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EBCA Nos. C-9509187, C-9509220, C-9509221
Department of Energy Board of Contract Appeals
ROCKWELL INTERNATIONAL CORPORATION
1999 EBCA LEXIS 1;
99-1 B.C.A. (CCH) P30,345
JUDGES: E. Barclay Van
Doren, Chief Administrative Judge. Beryl S. Gilmore,
Administrative Judge, R. Anthony McCann, Administrative Judge, concur.
COUNSEL: Representing Appellant: Richard J.
Ney, Esq., William J.
Kelley,
III, Esq.,
CHADBOURNE
& PARKE LLP, Los Angeles, California.
Representing Respondent: C.S. Przybylek, Esq., Wilfred E. Maez, Esq., Office of
Chief Counsel, DOE Alburquerque Operations Office, Alburquerque, New Mexico.
OPINION BY: VAN DOREN
Ruling Denying Respondent's Motion for Summary Judgment
This appeal is taken from alleged deemed denials of three certified claims
submitted by Rockwell International Corporation (Rockwell) aggregating $
10,039,511. The first claim, in the approximate amount of $ 1.2 million, is for
the costs of outside legal counsel. Allegedly, these costs were incurred by
Rockwell between June 6 and December 31, 1989, in the representation of
Rockwell in connection with a criminal investigation by the United States
Government into possible violations of
environmental laws at the Department of Energy's Rocky Flats
Plant. The second claim, in the approximate amount of $ 3.7 million, is for the
alleged cost of providing independent
[#2]
legal representation for individual employees and former employees of Rockwell incurred in
connection with the investigation. The third claim, in the approximate amount
of $ 5.2 million, is for costs allegedly incurred by Rockwell in creating a
computerized litigation
database in connection with the investigation. Respondent Department of Energy (DOE)
filed a motion for
summary judgment.
Statement of Facts
The following statement of facts is set forth solely for ruling on this motion:
1. On January 8, 1975, DOE, acting through a predecessor agency, and Rockwell
entered into a contract under which Rockwell agreed to
manage and operate a Government-owned facility known as the Rocky Flats
Plant (the
"Plant") located near Golden, Colorado. The
Plant produced components for nuclear weapons.
2. This contract was periodically modified and renewed. Supplemental Agreement,
Modification M087 to Contract No. DE-AC04-76DP03533 (the
"1986 Contract"), effective January 1, 1986, extended performance to the period January 1,
1986, through January 1, 1988. Supplemental Agreement, Modification M124 to
Contract No. DE-AC04-76DP03533 (the
"1989 Contract"), effective January 1, 1989, extended
[#3] performance to the period January 1, 1989, through December 31, 1993. (The
1986 and 1989 contracts are collectively referred to as the
"Contracts.")
3. The Contracts were Management and Operating type contracts ("M&O Contracts"). Part 970 of the Department of Energy Acquisition
Regulation (the
"DEAR") governs M&O Contracts.
4. On June 6, 1989, the Federal Government conducted a raid on the
Plant pursuant to a search warrant. Thereafter, a special grand jury was convened to
investigate alleged violations of
environmental laws and
regulations at the
Plant. The grand jury conducted an extensive investigation.
5. By agreement between Rockwell, DOE and EG&G Rocky Flats, Inc., executed December 29, 1989, Rockwell's contract
responsibility for management and operation of the
Plant ceased on January 1, 1990, and was assumed by EG&G Rocky Flats.
Inter alia, this agreement provided for Rockwell to:
Perform the continuing obligations imposed by any provision of the M&O Contract relating to any activity of Rockwell as the Management and Operating
Contractor of the RFP from June 30, 1975, until the Transfer Date, including, but not
limited to, all actions necessary for the protection of
[#4] Rockwell's continuing rights and interests and those of its employees and
former employees relating to the performance of work under the M&O Contract, and all obligation imposed by Clause 76
"Litigation and Claims" of the M&O Contract.
6. After extensive negotiations, the Department of Justice and Rockwell entered
into an agreement entitled
"Plea Agreement and Statement of Factual Basis" dated March 26, 1992 (the
"Plea Agreement"). In this agreement, Rockwell agreed to plead guilty to ten criminal (five
felony and five misdemeanor) violations (collectively, the
"Counts of Conviction") of the Resource Conservation
& Recovery Act,
42 U.S.C. § 901
et seq. ("RCRA"), and the Clean Water Act,
33 U.S.C. § 1251
et seq. ("CWA"), and to pay $ 18.5 million in criminal
fines. In exchange, the United States agreed not to bring other
environmental or related criminal charges against Rockwell concerning the
Plant with specified exceptions not apparently relevant to this motion. Several
counts list a knowing violation of an
environmental law,
regulation or permit as an element of the charged crime; however, none
[#5] listed a knowing violation of a criminal law as an element. Several counts
were based on negligence.
