**United States Court of Appeals for the Federal Circuit**

03-1622

UNITED PACIFIC INSURANCE COMPANY,

> Appellant,

v\.

James G. Roche, SECRETARY OF THE AIR FORCE,

Appellee.

[Gary A. Wilson]{.underline}, Duane Morris LLP, of Philadelphia,
Pennsylvania, argued for appellant. With him on the brief was [Salil P.
Patel]{.underline}.

[Michael N. O'Connell]{.underline}, Trial Attorney, Commercial
Litigation Branch, Civil Division, United States Department of Justice,
of Washington, DC, argued for appellee. With him on the brief were
[Peter D. Keisler]{.underline}, Assistant Attorney General; [David M.
Cohen]{.underline}, Director; and [James M. Kinsella]{.underline},
Deputy Director. Of counsel on the brief was [Major Graeme
Henderson]{.underline}, Chief, Surety Litigation Branch, Air Force Legal
Services Agency, of Arlington, Virginia. Also of counsel was [William M.
Lackermann, Jr.]{.underline}, Attorney, Air Force Materiel Command Law
Office, Wright-Patterson Air Force Base, of Dayton, Ohio.

[Edward G. Gallagher]{.underline}, Wickwire Gavin, P.C., of Vienna,
Virginia, for amicus curiae The Surety Association of America.

Appealed from: Armed Services Board of Contract Appeals

United States Court of Appeals for the Federal Circuit

03-1622

UNITED PACIFIC INSURANCE COMPANY,

> Appellant,

v\.

James G. Roche, SECRETARY OF THE AIR FORCE,

Appellee.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

DECIDED: August 18, 2004

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Before LOURIE, [Circuit Judge]{.underline}, FRIEDMAN, [Senior Circuit
Judge]{.underline}, and CLEVENGER, [Circuit Judge]{.underline}.

FRIEDMAN, [Senior Circuit Judge]{.underline}.

A surety who completed performance of a defaulting government contractor
seeks an equitable adjustment on various theories. The Armed Services
Board of Contract Appeals ("Board") held that it had no jurisdiction
over most of these claims under our recent decision in [Fireman's Fund
Insurance Co. v. England]{.underline}, 313 F.3d 1344 (Fed. Cir. 2002)
("[Fireman's Fund]{.underline}"), and rejected the remaining claims on
the merits. [United Pac. Ins. Co.]{.underline}, 03-2 B.C.A. (CCH) ¶
32,267 at 159,604 (A.S.B.C.A. 2003). We affirm.

I

This case grows out of a 1995 Air Force contract with Castle Abatement
Corporation ("Castle") for the renovation of three buildings. The
appellant, United Pacific Insurance Company ("United"), was the surety
for the project and "issued performance and payment bonds to Castle."
[Id.]{.underline} at 159,606. Castle and United also executed an
indemnity agreement in which Castle assigned to United, in case of
Castle's default, all of its "rights . . . \[and\] claims . . . arising
from or out of" the construction contract, including "all moneys due"
thereunder. The government was not a party to the surety or indemnity
agreements, and except for its participation as a surety, United was not
"part of the contracting process." [Id.]{.underline} at 159,606.

Castle had performance and financial problems. [Id.]{.underline} at
159,607. In May 1997, Castle asked the contracting officer to make all
future progress payments to United. [Id.]{.underline} at 159,616. After
the contracting officer told United that a novation would be required to
make that change, United refused to do that. [Id.]{.underline}
Thereafter, the Air Force made an additional payment of \$116,000 to
Castle. [Id.]{.underline}

In July 1997, Castle abandoned performance, and the government
terminated the contract for default. [Id.]{.underline} at 159,609. The
following month, United and the government entered into a takeover
agreement under which United agreed to complete performance of the
contract and the government agreed to pay United the remaining amounts
due under the construction contract, which the takeover agreement
incorporated. [Id.]{.underline} at 159,611-13. At that time, the
government estimated, and United agreed, that 79.91 percent of the
contract work had been completed. [Id.]{.underline} at 159,610. Contract
performance was completed in 1998. [Id.]{.underline} at 159,615.

United sought an equitable adjustment from the contracting officer on a
number of grounds; it also requested the balance due under the
construction contract. [Id.]{.underline} at 159,615; 159,620. After the
contracting officer denied the claims, United appealed to the Board,
which held that under [Fireman's Fund]{.underline}, it lacked
jurisdiction to consider United's claims based on events that occurred
before the takeover agreement, including its equitable subrogation
claims. [Id.]{.underline} at 159,614. The Board also held that it lacked
jurisdiction over United's claim that the original construction contract
was illegal. [Id.]{.underline} at 159,622-23. The Board denied United's
claim for the balance due under the contract because United had not
given the release that the contract required. [Id.]{.underline} at
159,627-28.

