BEYOND JUDICIAL ACTIVISM: FEDERAL CIRCUIT DECISIONS LEGISLATING NEW CONTRACT REQUIREMENTS
Richard C. Johnson[*]
TABLE OF CONTENTS
I.INTRODUCTION......
II.LEGISLATING THE “IN DISPUTE” REQUIREMENT AND ITS ULTIMATE REPEAL
III.LEGISLATING A NEW ESTOPPEL RULE SHELTERING THE GOVERNMENT AS CONTRACTING PARTY FROM ACCEPTED RISKS OF THE COMMERCIAL MARKETPLACE
IV.LEGISLATING A NEW RULE FOR ALLOCATION OF STATE TAX REFUNDS
V.LEGISLATING A NEW RULE ON THE USE OF EXPERTS IN GOVERNMENT CONTRACT CASES
VI.LEGISLATING A NEW COST PRINCIPLE DISALLOWING THIRD PARTY LITIGATION COSTS
VII.LEGISLATING A NEW BAR ON CONTRACTOR DEFENSES AGAINST GOVERNMENT CLAIMS
VIII.CONCLUSION......
[A] bare resolution, confined in the breast of the legislator, without manifesting itself by some external sign, can never be properly a law. It is requisite that this resolution be notified to the people who are to obey it. . . . [W]hatever way is made use of, it is incumbent on the promulgators to do it in the most public and perspicuous manner; not like Caligula, who (according to Dio Cassius) wrote his laws in a very small character, and hung them up upon high pillars, the more effectually to ensnare the people.[1]
I.INTRODUCTION
It is dangerous when courts legislate.[LY1] As William Blackstone points outexpounded, new laws should not be writ small and available only through the scrutiny of obscure texts, but that is what the Federal Circuit has been doing.[2]
Prior to 1982, the parties to government contracts litigated their disputes for the most part in the various agency boards of contract appeals, with the contractors alone entitled to appeal adverse decisions to the United States Court of Claims.[3] This structure had the beneficial effect of enhancing the experience and expertise of the board judges over the decades following WWII.[LY2] As a result, the boards, and predominantly the Armed Services Board among them, acquired exceptional stature and a reputation for impartiality and fair dealing.[LY3] [??4] Correspondingly, the Court of Claims, a major percentage of whose jurisidictionjurisdiction was the appellate review of board decisions, acquired a formidable expertise in the intricacies of government contracts law and a reputation for sound and well grounded decisions.[LY5][??6] It was, in other words, a system that worked and that, moreover, inspired confidence within the contracting community that the system for resolving contractual disputes was fair, impartial and characterized by significant judicial expertise.[LY7] Lastly, the Boards and the Court of Claims exercised great restraint in their decisions and avoided any penchant for legislating positive law in the government contracts arena.[LY8]
In the Federal Courts Improvement Act of 1982,[4] Congress merged the United States Court of Patent and Customs Appeals and the appellate division of the United States Court of Claims, and designated the judges of these former courts as circuit judges.[5] Because the new Federal Circuit (CAFC) exercised patent law appellate jurisidictionjurisdiction over all of the district courts nationwide, the CAFC rapidly tilted in its intellectual makeup in the direction of intellectual property law, as the former Court of Claims judges retired or died.[LY9][??10] Because of this the predominance of intellectual property cases on its docket, the CAFC’s government contracts jurisdiction became relegated to the status of a step-childstepchild.[LY11] [??12]
The relative infrequency of contract cases on the CAFC docket means that over time the judges of that court have lost the easy familiarity with that subject that was enjoyed by the judges of the former Court of Claims.[LY13] [??14] As Blackstone once noted in addressing the problem of judges lacking sufficient subject matter expertise, the chances of a sound or unsound decision may become in some instances a matter of chance.[6] Moreover, because appeals on certiorari from the CAFC to the Supreme Court are as rare as hens’ teeth[A15], the CAFC has, in effect, become the court of last appeal in government contract cases.[LY16] [??17] The result has been a general undermining of the government contracting community’s confidence in the quality of Federal Circuit decisions and opinions.[LY18][??19] The inevitable impact of such a falling off in confidence in the system and the accompanying uncertainty and unpredictability is an increase in the prices the Government pays for goods and services.[LY20][??21]