7. Incorporated into the Plea Agreement and Statement of Factual Basis was
another document, also dated March 26, 1992, that was separately signed by the
Department of Justice and Rockwell. This document was entitled simply
"Plea Agreement." To distinguish it from the Plea Agreement and Statement of Factual Basis, we
refer to this second document as the
"Settlement."
8. Paragraph 6 of the
Settlement provided that Rockwell could not recover or seek to recover the criminal
fines from the DOE pursuant to indemnification provisions in the Contracts or
otherwise.
9. Paragraph 7 of the
Settlement prohibited Rockwell,
"except as provided in paragraph 8," from seeking or recovering from DOE, pursuant to indemnification provisions in
the Contracts or otherwise, attorney fees and costs incurred by Rockwell in
defending or preparing to defend the Rocky Flats criminal investigation and prosecution
concerning seven specified subjects which appear to
correspond to the Counts of Conviction.
10. Paragraph 8 of the
Settlement ("Paragraph 8") provided:
Rockwell may seek to recover from DOE (and
[#6] subject to DOE's review and approval in accordance with the relevant
contract(s) and applicable law and
regulations): (a) attorneys' fees and costs incurred by Rockwell (on behalf of the
corporation) prior to January 1,1990 (but not thereafter); (b) attorneys' fees
and costs incurred by Rockwell in providing
legal representation to past and present Rockwell employees; (c) costs concerning a computer system
which is also used in Rocky Flats-related civil litigation.
11. Rockwell and the Department of Justice agreed that the January 1, 1990,
cutoff for fees and costs incurred on behalf of Rockwell corporate, specified
in clause (a) of Paragraph 8, was a
"bright-line" means of allocating Rockwell attorney fees and costs between
(i) fees and
costs incurred in connection with uncharged conduct and (ii) fees and costs
incurred in connection with charged conduct. Costs incurred before January 1,
1990, were to be treated as
costs incurred due to uncharged conduct and Rockwell was to be permitted to seek them from
DOE. Costs incurred on or after January 1, 1990, were to be treated as
costs incurred due to charged conduct and Rockwell was precluded from seeking them from DOE.
Rockwell Declaration,
[#7] Ex. 3 at 46-47
12. On June 1, 1992, the United States District Court of Colorado conducted a
sentencing hearing and, pursuant to Rule 11 of the Federal Rules of Criminal
Procedure, accepted Rockwell's plea of guilty and the Plea Agreement (which
included the
Settlement) and imposed sentence as provided in the Plea Agreement. The sentence included
agreed
fines of $ 18.5 million.
13. Rockwell retained outside counsel to represent it concerning the alleged
environmental violations. In its first claim, Cause I of the Complaint ("Cause I"), Rockwell seeks $ 1,157,364 that it asserts it
"incurred, and paid, ... for outside counsel costs on its behalf in response to,
and
defending against, the federal
environmental investigation between June 6, 1989 and December 31, 1989." The costs sought by Cause I appear to
correspond to the costs which Rockwell is permitted to seek under clause (a) of Paragraph
8.
14. Rockwell provided independent counsel for certain employees and former
employees. In its second claim, Cause II of the Complaint ("Cause II"), Rockwell seeks $ 3,725,461 that it asserts it
"paid ... to provide independent counsel to employees and former
Plant employees who became involved
[#8] in the
grand jury investigation of alleged violations of
environmental laws and
regulations at the
Plant." The costs sought by Count II appear to
correspond to the costs which Rockwell is permitted to seek under clause (b) of Paragraph
8.
15. Rockwell retained LSI Corporation to develop and maintain a computerized
litigation support system
database in connection with the Government investigation of alleged
environmental violations. In its third claim, Cause III of the Complaint ("Cause III"), Rockwell seeks $ 5,156,686 that it asserts it
"paid LSI for the costs of developing and maintaining a litigation support data
base." The costs sought by Cause III appear to
correspond to the costs which Rockwell is permitted to seek under clause (c) of Paragraph
8.