II

A. Our recent decision in [Fireman's Fund]{.underline} involved an
almost identical situation. There, following a contractor's default on a
government building construction contract, the surety (Fireman's Fund)
and the government entered into a takeover agreement. 313 F.3d at 1346.
The contractor (Summit) and the surety had entered into a "General
Indemnity Agreement," to which the government was not a party, under
which, in case of a breach of the construction contract, the contractor
assigned to the surety all of its rights under that contract.
[Id.]{.underline}

The Armed Services Board of Contract Appeals dismissed the surety's
claims that arose before the takeover agreement for lack of
jurisdiction. [Id.]{.underline} at 1347. It held that the surety was not
a "contractor" under the Contract Disputes Act with respect to those
claims, that the contractor's assignment of its claims to the surety in
case of default was barred by the Anti-Assignment Act, and it rejected
the surety's equitable subrogation claim because the surety was not a
"contractor" under the Disputes Act. [Id.]{.underline}

We affirmed. Noting that Fireman's Fund's "claims involved in th\[e\]
appeal all relate\[d\] to its pre-takeover agreement activities," we
held that the surety was not a "'contractor' with the United States . .
. with respect to its pre-takeover claims," [id.]{.underline} at 1352,
because "\[i\]t was not a party to any contract with the government
prior to the takeover agreement it had with the government, and its
pre-takeover claims did not arise under such a contract,"
[id.]{.underline} at 1351. We ruled that "\[e\]ven if Fireman's Fund
were equitably subrogated to any claim that Summit may have had against
the government, that did not make Fireman's Fund a party to the contract
between Summit and the United States for purposes of the Disputes Act."
[Id.]{.underline} We further held that the Anti-Assignment Act covered
and invalidated the assignment of the contractor's rights under the
construction contract, and that the exception to that Act "for 'an
assignment to a financing institution of money due or to become due
under a contract'" was inapplicable because the surety was not a
"financing institution." [Id.]{.underline} at 1350.

[Fireman's Fund]{.underline} thus stands for the proposition that for
the Board to have jurisdiction under the Contract Disputes Act over a
claim by a surety that entered into a takeover agreement with the United
States, the claim must "arise under" a contract the surety had with the
government prior to that agreement. For a claim to "arise under" such a
contract, the operative facts upon which the claim is based must have
occurred after the pre-takeover contract was executed.

In this case, the only contract between United and the government was
the takeover agreement. Prior to that agreement, there was no contract
between United and the government, and United's present claims cannot
have arisen under such a contract. Stated differently, the Board had no
jurisdiction over United's claims that were based upon events that
occurred prior to the takeover agreement.

B. Except for one claim we discuss in Part III below, the remainder of
United's claims suffer from the same infirmity that made the claims in
[Fireman's Fund]{.underline} not subject to the Board's jurisdiction:
they relate to and depend upon events that occurred before the takeover
agreement and with respect to which United was not a "contractor" under
the Contract Disputes Act when the claims arose.

1\. United seeks an equitable adjustment because the government "paid
Castle approximately 80 percent of the contract price when only 34
percent of the work was complete." Appellant's Br. at 13. Its theory
apparently is that if the government had not thus overpaid Castle,
United would have known that it had more work to do than it had
anticipated and would have received more under the takeover contract for
the work it did. It also seeks recovery of the \$116,000 payment the Air
Force made to Castle before the takeover agreement, which United alleges
the Air Force agreed to send to it.

All of these alleged overpayments to Castle, however, were made prior to
the takeover agreement, at a time when United was not yet a "contractor"
with the United States. The Board therefore correctly concluded that it
lacked jurisdiction over the claims.

United relies on [National Surety Corp. v. United States]{.underline},
118 F.3d 1542, 1544 (Fed. Cir. 1997), which involved a surety's suit in
the Court of Federal Claims for "funds that were required to have been
retained by the government from the progress payments to" the original
contractor. We ruled that the surety could assert such a claim but that
the "appropriate theory of liability" was the "doctrine of subrogation."
[Id.]{.underline} at 1545; [see also]{.underline} [id.]{.underline} at
1546 ("The subrogation right is equitable . . . and is established when
the surety bonds are given." (citation omitted)). We expressly rejected
the surety's contention that such a claim could be based on a
third-party beneficiary theory. [Id.]{.underline} at 1544.

[National Surety]{.underline} involved a suit in the Court of Federal
Claims under the Tucker Act and did not involve the question in
[Fireman's Fund]{.underline} whether the Board had jurisdiction over
such a claim that arose before the takeover agreement. [Fireman's
Fund]{.underline} indicated that the Board could not entertain such a
claim. It stated: "To the extent \[the surety\] relie\[d\] upon
equitable subrogation\[,\] . . . it still d\[id\] not satisfy the
requirement of the Contracts Disputes Act that to proceed under that
Act, a party must have been a 'contractor' with the United States, which
\[the surety\] was not with respect to its pre-takeover claims." 313
F.3d at 1352 (citation omitted).

