DOCUMENT FOR PUBLIC RELEASE. 
The decision issued on the date below is subject to an ASBCA Protective Order. 
This version has been approved for public release. 
 
ARMED SERVICES BOARD OF CONTRACT APPEALS 
 
 
OPINION BY ADMINISTRATIVE JUDGE MELNICK DENYING 
GOVERNMENT’S MOTION FOR SUMMARY JUDGMENT 
 
 These appeals are from a Defense Contract Management Agency ( DCMA or 
government) determination and final decision that General Atomics Aeronautical 
Systems, Inc. (General Atomics) has not complied with the Cost Accounting Standards 
(CAS).  The government seeks summary judgment upon entitlement.  The motion is 
denied. 
 
General Atomics is party to multiple contracts with the government subject to 
the Federal Acquisition Regulation (FAR) cost principles and the CAS (gov’t mot., 
proposed findings of fact [GPFF] ¶ 1; app. opp’n, response to GPFF [APFF] ¶ 1).  
“[T]he FAR governs all matters of cost allowability, [while] the CAS has exclusive 
authority over the measurement, assignment, and allocation of costs.”  Raytheon Co. 
v. United States, 747 F.3d 1341, 1350 (2014) (citing 41 U.S.C. § 1502(a)(1)). 
 
General Atomics, Sorrento West Properties, Inc. (Sorrento West), and 
San Miguel Valley Corporation (San Miguel) are related parties under common 
control through parent entities (GPFF at ¶ 6; APFF at ¶ 6).  General Atomics has  
Appeals of - )  
 )  
General Atomics Aeronautical Systems, Inc. ) ASBCA Nos. 61633, 61731 
 )  
Under Contract No. FA8620-10-G-3038 et al. )  
   
APPEARANCES FOR THE APPELLANT: Dhananjay S. Manthripragada, Esq. 
  Gibson, Dunn & Crutcher LLP 
  Los Angeles, CA 
 
Justin P. Accomando, Esq. 
    Gibson, Dunn & Crutcher LLP 
    Washington, DC 
 
APPEARANCES FOR THE GOVERNMENT: Samuel W. Morris, Esq. 
  DCMA Chief Trial Attorney 
 Amelia R. Lister-Sobotkin, Esq. 
    Trial Attorney 
    Defense Contract Management Agency 
    Chantilly, VA 

DOCUMENT FOR PUBLIC RELEASE.   
The decision issued on the date below is subject to an ASBCA Protective Order.   
This version has been approved for public release. 
 
2 
 
leased properties from Sorrento West and San Miguel and transferred funds in 
accordance with the lease terms (GPFF at ¶¶ 7, 11; APFF at ¶¶ 7, 11, 16).  FAR 
31.205-36 is the cost principle applicable “to . . . renting or leasing real . . . property 
acquired under ‘operating leases.’”  FAR 31.205-36(a).  Among the contractor costs 
that it recognizes as allowable costs are “[c]harges in the nature of rent for property 
between any divisions, subsidiaries, or organizations under common control, to the 
extent that they do not exceed the normal costs of ownership, such as depreciation, 
taxes, insurance, facilities capital cost of money, and maintenance.”  FAR 31.205-
36(b)(3).  This long-established restriction to “costs of ownership” upon recovery of 
lease related charges between parties under common control prevents contractors from 
receiving what would essentially be intraorganizational profits from the government.  
See Mauch Lab’ys, Inc., ASBCA No. 8559, 1964 BCA ¶ 4023 at 19,803.  In 
accordance with FAR 31.205-36(b)(3), General Atomics treats those portions of its 
lease charges reflecting the cost of ownership of the properties as allowable costs, but 
not the excess (compl. ¶ 15; GPFF ¶ 16; APFF ¶ 12).  That is not controversial here.  
 
This dispute arises from General Atomics’ application of the same FAR 31.205-
36(b)(3) limitation to the calculation of its General and Administrative (G&A) expense  
rate.  General Atomics includes the cost of ownership portion of lease charges that it 
transfers to related parties in its G&A allocation base (compl. ¶¶ 15, 38; GPFF ¶ 12).  
However, it excludes the part of its lease charges exceeding the cost of ownership 
from that base (compl. ¶¶ 15, 30, 38; GPFF ¶¶ 13, 16).  General Atomics does not 
consider the excess a cost but “simply a tax-and treasury-efficient inter-company 
transfer that eliminated upon consolidation” (APFF at ¶ 16; see also GPFF at ¶ 16;).  
The G&A base is the denominator to the G&A rate.  Everything else being equal, the 
lower that figure is the higher General Atomics’ G&A rate.  See Advanced Materials, 
Inc. v. United States, 54 Fed. Cl. 207, 214 (2002).  So, the government’s financial 
interest is to increase the base as much as possible to reduce General Atomics’ G&A 
rate, while General Atomics’ interest is the opposite.   
 