16. The STATEMENT OF WORK of both contracts included the following paragraphs
among others:
a) Engagement of
Contractor - Designation of Facilities. The Government expressly engages the
Contractor to
manage, operate and maintain the Rocky Flats
Plant and to perform the work and services described in this contract including
Appendix B,
"Scope of Work," and including the utilization of information, material, funds, and other
[#9] property of DOE, the collection of revenues, and the acquisition, sale or
other disposal of property for the DOE, subject to the limitations as
hereinafter set forth. Appendix B, by this reference, is hereby incorporated
into and made a part of this contract. The
Contractor undertakes and promises to
manage, operate, and maintain the Rocky Flats
Plant and to perform said work and services, upon the terms and conditions herein
provided and in accordance with such directions and instructions not
inconsistent with this contract which the Contracting Officer may deem
necessary and give to the
Contractor from time to time. In the absence of applicable directions and instructions
from the Contracting Officer, the
Contractor shall use its best judgment, skill and care in all matters pertaining to the
performance of this contract.
b) Description of Work and Services.
i) Operating and Management Services. The
Contractor shall
manage, operate, and maintain the Rocky Flats
Plant in accordance with programs approved in writing from time to time by the
Contracting Officer.
17. The Scope of Work for both contracts contained the following initial
paragraph:
The purpose of this
[#10] Appendix B is to describe the scope of work which the
Contractor shall perform under this contract for the period [specified in each contract],
pursuant to the provisions of the clause entitled,
"Statement of Work." The
Contractor shall, in accordance with the provisions of this contract, use its best
efforts to
manage, staff, maintain, and operate the Rocky Flats
Plant within available funds so as to carry on in an efficient manner all necessary
and related services and operations for the purpose of developing and producing
(at such rates, and in conformance with such specifications, as the Contracting
Officer may direct in writing from tune to time) weapons components,
assemblies, and ancillary equipment and for performing related services and
operations within the time scales requested by the Contracting Officer. Work to
be performed includes: [followed by a list]
18. Both contracts contained DEAR clause 970.5204-2 entitled SAFETY AND HEALTH
(GOVERNMENT-OWNED OR LEASED) (Apr 1984) as follows:
The
Contractor shall take all reasonable precautions in the performance of the work under
this contract to protect the safety and health of employees and of members of
the public and
[#11] shall comply with all applicable safety and health
regulations and requirements (including reporting requirements) of DOE. The Contracting
Officer shall notify the
Contractor, in writing, of any noncompliance with the provisions of the clause and the
corrective action to be taken. After receipt of such notice, the
Contractor shall immediately take corrective action. The
Contractor shall submit a management program and implementation plan to the Contracting
Officer for review and approval within 30 days after the date of award of this
contract. In the event that the
Contractor fails to comply with said
regulations or requirements of DOE, the Contracting Officer may, without prejudice to any
other legal or contractual rights of DOE, issue an order stopping all or any
part of the work; thereafter, a start order for resumption of the work may be
issued at the discretion of the Contracting Officer. The
Contractor shall make no claim for an extension of time or for compensation or damages by
reason of, or in connection with, such work stoppage.
19. Both contracts contained DEAR clause 970.5204-29 entitled PERMITS OR
LICENSES (APR 1984) as follows:
Except as otherwise directed by the
[#12] Contracting officer, the
Contractor shall procure all necessary permits or licenses and abide by all applicable
laws,
regulations, and ordinances of the United States and of the state, territory, and political
subdivision in which the work under this contract is performed.
20. Both contracts contained a modified DEAR clause 970.5204-13 entitled
ALLOWABLE COSTS, BASE FEE AND AWARD FEE (APR 1984), and portions are quoted immediately
below. Paragraph (d)(16) is a modification that was not part of the version of
the clause prescribed by the DEAR:
(c)
Allowable cost. The
allowable cost of performing the work under this contract shall be the costs and
expenses that are actually incurred by the
Contractor in the performance of the contract work in accordance with its terms, that are
necessary or incident thereto, and are determined to be
allowable pursuant to this paragraph (c). The determination of the
allowability of cost hereunder shall be based on: (1) reasonableness, including the
exercise of prudent business judgment; (2) consistent application of generally
accepted
accounting principles and practices that result in equitable charges to the contract
work; and (3) recognition
[#13] of all exclusions and limitations set forth in this clause or elsewhere in
this contract as to types or amounts of items of cost.
Allowable cost shall not include the cost of any item described as
unallowable in paragraph (e) of this clause except as indicated therein. Failure to
mention an item of cost specifically in paragraph (d) or paragraph (e) shall
not imply either that it is
allowable or that it is
unallowable.
(d) Items of
Allowable Cost. Subject to the other provisions of this clause, the following items of
cost of work done under this contract shall be
allowable to the extent indicated:
* * *
(3) Consulting services (including legal and
accounting), and related expenses, as approved by the Contracting Officer, except as made
unallowable by Paragraph (e)(16)....