To compound the problem of step-childstepchild status and the lack of government contracts expertise among the judges, it has been the penchant of the Circuit to embrace judicial activism in the government contracts arena to the point that it is becoming aplaying legislator.[LY22] [??23] The CAFC has exhibited an unfortunate tendency to prescribe, with retroactive application, new requirements imposed on top of the existing legislative and regulatory scheme. These requirements that add to the burdens onf government contractors and confuse the government contracting agencies.[LY24] [??25] For example, who would have imagined prior to Maropakis v. United States[7] that companies seeking to defend against government claims may not assert defenses to those claims without first asserting those defenses in the guise of affirmative claims to a contracting officer? Rather than granting relief fairly under the existing laws, the regulations, and precedents, the Court appears to see itself as guardian of the federal fisc.[LY26] Yet, an inevitable by-product of this mission is lack of certainty in government contracting.[LY27] By threatening the existence of a stable environment of rules with predictable outcomes to guide industry, the Federal Circuit’s legislative initiatives increase contract costs and ironically hurt the very entity the Circuit apparently wants to protect.[LY28]
This article traces a series of quasi-legislative enactments the CAFC created through its decisions, some of which it has subsequently has reversed.[LY29] It focuses as well on Maropakis v. United States, in which the court held that a contractor could not raise defenses to a government claim that the contractor had not previously filed as a CDA claim.[8] This articleIt further traces how the CAFC’s 2010 decision in Maropakis is beginning to createcreating yet more uncertainty and instability for government contractors and contracting agencies.[LY30] The article suggests iIn its conclusion, this article suggests that steps should be taken to bolster the contracts expertise of the Circuit’s judges, which should go a long way toward correcting the Circuit’s misguided penchant to legislate, or that Congress step in to re-establish the level of quality and judicial restraint that existed in government contracts appellate decisions before prior to 1982.[LY31]
II.LEGISLATING THE “IN DISPUTE” REQUIREMENT AND ITS ULTIMATE REPEAL
In Dawco Construction, Inc. v. United States,[9] the [EP32]Federal Circuit held that the definition of “claim” should include a new a requirement for a pre-existing “dispute”, notwithstanding the absence of any such requirement in the CDA or the Federal Acquisition Regulation (FAR).[10] This ruling gave rise to a series of cases in which courts and boards were forced to engage in a minute detailed examination of the mental state of the parties to determine whether they were actually “in dispute” when the CDA-required claim , complying with the CDA requirements, was filed.[11] Such an unreal examinationspeculation lent itself to gaming by either party, but principally by the Government, seeking to stave off CDA claims, by asserting that it was considering the claim or had not yet determined that it would oppose it.[12] Opposition quickly arose to the layering of this new and somewhat bizarre requirement, which in its extreme would permit government officials to defer access to the disputes process almost indefinitely.[13]
The Circuit’s legislated “dispute” requirement led the boards and the COFC to dismiss or limit otherwise CDA-compliant claims for reasons drawn from the examination of the mental states of the litigants.[LY33] For example, in Essex Electro Engineers, Inc. v. United States, the Claims Court[14] granted the Government’s motion to dismiss a contractor’s claim for interest on sums paid to the contractor as the result of an administrative settlement on the grounds that no actual “dispute” existed in the minds of the parties at the time the contractor filed its CDA claim.[15] To satisfy the “dispute” requirement, the contractor and the Government:
