Source: http://law.justia.com/cases/federal/appellate-courts/F3/362/1343/632774/
Timestamp: 2017-09-20 00:16:58
Document Index: 788989847

Matched Legal Cases: ['§ 607', '§ 1295', '§ 270', '§ 6928', '§ 6928', '§ 6928', '§ 9607', '§ 52', '§ 52', '§ 9607', '§ 6973']

Empire Energy Management Systems, Inc., Appellant, v. James G. Roche, Secretary of the Air Force, Appellee, 362 F.3d 1343 (Fed. Cir. 2004) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Federal Circuit › 2004 › Empire Energy Management Systems, Inc., Appellant, v. James G. Roche, Secretary of the Air Force, Ap...
Empire Energy Management Systems, Inc., Appellant, v. James G. Roche, Secretary of the Air Force, Appellee, 362 F.3d 1343 (Fed. Cir. 2004)
U.S. Court of Appeals for the Federal Circuit - 362 F.3d 1343 (Fed. Cir. 2004)
On September 3, 1992, Air Force officials met with an EPA representative and provided the Dames & Moore report to the EPA. The Board found that this meeting also constituted notice to the EPA, in accordance with the permit, that the Air Force intended to change the RCRA site. On December 11, 1992, Ms. Elizabeth Wilde, the EPA representative at MacDill, stated in a letter that, " [b]ased on the Dames and Moore report, it appears that [the cogen site] does not warrant further investigation. Therefore this area does not need to be addressed under the RCRA Facility Investigation." Empire Energy, 03-1 B.C.A. (CCH) at 158,546 (quoting letter of December 11, 1992, by Ms. Wilde). The Air Force provided this letter to Empire on January 8, 1993, and directed Empire to return to work. However, in a letter dated March 12, 1993, the EPA appeared to contradict the December 11, 1992, letter, by suggesting that the cogen site still required investigation under the RFI. In light of Empire's refusal to work on portions of the cogen site, the Air Force apparently requested an even more definite statement from the EPA. The EPA responded in a letter on June 2, 1993, stating that it did not object to the construction activities planned near the oil-water separator SWMU and that it did not believe that any such activities would interfere with the RFI.8 The letter was also provided to Empire on that date.
Empire resumed work at the cogen site on May 24, 1993, but it remained substantially behind schedule. Empire requested a schedule extension, which the Air Force refused. On August 27, 1993, the termination date set by Mod 7, Empire sent a letter to the Air Force stating that it "ha [d] been led to believe that the Government intends to terminate [the contract] for default" and presenting reasons why such an action by the contracting officer would be "unmerited." (App. at 2422-23.) The letter stated that Empire "is presently performing on schedule and should reach the Commercial Operation Date by mid-December of this year." (Id. at 2423.) The contracting officer terminated the contract for default on September 1, 1993, stating that Empire had "failed to meet the [termination date] of 27 August 1993, which has never been altered." (Id. at 2438.)
Second, the Board found that the site was not in fact environmentally contaminated and that Empire's alleged concerns were "unsubstantiated": " [W]e find there was no proof of actionable contamination (matter that violated the environmental laws and regulations of the United States or Florida) or [oil-water separator] malfunction." Id. Similarly, the Board found:
Third, and finally, the Board found that Empire did not in fact have genuine environmental concerns. The Board noted that "the Air Force's concerns that Empire was trying to create a paper trail to support a claim" were credible, id. at 158,542, and that "Empire welcomed the prospect of a delay and the attendant claim," id. at 158,557. In addition, the Board stated: "we simply do not believe Empire on the contamination issue," id. at 158,554-55, and " [w]e conclude it was posturing when it stopped work," id. at 158,558. The Board concluded that it was "not persuaded that Empire ran the risk of criminal liability by continuing work at the site," id. at 158,559, and that "Empire's professed concern about civil liability or being held accountable for a regulatory violation (that is, a violation where there is no actual contamination) without EPA approval does not ring true," id. at 158,560.
The Board entered final judgment against Empire on November 4, 2002. Empire timely appealed on March 4, 2003. See 41 U.S.C. § 607(g) (1) (A) (2000). We have jurisdiction pursuant to 28 U.S.C. § 1295(a) (10).
Empire notes correctly that the permit also required notification to the EPA before any work on the site was undertaken. The permit provided that " [t]he Permittee shall give notice to the Regional Administrator as soon as possible of any planned physical alterations or additions to the permitted facility." EPA Permit at 8; see also 40 C.F.R. § 270.30(k) (1). It is also undisputed that the Air Force did not give such notice until at least September 3, 1992, when the Air Force met with the EPA and notified it of the report by Dames & Moore, which the Air Force had hired to investigate soil conditions at the site. The Board found that this meeting constituted notice to the EPA that the Air Force intended to alter the site. Empire Energy, 03-1 B.C.A. (CCH) at 158,545.