(4) Litigation expenses, including payment of third-party claims, judgments and
reasonable counsel fees, incurred in accordance with the clause of this
contract entitled
"Litigation and Claims."
(5) Losses and expenses (including
settlements made with the consent of the Contracting Officer) sustained by the
Contractor in the performance of this contract and certified in writing by the
Contracting Officer
[#14] to be reasonable, except the losses and expenses expressly made
unallowable under other provisions of this contract.
* * *
(16) All cost incurred by the
Contractor with respect to any and all liabilities, claims, demands, damage costs, or
penalties (such as civil sanctions including
fines), arising out of, or related to
environmental, safety and health activities, including costs incurred with respect to
investigation, removal, remedial action, ground and surface water or other
clean-up of hazardous, toxic or contaminated material(s), except for those
costs that result from conduct identified in subparagraph (e)(17)(ii) of the
clause entitled,
"Allowable Costs, Base Fee, and Award Fee."
(e) Items of
Unallowable Cost. The following items of costs are
unallowable under this contract to the extent indicated:
* * *
(12)
Fines and penalties, including assessed interest, resulting from violations of, or
failure of, the
Contractor to comply with Federal, state, local or foreign laws and
regulations, except when incurred in accordance with the written approval of the
Contracting Officer or as a result of compliance with the provisions of this
contract.
* * *
(16) Legal,
accounting,
[#15] and consulting services and related
costs incurred in connection with the preparation and issuance of stock rights, organization
or reorganization, prosecution or defense of antitrust suits, prosecution of
claims against the United States,
contesting actions of [sic] n1 proposed actions of the United States, and prosecution or
defense of patent infringement litigation.
(17) Losses ... where such losses or expenses:
* * *
(ii) result from willful misconduct or lack of good faith on the part of any of
the
Contractor's managerial personnel, as defined in the clause of this contact entitled
"Property;"....
------------------------------------------
n1 Both parties acknowledge this as an obvious error occurring in both
contracts and, further, that the word should be
"or" not
"of."
------------------------------------------
21. Both contracts contained DEAR clause 970.5204-21, PROPERTY (April 1984)
(the
"Property Clause"). This clause contains the following:
(f) ... The term
"contractor's managerial personnel" ... means the
Contractor's directors, officers and any of its managers, superintendents, or other
equivalent representatives who have supervision or direction of (1) all or
substantially all of the
Contractor's business; or (2) all or substantially
[#16] all of the
Contractor's operation at any one
plant or separate location at which this contract is being performed; or (3) a
separate and complete major industrial operation in connection with the
performance of this contract; or (4) a separate and complete major
construction, alteration or repair operation in connection with performance of
this contract.
Discussion
DOE appears to advance two theories to support its motion. First, it contends
that Rockwell's
"criminal defense costs are made specifically
unallowable in this case by the clear and unambiguous terms of subparagraph (e)(16)" of the
ALLOWABLE COSTS clause of the Contracts. Second, it contends that Rockwell's criminal
wrongdoing was in breach of the Contracts' terms, arguing that the PERMITS OR
LICENSES (APR 1984) clause (DEAR 970.5204-29) and the SAFETY AND HEALTH
(GOVERNMENT-OWNED OR LEASED) (APRIL 1984) clause (DEAR 970.5204-2) of the
Contracts required compliance with all applicable laws and
regulations including
environmental laws and
regulations. Therefore, it argues that legal fees and costs incurred
defending Rockwell against charges of criminal wrongdoing could not be
allowable as incident to performance
[#17] of contract work.
Summary judgment is appropriate where no material facts are genuinely in
dispute and the moving party is entitled to judgment as a
matter of law.
Mingus Constructors, Inc., v. United States, 812 F.2d 1387, 1390 (Fed.Cir. 1987). The moving party (in this case, DOE) must
"establish ... that there are no genuine issues of
material fact and that it is entitled to a judgment as a
matter of law."
Kokosing Constr. Co., 91-1 BCA P 23,508, at p. 117,869 (EBCA 1990). A
material fact is a fact that will affect the outcome of the case.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986). Evidence sufficient to establish the existence of a genuine dispute of a
material fact need not be admissible at trial.
Celotex Corp. v. Catrett, 477 U.S. 317, 322, 324 (1986). The evidence presented, including all inferences, is construed in favor of the
party opposing
summary judgment.
Automated Services, Inc., 87-3 BCA P 20,157, at 102,027 (EBCA). Facts asserted by the party opposing
summary judgment are regarded as true if supported by
[#18] affidavits or other evidentiary material.
Id, at 102,027. Significant doubts are to be resolved in favor of the non-moving
party.
