Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_05-cv-01189/USCOURTS-casd-3_05-cv-01189-1/pdf.json

Nature of Suit Code: 120
Nature of Suit: Marine Contract Actions
Cause of Action: 41:251 Public Contracts-Review of Agency Action

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

SOUTHWEST MARINE, INC.,

Petitioner,

CASE NO. 05-CV-1189 WQH (RBB)

ORDER GRANTING MOTION TO

vs. RECONSIDER

UNITED STATES and HON. GORDON R.

ENGLAND, SECRETARY OF THE NAVY

(In his official capacity),

Respondents.

HAYES, Judge

I. Introduction

By Motion for Summary Judgment, Southwest Marine, Inc. (“SWM”) appealed a decision by

the Armed Services Board of Contract Appeals (“ASBCA,” or the “Board”). The ASBCA ruled that

the nearly $3 million in attorney fees–comprising both SWM’s fees and those of its adversary, the

Natural Resources Defense Council (“NRDC”)–for which Southwest Marine, Inc. (“SWM”) sought

reimbursement were “unallowable” costs under the Federal Acquisition Regulations (“FAR”), and that

the Department of the Navy therefore properly denied the fees. On May 25, 2006, the Court denied

SWM’s summary judgment motion. On June 14, 2006, SWM filed a Motion for Reconsideration

(doc. no. 17) which is presently before the Court. The Court heard oral argument on October 10,

2006, and now issues the following Order.

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Case 3:05-cv-01189-WQH-RBB Document 27 Filed 12/15/06 Page 1 of 4
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In its May 25, 2006 Order, the Court found “the precise question at issue in the instant matter

to be the allowability of a contractor’s legal costs incurred in connection with a private party lawsuit

for violation of federal law, resulting in imposition of a monetary penalty payable to the U.S.

Treasury.” (May 25, 2006 Order at 13.) The Court found that, “rather than speaking directly to this

precise question, section 2324(k) is either silent or ambiguous regarding it.” (Id.)

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II. Background

The pertinent factual background is familiar to the parties and has been set forth by the Court

in its May 25, 2006 Order. 

III. Discussion

A. The Parties’ Contentions

SWM contends that the Court erred by giving Chevron deference to the decision of the

ASBCA. SWM asserts that the Court should have determined de novo whether SWM’s costs of

defending itself in a civil lawsuit filed by a private party and resulting in the imposition of a

monetary penalty are unallowable under the FAR. SWM contends that the Court did not identify

an ambiguity in Title 10 U.S.C. § 2324(k), and asserts that the statute speaks to the costs at issue,

leaving no room for an interpretation or expansion of the implementing regulation, FAR § 31.205-

47(b). At oral argument, however, counsel for SWM stated that he agreed that the costs in the

instant matter are not addressed in section 2324(k). 

The Government notes that the Court found section 2324(k) to be “silent or ambiguous” as

to the precise question at issue,1 and contends that the Court correctly considered the statute as a

whole in the course of rejecting SWM’s contention that the statute addresses “exactly and

completely the question of what costs of legal proceedings are unallowable.” (Opp’n to Mot. to

Reconsider 3.) With respect to the standard of review applicable to the ASBCA’s application of

the FAR provisions, the Government states that the FAR as a whole was incorporated into SWM’s

contracts (id. at 4-5), and asserts that although ASBCA determinations on questions of law are not

final and conclusive, the Board’s interpretation of contract terms “is entitled to some weight” (see

id. at 6-7). 

Asked at oral argument whether it was urging a Chevron analysis or not, SWM stated that

it believed one should possibly be conducted with respect to 10 U.S.C. § 2324(f), but failed to

identify any FAR provision claimed to be an impermissible construction of section 2324(f). SWM

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FAR § 31.205-33(b) provides, in pertinent part, that costs of legal services are allowable with

certain exceptions, including those set forth in FAR § 31.205-47. 