On March 28, 2018, the DCMA Divisional Administrative Contracting Officer 
(DACO) issued to General Atomics a determination that it had not complied with CAS 
provisions, starting January 1, 2007, and continuing to the present.  The DACO 
concluded that General Atomics should have included the related party lease amounts 
exceeding costs of ownership in its G&A base calculated for indirect and forward 
pricing rate proposals.  (R4, tab 7)  On July 18, 2018, the DACO issued a final 
decision repeating its conclusions and determining that between January 1, 2007, and 
July 17, 2018, the government paid $41,658,000 in increased costs because of General 
Atomics’ CAS noncompliance.  Including interest, the DACO demanded the return of 
$46,716,711.  (R4, tab 9)  General Atomics has appealed both decisions. 
 
The government’s motion starts with the premise that because FAR 31.205-
36(b)(3) treats the portion of General Atomics’ lease charges reflecting the cost of 

DOCUMENT FOR PUBLIC RELEASE.   
The decision issued on the date below is subject to an ASBCA Protective Order.   
This version has been approved for public release. 
 
3 
 
ownership of the related party properties as allowable costs, the excess of those 
amounts must be unallowable costs.  From there, it turns to CAS 405-40(e), which 
provides that all unallowable costs covered by the standard “shall be subject to the 
same cost accounting principles governing cost allocability as allowable costs.”   
48 C.F.R. § 9904.405-40(e).  The provision continues that “[i]n circumstances where 
these unallowable costs normally would be part of a regular indirect-cost allocation 
base or bases, they shall remain in such base or bases.”  Id.  Thus, says the 
government, because General Atomics’ unallowable lease charges exceeding the cost 
of ownership of the properties must be allocated in the same manner as the allowable 
portion, they must remain in its G&A base with the allowable charges.
1 
 
“Summary judgment should be denied when there are ‘disputes over facts that 
might affect the outcome of the suit under the governing law.’”  Tkacz Eng., LLC, 
ASBCA No. 60358, 18-1 BCA ¶ 36,940 at 179,962 (quoting Anderson v. Liberty 
Lobby, Inc., 477 U.S. 242, 248 (1986)); see also Delfasco LLC, ASBCA No. 59153, 
15-1 BCA ¶ 35,853 (denying summary judgment when at least one disputed issue of 
fact has been identified for trial).  Among General Atomics’ numerous arguments in 
response to the government’s motion is that its excess lease charges above cost of 
ownership of the related party properties are not costs at all.  If they are not costs, there 
is no CAS requirement to include them in the G&A base.   
 
The term “cost” in the CAS regulatory scheme is “clear and unambiguous.”  
Rumsfeld v. United Techs. Corp., 315 F.3d 1361, 1372 (Fed. Cir. 2003).  One 
 
1 The government also contends that General Atomics exclusion of the related party 
lease charges exceeding cost of ownership from its G&A base fails to comply 
with CAS 410.  Specifically, it cites CAS 410-40(b)(1)’s provision that the 
G&A expense pool “shall be allocated to final cost objectives . . . by means of a 
cost input base representing the total activity of the business unit,” with an 
exception provided in (b)(2).  48 C.F.R. § 9904.410-40(b)(1).  It also relies 
upon CAS 410-50(d)’s requirement that “[t]he cost input base used to allocate 
the G&A expense pool shall include all significant elements of that cost input 
which represent the total activity of the business unit.”  48 C.F.R. 9904.410-
50(d).  The government suggests that General Atomics inclusion of the 
allowable portion of its related party lease charges in its G&A base proves that 
it considers all its lease charges to constitute a cost input representing the total 
activity of its business unit.  Therefore, its exclusion of the portion exceeding 
the cost of ownership is improper.  The government also observes that CAS 
420-50(f)(2) generally requires some independent research and development as 
well as bid and proposal cost pools be allocated using the same base as G&A 
expenses under CAS 410-50.  48 C.F.R. § 9904.420-50(f)(2).  Because General 
Atomics has failed to correctly calculate its base under CAS 410, the 
government says it has also not complied with CAS 420.  

DOCUMENT FOR PUBLIC RELEASE.   
The decision issued on the date below is subject to an ASBCA Protective Order.   
This version has been approved for public release. 
 