Golden West Refining Co., 94-3 BCA P 27,184, at 135,486 (EBCA 1997). Contract interpretation is a question of law,
P.J. Maffei Bldg. Wrecking Corp. v. United States, 732 F.2d 913, 916 (Fed.Cir. 1984), which may, therefore, be resolved by
summary judgment if the criteria for
summary judgment are present. If a contract is clear on its face,
extrinsic evidence will not be received to change its terms and the interpretation will be
rendered as a
matter of law. However, where the contract terms are ambiguous, requiring the
weighing of
external evidence, the matter is not amenable to
summary judgment. The question of interpretation of language and conduct is then a question of
fact, not law.
Beta Systems, Inc. v. United States, 838 F.2d 1179, 1183 (Fed.Cir. 1988).
Theory One: DOE Contends that All of Rockwell's Costs were Incurred in
Contesting Actions of the United States and are therefore
Unallowable Pursuant to Subparagraph (e)(16) of the
Allowable Costs Clause
of the Contract.
[#19]
DOE's first theory is based upon a provision common to the Contracts which
contain language disallowing the costs of
contesting actions or proposed actions of the United States. Subparagraph (e) of the
ALLOWABLE COSTS, BASE FEE AND AWARD FEE (APR 1984) clause (DEAR 970.5204-13) of the
Contracts (hereinafter
"(e)(16)") contains the following among a list of costs which are specifically
unallowable:
(16) Legal,
accounting, and consulting and related
costs incurred in connection with the preparation and issuance of stock rights, organizations
or reorganization, prosecution or defense of antitrust suits, prosecution of
claims against the United States,
contesting actions of [sic] proposed actions of the United States, and prosecution or defense of patent infringement litigation.
(Emphasis added.)
DOE asserts:
The contract clearly and unambiguously states in subparagraph (e)(16) that
costs which Rockwell incurs in connection with
contesting actions brought by the United States are excluded from reimbursement by DOE.
There can be no question that Rockwell was
contesting an action or proposed action of the United States in
defending itself and its employees
[#20] during the federal criminal investigation of the claim in this appeal.
DOE also argues that the
grand jury investigation was a
sovereign act of the United States. Inferentially, we are asked to conclude that
"sovereign acts" equates to the term
"actions of the United States" as used in clause (e)(16) of the contract. DOE, in addition to contending that
(e)(16) renders the costs
unallowable, also appears to contend that
costs incurred due to a
sovereign act of the United States are
unallowable as a
matter of law. DOE relies on
Orlando Helicopter Airways, Inc. v. Widnall, 51 F.3d 258 (Fed.Cir. 1995) as support of its later contentions.
In its response, Rockwell does not contest a conclusion that the
grand jury investigation was a
sovereign act of the United States. However, we understand it to take the position that
such a conclusion does not dispose of cost
allowability issues. In opposition, Rockwell advances a two-step argument. First, it
contends that
criminal defense costs are not
unallowable under a
cost-reimbursement contract solely by virtue of the fact that they arise from
sovereign acts of the Government. Rockwell contends that
Orlando
[#21] simply does not apply to the facts here. Second, it contends that, despite the
language of (e)(16), the contract allocates the risk of
environmental costs to DOE, which would include
criminal defense costs for
environmental crimes.
Rockwell points out that
Orlando involved a fixed-price contract, not a
cost-reimbursement contract such as the contracts here. It refers us to several cases which hold
that the Government may contractually obligate itself to pay costs incurred as
a result of specific
sovereign acts. It then argues that DOE did exactly that here. It claims that Rockwell
and DOE specifically
negotiated and agreed to include an
"environmental
indemnity provision" in the 1986 Contract n2. The
environmental
indemnity provision, which was carried over into the 1989 Contract, lists the following as
allowable costs:
All costs incurred by the
contractor with respect to any and all liabilities, claims, demands, damage costs, or
penalties (such as civil sanctions including
fines), arising out of, or related to
environmental, safety and health activities.... n3
------------------------------------------
n2 In this opinion we employ Rockwell's term
"environmental
indemnity provision" to avoid confusion between this provision, which is subparagraph (d)(16), and
subparagraph (e)(16) relied upon by DOE. Our use is a matter of convenience
only and does not carry with it any implication as to the proper interpretation
of this provision.
[#22]
------------------------------------------
n3 Rockwell notes that the remainder of the clause carves out an exception to
the
allowability for costs attributable to the willful misconduct or lack of good faith on the
part of senior
contractor officials, and it contends that only the manager of the
Plant met the contract's definition of a senior
contractor official.