[M]ust have reached something approaching impasse on some of the elements of the contractor's demand before a claim can arise. . . . Pursuant to Dawco, the letters of April 13 and April 15, 1987 were not claims. Although there was nothing tentative about the assertion of rights, although the CDA was invoked, and although there was no question that a change order had taken place, it was not clear at that time that there would be a dispute as to the amount of compensation . . . the only indication that a dispute developed at any time is that Essex ultimately got less than the amounts demanded in the April letters. There is no evidence in the record that the parties were ‘discontinuing negotiations,’ or that a point was reached at which the ‘amount claimed was definitely in dispute.’”[16]
Despite finding that the contractor had complied with all of the other CDA requirements for asserting a claim, the Court dismissed the contractor’s interest claim for failure to show that the underlying claims were in “dispute” when the claimsthey were submitted.[17]
Boards of Contract Appeals cases applying Dawco reflected similar oddities, where claims that otherwise fully complied with the CDA were found lacking because the appellant could not adduce sufficient proof of a “dispute.”[18] For example, in dismissing the claim in DBA Systems, Inc., the ASBCA noted that the contractor (DBA) had submitted a “claim” to the contracting officer and requested a final decision but that:
. . . DBA also stressed its willingness ‘to commence good faith settlement negotiations promptly and to diligently work toward accomplishing a settlement in a reasonable period of time.’ Viewed in this context, DBA's submission was merely a preliminary step in the negotiation process rather than the signification of a dispute.[19]
Other board cases followed, dismissing properly filed claims because the contractor could not provide evidence of a “dispute” state of mind as of the date of the CDA filing.[20]
In the wake of this wreckage[??34], the Federal Circuit backtracked.[LY35] Four years later in Reflectone, Inc. v. Dalton, the Circuit reversed itself, announcing that “neither the CDA, its legislative history, nor the FAR, nor its history, suggests that a dispute must pre-date the contractor's submission of the claim to the CO when the claim is in the form of a non-routine demand as of right.”[21] In a face-saving gesture, the Circuit deflected part of the blame for its own fumbling onto the drafters of the FAR for not making their intentions clear:
. . . [T]he FAR 33.201 definition of ‘claim’ does not require a pre-existing dispute unless the submission is a ‘routine request for payment’ . . . it does not appear that the drafters of FAR 33.201 intended to include a comprehensive pre-existing dispute requirement . . . … If OFPP intended the current regulation to require that a non-routine payment demand be in dispute when submitted in order to be a ‘claim,’ the agency could have easily written the regulation to incorporate such a requirement. . . .[22]
Dawco exemplified an ill-considered advance of the Circuit into the arena of legislation[EP36].[23] Here it plunged doggedly into legislative thickets until, finally, the unrealistic nature of its “legislation” became all too painfully obvious.[24]
But then, on April 20, 2012, in Parsons Global Services, Inc. v. McHugh, the Circuit backed away from the corrective fresh air of Reflectone and, like the “resurrection men” of London[LY37], disinterred the corpse of Dawco for further use.[25]
Parsons presented a cost contract payment claim on behalf of a subcontractor.[26] This was not a routine bi-weekly payment request under the Allowable Cost and Payment clause, but rather a catch-up invoice based on a DCAA after-the-fact determination that the subcontractor had under-billed its indirect costs during performance.[27] Parsons first presented the request to its termination contracting officer (TCO),[28] who declined to entertain it.[29][LY38] Parsons then submitted the costs as a certified CDA claim to the procuring contracting officer, who issued a final decision denying it.[30] Affirming the ASBCA, the court ruled that the request to havehad been “routine” in origin and, thus, that it had to become the subject of a “dispute” before Parsons could submit it as a CDA claim, and that that such a dispute did not yet exist., “If the request for payment is ‘routine,’ a pre-existing dispute is necessary for it to constitute a claim under the CDA.”[31][??39]