4 
 
definition that the court of appeals has embraced characterizes cost as “an item of 
outlay incurred in the operation of a business enterprise (as for the purchase of raw 
materials, labor, services, supplies) including depreciation and amortization of capital 
assets.”  Id. at 1370 (emphasis in original) (quoting Webster’s Third New International 
Dictionary 515 (1968)).  Additionally, the court has recognized cost to equate “with 
the amount a contractor forgoes or gives up, i.e., its economic sacrifice, to obtain 
goods or services.”  Id. (quoting Riverside Rsch. Inst. v. United States, 860 F.2d 420, 
422 (Fed. Cir. 1988)).  The court acknowledges other definitions as well, such as that 
cost is “the price paid to acquire, produce, accomplish, or maintain anything . . . an 
outlay or expenditure of money, time, labor, trouble . . . to require the payment of 
(money or something else of value) in an exchange.”  Id. n.10 (emphasis in original) 
(quoting Random House Webster’s Unabridged Dictionary 457 (1998)).  Also, cost is 
“[t]hat which must be given or surrendered in order to acquire, produce, accomplish, 
or maintain something; the price paid for a thing.”  Id. (quoting 3 Oxford English 
Dictionary 988 (2d ed. 1989)).  Bound up in the application of these definitions is an 
inquiry into whether General Atomics made an outlay for the operation of its business, 
gave an economic sacrifice, paid a price, or surrendered something to obtain the 
leaseholds.  See also Riverside Rsch., 860 F.2d at 422 (“[T]he relevant inquiry is 
whether there was an economic sacrifice”).2  
 
The government has provided 35 leases or subleases, the majority of which are 
between General Atomics and either Sorrento West or San Miguel. 3  Most contain 
similar terms.  They lease real property to General Atomics and obligate it to pay 
specified sums in rent without deductions of any kind, with no mention of any 
distinction between costs of ownership and any excess.  Failure to pay amounts due 
constitutes default, entitling the landlord to terminate the lease.  Most of the leases are 
integrated, with neither party making any representations, warranties, or inducements, 
express or implied, except as set forth in the lease.  Also, most of the leases expressly 
state that the parties intend only to establish a landlord tenant relationship.  They do 
 
2 The government cites Thomas Associates, ASBCA No. 57795, 12-1 BCA ¶ 35,162, 
for the proposition that excess rental charges above cost of ownership of related 
party properties are unallowable costs as a matter of law.  There, the contractor 
leased office space from its president, paying $52,924 in rent while the costs of 
ownership under FAR 31.205-36(b)(3) were $36,709.  The contractor included 
the entire rent in its indirect cost submission to the government.  The Board 
sustained a government penalty based upon the $16,215 difference because it 
was an expressly unallowable cost.  Unlike this appeal, there is no indication 
that the parties in Thomas Associates disputed whether excess rent above costs 
of ownership was a cost to that contractor, so the Board was not required to 
decide that matter. 
3 One sublease is between General Atomics and another sublandlord that is the tenant 
of Sorrento West (gov’t mot. at ex. C-22). 

DOCUMENT FOR PUBLIC RELEASE.   
The decision issued on the date below is subject to an ASBCA Protective Order.   
This version has been approved for public release. 
 
5 
 
not create a partnership, joint venture, joint enterprise, or any business relationship 
other than that of landlord and tenant.  All except two of the leases are governed by the 
law of California, with the others governed by the law of Utah.  (Gov’t mot. at ex. C)  
 
The plain language of the leases establishes formal transactions between 
separate companies where General Atomics legally acquired valuable property 
interests that it otherwise did not possess, leaseholds, in return for which it was 
required to pay the full amount of rent.  They reflect an economic sacrifice, or 
payment of a price, for the property rights they grant.  See Lee’s Ford Dock, Inc. v. 
Secretary of the Army, 865 F.3d 1361, 1367 (Fed. Cir. 2017) (holding that leasehold 
interests are personal property in the absence of a statute commanding otherwise); 
Riverside Rsch, 860 F.2d at 423 (concluding that a lease’s conveyance of the right to 
occupy premises constitutes valuable property); see also Avalon Pac.-Santa Ana, L.P. 
v. HD Supply Repair & Remodel, LLC, 192 Cal. App. 4th 1183, 1190 (Cal. Ct. App. 
2011) (explaining that in California a lease conveys an estate in real property granting 
the lessee exclusive possession against all the world, including the owner, for the term 
of the lease); Keller v. Southwood N. Med. Pavilion, Inc., 959 P.2d 102, 107 (Utah 
1998) (noting that in Utah a lease conveys an interest in land and transfers possession).   
 