------------------------------------------
Rockwell contends that by this provision DOE
"contracted to assume responsibility for all costs and liabilities arising from
or related to Rockwell's
environmental activities at the
Plant, with no exception for liabilities resulting from the government's
sovereign acts." Rockwell Memorandum, at 30
(emphasis in original). Further, it maintains that while clause (e)(16), upon which DOE relies, is
standard boilerplate, the
environmental
indemnity provision was specifically
negotiated for inclusion in the 1986 Contract. Rockwell Memorandum, at 30-35;
see, Rockwell Declaration, Ex. 12. It states that this clause was
negotiated in response to changing policies and conditions regarding
environmental risks. As a specifically
negotiated provision, Rockwell believes the provision is entitled to precedence over the
(e)(16) clause relied upon
[#23] by DOE under well-established rules of contract interpretation. Moreover, it
contends that its reading of the
environmental indemnity clause is
"completely consistent with the risk-sharing concept of
cost-reimbursement contracts in general and with DOE's oft-announced (and relied on) policy of
bearing all risks of managing and operating its nuclear weapons facilities in
particular." Rockwell Memorandum, at 30. Rockwell substantiates DOE's indemnification
policies in support of its contention through public documents and statements
by DOE officials.
See, Rockwell Declaration, Ex. 15-20.
We begin by considering DOE's contention, based on
Orlando, that Rockwell's
criminal defense costs were not
allowable as a
matter of law. At the outset, we conclude that
Orlando has little, if any, precedential bearing on this issue since the Contracts at
issue here are
cost-reimbursement contracts, and the contract in
Orlando was a
fixed-priced contract. The legal underpinnings for recovery of
"costs" under a
fixed-priced contract and a
cost-reimbursement contract are markedly different. Moreover,
Orlando, at 262, recognizes that the Government may assume contractual liability
[#24] for its
sovereign acts. This recognition is consistent with the Court of Appeals for the Federal
Circuit's earlier, more extensive discussion in
Hughes Communications Galaxy, Inc. v. United States, 998 F.2d 953 (Fed.Cir. 1993), wherein it stated at 958-59:
In its contractual capacity, the government executes countless agreements with
private entities to receive and provide services, goods and supplies. These
contracts routinely include provisions shifting financial responsibility to the
government for events which might occur in the future. That some of these
events may be triggered by
sovereign government action does not render the relevant contractual provisions any less
binding than those which contemplate third party acts, inclement weather and
other force majeure.
We conclude that in the absence of specific statutory or regulatory
limitations, DOE was not barred from agreeing to reimburse Rockwell for
costs incurred due to
sovereign acts. No such statutory or regulatory limitations have been brought to our
attention.
We also conclude that DOE has not established that its interpretation of the
contract is correct. It has focused upon clause
[#25] (e)(16) to the exclusion of others that cast doubt upon its meaning. It is the
contract as a whole which is to be construed, not a single clause.
Julius Goldman's Egg City v. United States, 697 F.2d 1051, 1057 (Fed.Cir. 1983);
Erickson Air Crane Co. of Washington, Inc., 83-1 BCA P 16,145 at 80,252
(EBCA). At a minimum, there is a patent, facial conflict between (e)(16) and
the
environmental indemnity clause, which DOE did not even recognize, much less attempt to
resolve. Moreover, Rockwell offers
extrinsic evidence suggesting that the parties intended to place the risk of costs of the nature
sought here on DOE and not on Rockwell. It also offers
extrinsic evidence that DOE followed a practice of reimbursing its M&O
contractors for all federally imposed
fines and penalties, including those imposed by EPA. Rockwell Declaration, Ex.
15-23;
55 Fed. Reg. 2796 (Jan. 26, 1990). (We note that none of the cited instances involved criminal
fines and penalties.) It specifically cites to an instance under the 1986 Contract,
when, it contends, DOE reimbursed Rockwell's costs of alleged
environmental violations
[#26] charged by the EPA. Rockwell Declaration, Ex. 21-22. It argues that these
events are indications of contemporaneous understandings demonstrated by past
actions and practice of the parties and are to be given substantial weight in
the proper interpretation of contracts and cites cases that it argues support
this proposition.
DOE's first theory fails.
"To the extent that the contract terms are ambiguous, requiring
weighing of
external evidence, the matter is not amenable to summary resolution."