The court further opined that a non-routine request for payment requires “the presence of some unexpected or unforeseen action on the [G]government’s part that ties it to the demanded costs.”[32] The court variously describeds this fresh criterion as “unforeseen circumstances,” “additional or unforeseen work at the [G]government’s behest,” and “intervening unforeseen circumstances.”[33] This requirement would, if applied, render claims under the Changes, Suspension, Changed Conditions, or other compensatory clauses of a contract “routine” by any normal dictionary definition, because the very existence of the clauses confirms that requests for payment under them do not relate to “unexpected or unforeseen action” but, quite the contrary, to actions that are entirely expected and normal in government contract performance.[34]
The result in this case is that Parsons must now go back and submit a “routine” request for payment to the same procuring contracting officer who previously denied it with all the majesty of a CDA final decision.[35] Parsons must then wait a reasonable time or until a “dispute” comes into existence.[36] The court does not explain, however, how this will occur, and it must be left to subsequent decisions to provide the answer.[37] As the cogent dissent of Judge Pauline Newman in Parsons Global concluded, “this lengthy litigation of a conceded governmental obligation is an embarrassment.”[38]
III.LEGISLATING A NEW ESTOPPEL RULE SHELTERING THE GOVERNMENT AS CONTRACTING PARTY FROM ACCEPTED RISKS OF THE COMMERCIAL MARKETPLACE
The Supreme Court has repeatedly made it clear that when the Government ventures into the marketplace to purchase goods or services, it is, in the main, subject to the same commercial rules and practices as any private entity.[39] The exceptions, until recently, have been few;, most notable is they inapplicability of the apparent authority rule.[40] However, the Federal Circuit has now, in its self-appointed legislative role, significantly broadened the exceptions to normal commercial rules and practices applicable to the Government as contractor.[LY40]
Until two recent decisions, the Federal Circuit, along with the Court of Federal Claims and the ASBCA, applied estoppel against the Government when a contractor detrimentally relied on the conduct or assertions of officers or agents of the United States acting within the scope of their authority.[41] To make a prima facie case, the contractor had to establish the four accepted elements of estoppel: (1) the Government knew the true facts; (2) the Government intend that its conduct would be acted upon or so acted that the contractor has a right to believe it was so intended; (3) the contractor was ignorant of the true facts; and (4) the contractor relied on the Government's conduct to its detriment.[42] These four elements, though difficult to establish, allowed the contractor to defend itself when the Ggovernment led it astray.[LY41]
By way of two notable decisions, the Court has now sua sponte added a fifth element.[43] In Rumsfeld v. United Technologies Corp., remanding to the ASBCA for ruling on the issue of estoppel, the Court borrowed estoppel precedent from non-contractual cases and applied it where it was never intended to apply:
Adjudication of the estoppel issue must proceed under the “well settled [rule] that the Government may not be estopped on the same terms as any other litigant.”[44] Beyond a mere showing of acts giving rise to an estoppel, [the contractor] must show ‘affirmative misconduct [as] a prerequisite for invoking equitable estoppel against the [G]government.’[45]
Then, in United Pacific Insurance Co. v. Roche, the Court held that the Government was not estopped when it misstated the balance due to a defaulted contractor in a takeover agreement entered into with the surety, stating:
Although the application of equitable estoppel against the [G]government is not entirely foreclosed, the Supreme Court has qualified that ‘the Government may not be estopped on the same terms as any other litigant.’ Heckler v. Cmty. Health Servs., 467 U.S. 51, 60, 104 S. Ct. 2218, 81 L. Ed. 2d 42 (1984). Our own precedent dictates ‘that if equitable estoppel is available at all against the [G]government some form of affirmative misconduct must be shown in addition to the traditional requirements of estoppel.’ Zacharin v. United States, 213 F.3d 1366, 1371 (Fed. Cir. 2000). The evidence is undisputed that the incorrect recital in the ‘Whereas’ clause [of the takeover agreement] was the result of unintentional mathematical errors, not affirmative misconduct.[46][??42]