’s discretion. Nor did the Court of
Federal Claims abuse its discretion in determining that a reasonable insurer would have
only been responsible for 46.1% of MBTA’s defense costs while MBTA (or its own
insurer) would have had to cover the costs of defending against White’s direct liability
claims. Id., slip op. at 57.
As for the expert testimony, the Court of Federal Claims did not abuse its
discretion in allowing FRA’s expert to testify. Indeed, our remand instructions expressly
invited the court “to reopen and supplement the record to allow for admission of new
evidence from both parties.” MBTA II, 254 F.3d at 1377. Further, MBTA had the same
opportunity as FRA to proffer new evidence at the evidentiary hearing on remand; it
simply chose not to take advantage of it.2 Moreover, declining to allow MBTA’s expert
to testify on rebuttal was not an abuse of discretion. As the court correctly explained,
the proffered testimony was not within the proper scope of rebuttal. Damages Decision,
slip op. at 22. It was also within the court’s discretion to accept the testimony of one
expert and reject the testimony of the other. Ample reasons for discrediting MBTA’s
expert were provided and no clear error on the underlying fact-finding or credibility
assessments has been shown. Id., slip op. at 22-25, 45-46.
Finally, MBTA argues that it is entitled to a calculation of interest on the damages
award. We agree. Our remand instructions explicitly directed the Court of Federal
Claims to include “appropriate associated legal costs and interest.” MBTA II, 254 F.3d
2At the evidentiary hearing, MBTA “unexpectedly announced” that its
expert “would testify solely as a rebuttal witness” and it would instead rely on his
testimony from the 1998 trial. Damages Decision, slip op. at 21.
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at 1377 (emphasis added). Without explanation, it did not. For this reason, we
vacate-in-part and remand for the calculation and inclusion of interest in the final
judgment.3 The damages award is otherwise affirmed.
B.
MBTA argues that the trial judge was biased, on the basis of: (1) an alleged
history of adverse legal rulings and (2) a series of transcript excerpts capturing various
disagreements between the judge and counsel. The trial judge properly found that this
evidence was not sufficient to justify recusal. See Charron v. United States, 200 F.3d
785, 789 (Fed. Cir. 1999). In short, MBTA failed to demonstrate the existence of the
kind of “deep-seated prejudice or antagonism that would make fair judgment
impossible.” Liteky v. United States, 510 U.S. 540, 555 (1994) (noting that unfavorable
judicial rulings are almost invaribly “proper grounds for appeal, not for recusal”). We
therefore affirm the denial of MBTA’s recusal motion.
III. CONCLUSION
For the foregoing reasons, we affirm-in-part, vacate-in-part and remand for a
calculation of interest on the awarded damages and inclusion of that amount in the total
sum owed to MBTA.
3
At oral argument, counsel for the government agreed that a remand for
further consideration of this issue would be appropriate.
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