Beta Systems, Inc., v. United States, 838 F.2d 1179, 1183 (Fed.Cir. 1988). The conflicting terms of the contract create an ambiguity requiring the
weighing of
external evidence. Rockwell has offered
extrinsic evidence supporting the reasonableness of its interpretation of the contract that is
contrary to the interpretation espoused by DOE. Giving Rockwell the benefit of
all favorable inferences, there are no grounds to grant
summary judgment in favor of DOE on this theory. n4
n4 Since DOE's argument fails we need not address here the issue of whether all
or any part of causes 1,2, or 3 are costs incurred
"in connection with ...
contesting actions or proposed actions of the United States."
[#27]
Theory Two: DOE Contends that the Costs Sought by Rockwell are
Unallowable because they were not Incurred in the Performance of Contract Work.
DOE asserts that:
Contract provisions required Rockwell to comply with RCRA which Rockwell admits
to having knowingly violated. By its unlawful acts, in violation of RCRA,
Rockwell in fact breached its contractual duty to comply with all applicable
environmental laws and
regulations. The costs claimed in this appeal flow directly from Rockwell's breach of the
Contract. A criminal plea by and conviction of Rockwell for violating federal
environmental statutes and federal criminal defense costs associated with these convictions
are plainly not
costs incurred in the performance of the Contract
"in accordance with its terms" or
"necessary or incident thereto."
Rockwell vigorously contests this prong of DOE's motion. It asserts this
argument is wrong both on the facts and the law. First, it rejects the
contention that the costs at issue were incurred for
defending against charged criminal violations. Second, it contends that it is entitled
to recover the costs sought under the terms of the Contracts. It upbraids DOE
for
"treat[ing] the
[#28] Contracts as though they were
fixed-priced supply contracts where failure to meet a performance specification would be a
breach" and
"completely ignor[ing] the very nature of a
contractor's performance obligations under the
cost-reimbursement M&O Contracts at issue." It quotes the portion of the Scope of Work that requires Rockwell to
"use its best efforts to
manage, staff, maintain and operate the Rocky Flats
Plant." It argues that the Contracts' scopes of work encompass activities that are
determined, after-the-fact, to be violations of
environmental laws and that the costs of such work are reimbursable under the contract.
Further, it argues that paragraph (e)(12) of the
ALLOWABLE COSTS clause, which addresses the
allowability of
fines and penalties as costs, demonstrates that a
contractor may, as provided therein, violate federal laws and
regulations in performing the work of the contract, receive
fines and penalties and have these
fines and penalties treated as
allowable costs. One assumes that, but for the bar contained in the
Settlement, Rockwell would contend it was entitled under the contract to recover all its
costs arising from the
grand jury investigation and resulting
[#29] prosecution including the costs incurred in connection with the Counts of
Conviction.
In our analysis, we assume,
arguendo only, that DOE is correct that
criminal defense costs flowing from a Rockwell criminal violation of
environmental laws or
regulations are not
allowable, and we initially confine ourselves to consideration of the factual basis for
DOE's contentions. It is unnecessary for us to consider DOE's legal contentions
unless DOE first establishes the factual predicates for its contentions. In
this instance, DOE must establish that the costs that Rockwell seeks
"flowed" from its criminal violation of
environmental laws or
regulations. DOE contends that this is so. But, merely saying that it is so does not make
it so. It must establish undisputed facts proving Rockwell's activities in
criminal violation of
environmental laws or
regulations and, additionally, that the costs sought were generated by these activities.
It offers the Plea Agreement and Rockwell's convictions as its proof
Undeniably, the Plea Agreement and the convictions do establish activities that
violated
environmental laws and
regulations. However, the Plea Agreement and the convictions do not establish
[#30] whether these activities generated the costs sought here. This is a
material fact that must be established for each of the three Rockwell claims.
Each of the three claims presents different fact predicates. Our analysis is
made more difficult because DOE did not address the claims on a claim-by-claim
basis. Cause I of the Complaint sets forth the first claim, which is for
legal representation of Rockwell itself In this cause it seeks approximately $ 1.2 million for
outside counsel costs on behalf of the corporation
"in response to, and
defending against, the federal
environmental investigation between June 6, 1989 and December 31, 1989." The
Settlement permits Rockwell to seek attorney fees and costs incurred on behalf of the
corporation before January 1, 1990, but not thereafter. Rockwell provided
evidence that the January 1, 1990, date set by the
Settlement, after which Rockwell could not seek
costs incurred for its counsel, was a
"bright line" date agreed between the Department of Justice and Rockwell as a method of
allocating costs between those incurred for
defending conduct which was not charged and those
costs incurred in connection with conduct resulting in the Counts of
[#31] Conviction. Rockwell Declaration, Ex. 3 at 46-47. For purposes of the motion,
we must accept this evidence as true and must grant the nonmoving party all
inferences that may be reasonably drawn from it. Accordingly, it appears for
purposes of the motion that Rockwell does not seek under Cause I any attorney
fees or
costs incurred in connection with the Counts of Conviction. Therefore, DOE has not
established that there are no facts in dispute material to Theory II with
respect to Cause I. Therefore, we may not grant
summary judgment with respect to Cause I.