However, the leases are not all we have in the record.  General Atomics has 
submitted declarations elaborating upon its relationship with Sorrento West and 
San Miguel.  According to those statements, General Atomics’ parent entities also 
control these landlord companies.  General Atomics’ Executive Chairman has voting 
control over all the entities.  If General Atomics’ leadership did not transfer the portion 
of the lease charges exceeding the costs of ownership of the properties it could still 
occupy them, suggesting an inference that it was not necessary to make those 
payments to retain the leaseholds.  The transfers are vaguely characterized as tax and 
treasury efficient vehicles for the conveyance of funds between related entities.  (Bd. 
Docket #137, exs 1-4)   
 
We may not weigh the evidence on summary judgment.  Instead, we must 
believe General Atomics’ evidence and draw all justifiable inferences in its favor.  
Anderson v. Liberty Lobby, Inc., 477 U.S. at 255; see also Dairyland Power Co-op. 
v. United States, 16 F.3d 1197, 1202 (Fed. Cir. 1994) (When ruling upon a summary 
judgment motion, the evidence must be viewed in the light most favorable to the  
non-movant and all reasonable inferences should be drawn in favor of the nonmoving 
party).  General Atomics’ declarations establish a triable question as to whether the 
excess amounts it paid above the cost of ownership were a price or economic sacrifice 
necessary to acquire and retain the leaseholds or unrelated fund transfers within a 
larger organization.   
 
Separately, General Atomics’ complaint alleges that the government was on 
notice more than six years prior to the final decisions that, for related party leases, 

DOCUMENT FOR PUBLIC RELEASE.   
The decision issued on the date below is subject to an ASBCA Protective Order.   
This version has been approved for public release. 
 
6 
 
General Atomics had limited the lease charges in its G&A base to cost of ownership 
(compl. ¶¶ 37-41)  Accordingly, Count II asserts that the government’s claims are time 
barred under 41 U.S.C. § 7103(a)(4) (compl. ¶¶ 45-48).  The government’s motion is 
silent about this statute of limitations allegation.
4  While General Atomics ultimately 
bears the burden of proving what is essentially an affirmative defense to the 
government’s claims, see Alion Science and Technology Corp., ASBCA No. 58992, 
15-1 BCA ¶ 36,168 at 176,488-489, that does not permit the government’s motion to 
entirely ignore it.  The Board may only grant summary judgment “if the movant shows 
there is no genuine dispute as to any material fact and the movant is entitled to 
judgment as a matter of law.”  Fed. R. Civ. P. 56(a).  Thus, it was incumbent upon the 
government to address why it is entitled to judgment upon General Atomics’ statute of 
limitations allegation as a matter of law, and to point out the absence of evidence of a 
genuine issue of material fact, to then shift the burden to General Atomics to offer 
evidence establishing a genuine issue for trial.  See Goodloe Marine, Inc., ASBCA 
Nos. 62106, 62446, 22-1 BCA ¶ 38,053 at 184,774 (citing Celotex Corp. v. Catrett, 
477 U.S. 317, 322-23 (1986); DJ Mfg. Corp. v. United States, 86 F.3d 1130, 1135 
(Fed. Cir. 1996); Dairyland Power Co-op v. United States, 16 F.3d 1197, 1202 (Fed. 
Cir. 1994); Homeland Housewares, LLC v. Sorensen Rsch. & Dev. Trust, 581 F. 
App’x 869, 874 (Fed. Cir. 2014)).  Having failed to even mention General Atomics’ 
statute of limitations allegation in its motion, the government is not entitled to 
summary judgment upon it. 
 
CONCLUSION 
 
 The government’s motion for summary judgment is denied. 
 
 Dated:  February 8, 2023 
 
 
 
 
 
 
 
 
(Signatures continued) 
 
4 The government mounts a continuing claims doctrine attack upon General Atomics’ 
statute of limitations allegation for the first time in its reply brief.  See Fluor 
Corp., ASBCA No. 57852, 14-1 BCA ¶ 35,472.  Though the government may 
seek to present evidence or argument in support of that contention at a hearing, 
it is too late in the summary judgment briefing to survive waiver.  Buck Town 
Contractors & Co., ASBCA No. 60939, 18-1 BCA ¶ 36,951 at 180,059. 
 
 
 
MARK A. MELNICK 
Administrative Judge 
Armed Services Board 
of Contract Appeals 


DOCUMENT FOR PUBLIC RELEASE.   
The decision issued on the date below is subject to an ASBCA Protective Order.   
This version has been approved for public release. 
 
7 
 
I concur 
 
 
 
RICHARD SHACKLEFORD 
Administrative Judge 
Acting Chairman 
Armed Services Board 
of Contract Appeals 
 I concur 
 
 
 
 OWEN C. WILSON 
Administrative Judge 
Vice Chairman 
Armed Services Board 
of Contract Appeals 
 
 
 I certify that the foregoing is a true copy of the Opinion and Decision of the 
Armed Services Board of Contract Appeals in ASBCA Nos. 61633, 61731,
 Appeals of 
General Atomics Aeronautical Systems, Inc., rendered in conformance with the Board’s 
Charter. 
 
 Dated:  February 8, 2023 
 
 
 
 
 
 
 
 
PAULLA K. GATES-LEWIS 
Recorder, Armed Services 
Board of Contract Appeals