United contends that it has a "contractual right" to assert its
overpayment claim before the Board because the takeover agreement states
that the "SURETY expressly reserves all prior rights including but not
limited to the Government's overpayment to" Castle. [United Pac. Ins.
Co.]{.underline}, 03-2 B.C.A. (CCH) ¶ 32,267 at 159,613. Contrary to
United's argument, however, this provision did not give the Board
jurisdiction over the claim. The Board's jurisdiction is defined by the
Contract Disputes Act. Parties cannot, by agreement, confer upon a
tribunal jurisdiction that it otherwise would not have.
[See]{.underline} [Fla. Power & Light Co. v. United States]{.underline},
307 F.3d 1364, 1370 (Fed. Cir. 2002) ("Contractual language . . . cannot
confer jurisdiction" under the Contract Disputes Act.) Thus, a
"reference to the \[Contract Disputes Act\] in the contract" could not
vest the Board with "jurisdiction over the . . . claim\[\] if it was not
otherwise authorized" to adjudicate it. [Id.]{.underline} at 1371. The
provision of the takeover agreement upon which United relies reserves
only its "prior" rights, [i.e.]{.underline}, those that existed before
the takeover agreement. Under [Fireman's Fund]{.underline}, the Board
had no jurisdiction over claims based upon those rights.

United also cites the following language of the takeover agreement as a
basis for Board jurisdiction: the "SURETY shall be entitled to exercise
such rights as are afforded by the . . . Contract Disputes Act." [United
Pac. Ins. Co.]{.underline}, 03-2 B.C.A. (CCH) ¶ 32,267 at 159,613. That
contractual provision merely recognized that United retained whatever
rights it otherwise had under the Contract Disputes Act. As we have
explained, United had no right under that Act to maintain before the
Board a claim based on pre-takeover agreement events.

2\. United contends that the original construction contract was illegal
because under governing statutes and regulations, the Air Force was
required to obtain prior congressional authorization before entering
into it, which the Air Force concededly did not do. Such prior
authorization was required for certain construction contracts whose cost
exceeded \$300,000. The legality issue turns largely upon whether the
contract involved three buildings or a single building.

United contends that because the contract was illegal, it is entitled to
recover under a theory of [quantum meruit]{.underline}.
[See]{.underline} [United States v. Amdahl Corp.]{.underline}, 786 F.2d
387, 393 (Fed. Cir. 1986). It also argues that there was an
implied-in-fact contract (presumably between Castle and the government)
under which it may recover.

United's illegality claims all involve events that occurred long before
the takeover agreement and relate to a contract to which United was not
a party. Assuming without deciding that a surety has standing to
challenge the validity of a completed contract, on its face United's
claim appears covered by [Fireman's Fund]{.underline} and therefore
beyond the Board's jurisdiction.

United argues, however, that Castle's assignment in the indemnity
agreement of all claims arising under the construction contract in case
of default included the claim of contract illegality it now asserts.
[Fireman's Fund]{.underline} held that the Anti-Assignment Act covered
and invalidated such assignment of claims to a surety. 313 F.3d at
1349-50. United invokes an exception to that Act for situations where
the "Government . . . chooses to . . . recognize an assignment." [Tuftco
Corp. v. United States]{.underline}, 614 F.2d 740, 745 (1980) (internal
quotation marks omitted). It asserts that the government recognized the
assignment when it entered into the takeover agreement with United.
Without discussing the issue in detail, it suffices to say that we
discern nothing in the takeover agreement that shows a government
recognition of the assignment in the earlier indemnity agreement between
Castle and United, to which the government was not a party.

III

Finally, United asserts that it is entitled to the balance due on the
construction contract (approximately \$175,000) now that it has
satisfied its obligations under the takeover agreement. The Board had
jurisdiction over this claim because, although it stemmed from the
construction contract, it arose after the takeover agreement.

Under Federal Acquisition Regulation 52.232-5(h), [see]{.underline} 48
C.F.R. § 52.232-5(h) (1994), which the contract incorporated, the
government's obligation to make final payment under the contract is
conditioned on the contractor's "\[p\]resentation of release of all
claims against the Government arising by virtue of th\[e\] contract,
other than claims, in stated amounts, that the Contractor has
specifically excepted from the operation of the release." As United
admits in its brief, it has not provided such a release. Appellant's Br.
at 43. Although United argues that it would be unable to pursue its
other claims if it provided the release, that is beside the point. As
the regulations and contract state, without the release United is not
entitled to receive the balance due under the contract.

In these circumstances, the Board properly denied the claim. Like the
Board, however, "\[w\]e offer no opinion as to whether \[United\] could
recover after satisfying" the release requirement, since apparently
issues remain regarding the amount of United's claim. [United Pac. Ins.
Co.]{.underline}, 03-2 B.C.A. (CCH) ¶ 32,267 at 159,620; 159,631 n.14.

CONCLUSION

The decision of the Armed Services Board of Contract Appeals is

[AFFIRMED]{.underline}.