Cause II of the Complaint sets forth Rockwell's second claim, which is for
legal representation of Rockwell employees. In this cause, Rockwell seeks approximately $ 3.7
million for the costs of independent counsel provided to employees and former
Plant employees who became involved in the
grand jury investigation. The
Settlement permits it to seek attorney fees and costs which it incurred in providing
legal representation to past and present Rockwell employees. DOE has provided neither argument nor
evidence connecting any of the Rockwell employees for whom it paid legal
expenses to the Counts of Conviction, much less connecting
[#32] these costs to the defense of the Counts of Conviction. Rockwell has provided
evidence that none of the Rockwell employees were prosecuted. Rockwell
Declaration, Ex. 3 at 41-42, 47, 49. For purposes of the motion, we must accept
Rockwell's evidence as true and must grant it, as the non-moving party, all
inferences that may be reasonably drawn from it. Therefore, DOE has not
established that the costs sought in Cause II were generated in connection with
the Counts of Conviction. There are facts in dispute material to Theory II with
respect to Cause II. Therefore, we may not grant
summary judgment on Theory II with respect to Cause II.
Cause III of the Complaint sets forth Rockwell's third claim, which is for a
litigation
database. In this cause, Rockwell seeks approximately $ 5.2 million that it allegedly
paid to a subcontractor. DOE has provided neither argument nor evidence
connecting these costs to the defense of Rockwell against the Counts of
Conviction. However, Rockwell acknowledged that the
database was used in its defense against the Counts of Conviction. It also asserts that
the
"database has been used extensively in civil litigation and administrative matters by
DOE
[#33] itself and by DOE
contractors other than Rockwell, as well as by Rockwell in both the criminal investigation
and civil litigations." It submitted DOE's response to an interrogatory in which DOE states:
Absent a finding of fraud, the costs claimed for data base support associated
with civil litigation, and unrelated to the costs and fees incurred in the
defense of criminal charges against Rockwell, may be
allowable under the contract, but adequate supporting data would be needed in order to
determine the
allowability and reasonableness of the costs.
Rockwell Declaration, Ex. 24.
The only evidence that some portion of the costs claimed under Cause III were
generated in connection with the Counts of Conviction is Rockwell's admission.
This admission, while telling, does not enable us to dispose of this entire
cause, much less all of Rockwell's claims. Furthermore, DOE's interrogatory
response is sufficient to raise an inference, to which Rockwell is entitled,
that some portion of the
database costs may be
allowable. Moreover, DOE has not sought partial
summary judgment or, even, provided us with a basis to grant such. Inasmuch as DOE has failed
to adduce evidence that all
[#34] the costs sought by Cause III we were incurred in connection with criminal
violations of
environmental law, it is unnecessary for us to reach the legal issue whether such violations
would be a breach of the contract, whether rendering costs associated therewith
are
unallowable and other issues raised by the parties. n5 There is no basis to grant DOE
summary judgment on Cause III.
------------------------------------------
n5 Rockwell's admission that some portion of the costs of the computer system
(Rockwell's Cause III) were incurred in connection with its defense of charges
to which it plead guilty and was convicted raises the question whether the
Board should now address whether such costs may be recovered under the
contract. We conclude that we do not have a record sufficient to do so.
------------------------------------------
Rockwell raised a number of connected legal and factual issues to which DOE has
not replied. DOE was not obligated to reply since our rules do not permit
replies without the permission of the Board. DOE did not request such
permission. Some of the issues raised are complex and potentially far-reaching.
Moreover, they seem likely to lead to additional impasses on material facts, so
the wisdom of addressing these issues in the context of a motion for
summary judgment is doubtful. We cannot responsibly address these without first giving DOE an
additional chance to reply. The time set for trial is close. Under the
circumstances, we think it prudent to defer these issues and to allow a full
airing of evidence at trial.
[#35]
DOE failed to establish that it is entitled to
summary judgment on any of the three causes based upon its theory that the costs sought were
incurred due to Rockwell breaches of the Contracts' terms.
Ruling
DOE's motion for
summary judgment is denied.
E. Barclay Van Doren
Chief Administrative Judge
I concur:
Beryl S. Gilmore
Administrative Judge
I concur:
R. Anthony McCann
Administrative Judge
End of Opinion.
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