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stated that it did not believe FAR § 31.204–which contains the “similar or related to” principle

applied by the ASBCA, in conjunction with FAR § 31.205-47(b), to disallow the legal costs at

issue–was rendered invalid by the detail and specificity requirement of 10 U.S.C. § 2324(f). 

Instead, SWM contended that FAR § 31.204 was inapplicable, on the grounds that SWM’s legal

costs were allowable as falling within the general ambit of professional services costs under FAR

§ 31.205-33.2 

SWM contends that the Court erred by applying a Chevron analysis to the ASBCA’s

interpretation of FAR §§ 31.204 and 31.205-47(b), despite having argued that the defect in the

ASBCA’s interpretation of those regulations was that it contravened the intent, and exceeded the

scope, of 10 U.S.C. §§ 2324(k) and (f). SWM does not contend that any given FAR provision is

contrary to, or exceeds the scope of, the statute it was enacted to implement. Instead, SWM

asserts that the ASBCA erred in ruling that FAR §§ 31.204 and 31.205-47 operated to disallow

legal costs not expressly disallowed in the FAR or 10 U.S.C. § 2324, and that the Court erred by

failing to review the ASBCA’s determination de novo. SWM fails to note, however, that the Court

did find the ASBCA’s interpretation of the FAR to be correct, and that the Court applied a

Chevron analysis in order to determine whether, as SWM itself argued, the ASBCA’s

interpretation of the FAR provisions amounted to an impermissible construction of 10 U.S.C. §§

2324(k) or (f). In addition, SWM conceded at oral argument that the costs at issue are not

discussed in section 2324(k)–i.e., that the statute is silent as to them.

The Government, which previously urged a Chevron analysis to determine whether the

ASBCA’s ruling was contrary to or exceeded the scope of 10 U.S.C. § 2324(k), now contends that

although the Court should not give Chevron deference to the ASBCA’s ruling, the Court should

approach the ASBCA’s interpretation of the FAR with “careful consideration” or “great respect,”

on the grounds that the FAR is incorporated into the parties’ contract.

B. Analysis

The Court concludes that de novo review of the ASBCA’s application of the FAR is

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appropriate. The Court also finds support for the Government’s position that the ASBCA’s

interpretation of the FAR is entitled to due respect. See, e.g., Lear Siegler Servs., Inc. v. Rumsfeld,

457 F.3d 1262, 1266 (Fed. Cir. 2006) (“The Board’s interpretation of a contract is not final, and is

subject to de novo review on appeal, although due respect is often warranted by the Board’s

experience in interpreting the Federal Acquisition Regulation (FAR).”). At the same time,

however, the Court must remain mindful of the general admonition against deferring to the

ASBCA’s interpretations of statutes and regulations. See Brownlee v. Dyncorp, 349 F.3d 1343,

1349 (Fed. Cir. 2003) (“We review the Board’s decision interpreting statutes and regulations

without deference.”); Boeing North American, Inc. v. Roche, 298 F.3d 1274, 1280 (Fed. Cir. 2002)

(“Legal determinations of the Board are reviewed without deference.”). The Court concludes that

the correct analysis is to first determine, de novo, whether the ASBCA correctly interpreted and

applied the FAR. Then, if the ASBCA’s interpretation of the FAR is found to be correct, a

Chevron analysis may be applied to address the issue of whether 10 U.S.C. § 2324 is silent or

ambiguous as to the precise question at issue, and, if so, whether the FAR provisions at issue

constitute a permissible interpretation of 10 U.S.C. § 2324. Accordingly, the Court GRANTS the

Motion to Reconsider, and shall issue an Amended Order.

IV. Conclusion

For the foregoing reasons, SWM’s Motion for Reconsideration (doc. no. 17) is

GRANTED. The Court VACATES its May 25, 2006 Order, and will issue an Amended Order.

IT IS SO ORDERED.

DATED: December 15, 2006

WILLIAM Q. HAYES

United States District Judge

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