Empire argues that it was barred from working on the site between June 5, 1992, the date it learned of the RFI, and at least September 3, 1992. To justify its refusal to continue work on the site, Empire relies upon a threat of an EPA enforcement action against it pursuant to 42 U.S.C. § 6928, the RCRA provision authorizing federal enforcement of RCRA violations. That statute provides for criminal penalties for " [a]ny person who ... knowingly treats, stores, or disposes of any hazardous waste identified or listed under this subchapter... in knowing violation of any material condition or requirement of [a RCRA] permit." 42 U.S.C. § 6928(d) (2) (B). It also provides for a civil penalty of up to $25,000 per day. Id. § 6928(g). The government argues that the notification obligation was upon the Air Force, not Empire, and that Empire has failed to establish that it would have incurred liability if work began before the notification was given. The government argues that only the permittee has a duty to comply with the permit:
At oral argument, Empire presented yet another alternative theory. It argued that, even if EPA approval was not required under the permit, Empire could reasonably have insisted on it before beginning work. The contract required Empire "to comply with all Federal, State and local environmental and archeological laws and regulations." Empire Energy, 03-1 B.C.A. (CCH) at 158,531. Empire says that possible environmental problems had been identified at the site, including potential contamination of the soil, and that it was "precluded from engaging in unlawful conduct in connection with the RFI." (Br. for Appellant at 36.) The environmental laws bar "arrang [ing] for disposal or treatment... of hazardous substances." 42 U.S.C. § 9607(a) (3). Pursuant to this statute, "a `disposal' may occur when a party disperses contaminated soil during the course of grading and filling a construction site." Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489, 1512 (11th Cir. 1996); see also Kaiser Aluminum & Chem. Corp. v. Catellus Dev. Corp., 976 F.2d 1338, 1342 (9th Cir. 1992); Tanglewood E. Homeowners v. Charles-Thomas, Inc., 849 F.2d 1568, 1573 (5th Cir. 1988). Under these circumstances, says Empire, it could reasonably insist on EPA approval before resuming work to avoid the risk of environmental liability.
Empire next argues that time was not of the essence in this contract and that the Air Force could not have terminated the contract because of Empire's delays. However, the existence of a contract deadline itself establishes that time is of the essence. DeVito v. United States, 188 Ct. Cl. 979, 413 F.2d 1147, 1154 (1969) ("Time is of the essence in any contract containing fixed dates for performance."). Empire argues that, in this particular contract, time was not of the essence because of the unique nature of the contract, which "placed the risk of failure entirely upon the contractor and its lender and shielded the Government from any consequences resulting from the contractor's failure to perform." (Br. for Appellant at 30.) Thus, Empire argues, any delay caused no harm to the Air Force. However, there is nothing in the contract itself to support this proposition. Rather, the contract specified that failure to meet the COD was a "condition of default." (App. at 2802.)
Nor does our case law offer support for Empire's argument that the liquidated damages provision in the contract militates against a finding that time is of the essence in this case. Instead, our precedent is contrary to Empire's argument. In Florida, Department of Insurance v. United States, 81 F.3d 1093 (Fed. Cir. 1996), we expressly permitted the government's termination for default, even though the contract contained a liquidated damages provision and even though the government reminded the contractor that "liquidated damages ... continued to accrue." Id. at 1097. Similarly, our predecessor court upheld a termination for default where a liquidated damages clause existed and liquidated damages had been imposed. Olson Plumbing & Heating Co. v. United States, 221 Ct. Cl. 197, 602 F.2d 950, 955 (1979). Indeed, Olson held that the imposition of liquidated damages "is evidence of the intent to hold the defaulting party liable for its delayed performance." Id.
Empire also urges that termination for default was inappropriate because it never received a valid cure notice. The contract includes the standard FAR default clause, FAR 52.249-8, which permits the government to terminate for default only if the contractor "does not cure [its] failure within 10 days (or more if authorized in writing by the Contracting Officer) after receipt of the notice from the Contracting Officer specifying the failure." 48 C.F.R. § 52.249-8(a) (2). Part I, Section H, Paragraph 21 of Mod 7 provides additional default provisions, including the following:
In Halifax Engineering, Inc. v. United States, 915 F.2d 689 (Fed. Cir. 1990), we addressed and rejected a similar argument. In Halifax, the contractor received a cure notice providing that failure to start performance on the specified date "will be grounds for immediate termination for default." Id. at 690. The contractor argued "that the letter [was] legally inadequate because it fail [ed] to specify the defects that formed the basis for the default." Id. at 691. However, we held that the notice was sufficient because it was apparent from the circumstances that the contractor "had sufficient notice of the asserted defects." Id. Thus, under Halifax, if the contractor has actual notice of the nature of the government's concerns and its intention to terminate for default if those concerns are not rectified, default termination is permissible without a formal cure notice, at least so long as the contractor has previously received a formal, written cure notice directed to a related concern. See also Am. Marine Upholstery Co. v. United States, 170 Ct. Cl. 564, 345 F.2d 577, 581 (1965) (holding that a cure notice's failure to "specify the particular failure for which [the government] might terminate the contract" did not render the notice defective because the contractor "had sufficient notice" of the government's intent to terminate the contract for default).
In this case, Empire received a formal, written cure notice showing that the Air Force's primary concern was "the successful completion of the MacDill Avenue Cogeneration Facility in accordance with the terms and conditions of the contract," including the termination date. (App. at 1988.) In addition, the contracting officer repeatedly stated that an extension of the termination date "was unacceptable" and that, at a minimum, Empire had to substantially perform the contract by the termination date specified in the contract. Empire Energy, 03-1 B.C.A. (CCH) at 158,551. As late as August 17, 1993, the contracting officer reminded Empire that it "still ha [d] not cured the situation and still ha [d] not addressed our concerns." (App. at 2414.) Therefore, as in Halifax, Empire "had sufficient notice of the asserted defects" in its performance. 915 F.2d at 691. The fact that the cure notice was directed more specifically at "the resumption of construction" does not require the Air Force to provide another formal cure notice simply because Empire returned to work, but failed to achieve COD before the termination date. (App. at 1988.)
Finally, relying primarily on language in our opinion in McDonnell Douglas Corp. v. United States, 323 F.3d 1006 (Fed. Cir. 2003), Empire argues that the default termination was improper because the contracting officer did not conduct an analysis or form a subjective belief that the conditions for default termination were satisfied.
The contract provided that default termination was proper in two circumstances: (1) if Empire failed to meet the COD and (2) if it failed to " [m]ake progress, so as to endanger performance of this contract." 48 C.F.R. § 52.249-8(a) (1) (ii). The contracting officer terminated Empire for default because Empire had not achieved COD by the termination date. The Board, however, found that the termination date had not in fact passed on the date of the contracting officer's termination because Empire was entitled to a time extension of fifty-three days. Empire Energy, 03-1 B.C.A. (CCH) at 158,552. Nonetheless, the Board sustained the termination on the ground that "there was no reasonable likelihood Empire could have met COD with a 53 day extension" because it found that Empire was 154 days from completion. Id. Therefore, the Board found that the contracting officer "had a reasonable basis for default termination of the contract on 1 September 1993," when she issued the notice of termination. Id. We have held above that, even assuming that Empire was entitled to 106 rather than fifty-three days of excusable delay, under the Board's decision, there still was no reasonable likelihood that Empire would have achieved the COD in time to avoid default termination.
Our decisions have consistently approved default terminations where the contracting officer's ground for termination was not sustainable if there was another existing ground for a default termination, regardless of whether that ground was known to the contracting officer at the time of the termination. See, e.g., Kelso v. Kirk Bros. Mech. Contractors, Inc., 16 F.3d 1173, 1175 (Fed. Cir. 1994) ("This court sustains a default termination if justified by the circumstances at the time of termination, regardless of whether the Government originally removed the contractor for another reason."); Joseph Morton Co. v. United States, 757 F.2d 1273, 1277 (Fed. Cir. 1985); Pots Unlimited, Ltd. v. United States, 220 Ct. Cl. 405, 600 F.2d 790, 793 (1979) (" [I]t is settled law that a party can justify a termination if there existed at the time an adequate cause, even if then unknown."). Thus, the subjective knowledge of the contracting officer herself is irrelevant, and the government is not required to establish that the contracting officer conducted the analysis necessary to sustain a default under the alternative theory.
Empire urges that McDonnell Douglas adopted a special rule for terminations for failure to make progress, requiring analysis of "the contracting officer's reasonable belief," 323 F.3d at 1017, rather than objective considerations. In McDonnell Douglas, two contractors who were awarded a contract to design and build aircraft carrier-based stealth aircraft were terminated for default when they failed to meet an extended deadline to deliver the first aircraft. Id. at 1010-11. The delivery of the first aircraft was merely an interim milestone, not the ultimate performance requirement of the contract. Nevertheless, the government terminated for failure to make progress. Id. at 1015. We held that, in such cases, a default cannot be declared simply because the contractor has failed to meet an interim milestone. The default provision "require [s] reasonable belief on the part of the contracting officer that there was no reasonable likelihood that the contractor could perform the entire contract effort within the time remaining for contract performance." Id. at 1016 (quoting Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987)).
Thus, Empire argues, the contracting officer could not properly have terminated for failure to make progress because she did not specifically consider whether Empire could have completed the project within the period of excusable delay. This argument finds no support in our previous decisions. We have expressly held that the government must show in termination for failure to make progress cases "that it was reasonable for the [government] to conclude that [the contractor] would be unable to complete the project by what the Board found to be the proper completion date." Danzig v. AEC Corp., 224 F.3d 1333, 1336 (Fed. Cir. 2000) (emphasis added); see also Lisbon, 828 F.2d at 765. McDonnell Douglas is not to the contrary. Indeed, McDonnell Douglas demands an objective inquiry, not an evaluation of the contracting officer's subjective beliefs. 323 F.3d at 1016 (" [A] court's review of default justification does not turn on the contracting officer's subjective beliefs, but rather requires an objective inquiry."). It requires the court to consider whether the contracting officer's decision to terminate for failure to make progress was reasonable given the events that occurred before the termination decision was made. Id. at 1017.
Contrary to the court's suggestion, Empire does more than provide a "mere assertion of a colorable claim ... that its actions would violate some regulatory requirement" if it had complied with the government's orders to resume work. Ante at 1353. More accurately, Empire reasonably could have expected to be held liable for violations of federal environmental law if it had complied. The board itself found that as of May 1991, "Empire knew or should have known ... that the [oil-water separator] represented a potential environmental problem." Empire Energy Mgmt. Sys., Inc., ASBCA No. 46741, 03-1 B.C.A. (CCH) ¶ 32,079, at 158,541, 2002 WL 31501910 (2002). Empire had additional reason to suspect the existence of hazardous waste at the project site when on June 5, 1992, it learned of the Resource Conservation and Recovery Act Facilities Investigation ("RFI") — an investigation specifically requested because of concerns raised in a previous RFI. As of June 5, 1992, therefore, prudence prohibited Empire from resuming work at least until it received notification that the project area was not contaminated; otherwise it would have been exposed to potential liability, indemnification clause notwithstanding. See 42 U.S.C. § 9607(a) (3) (2000) (prohibiting the arrangement for disposal of hazardous waste); Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489, 1512 (11th Cir. 1996) ("a `disposal' may occur when a party disperses contaminated soil during ... construction").
(a) (1) The Government may, subject to paragraphs (c) and (d) below, by written notice of default to the Contractor, terminate this contract in whole or in part if the Contractor fails to —
(ii) Make progress, so as to endanger performance of this contract (but see subparagraph (a) (2) below); or
(iii) Perform any of the other provisions of this contract (but see subparagraph (a) (2) below).
(2) The Government's right to terminate this contract under subdivisions (1) (ii) and (1) (iii) above, may be exercised if the Contractor does not cure such failure within 10 days (or more if authorized in writing by the Contracting Officer) after receipt of the notice from the Contracting Officer specifying the failure.
This limited authority is in stark contrast to the EPA's broader authority in other areas. For example, the EPA Administrator is authorized to bring suit "against any person ... who has contributed or is contributing to ... handling, storage, treatment, transportation or disposal" of waste in a way that "may present an imminent and substantial endangerment to health or the environment." 42 U.S.C. § 6973(a) (emphasis added).
In footnotes, Empire argues that this finding was erroneous and that it could have achieved COD in 123 days, not the 154 days found by the Board. Empire's argument is that the Board's value of 28% completion is computed on a cost basis and that, on a time basis, the project was 45.21% complete. (The schedule also included a logic flaw of fourteen days, which must be added to both estimates.) However, the Board's finding is supported by substantial evidence; it relied on a contemporaneous report prepared for Empire's lender, which stated that, on August 30, 1993, " [s]ite construction progress [wa]s estimated to be ... approximately 28% based upon the status observed at the site," (App. at 2427). Substantial evidence also supports the Board's finding that this report did not support Empire's claim that the project was 45.21% complete on a time basis
Empire argues that Ms. Wilde agreed with Empire's counsel's statement that EPA "approval" was required before construction could continue. (See App. at 2584.) However, such testimony about the meaning of a regulation "should not be received, much less considered, by the Board" in interpreting that regulation. Rumsfeld v. United Techs. Corp., 315 F.3d 1361, 1369 (Fed. Cir. 2003). Rather, the Board should directly ascertain legal requirements "based on briefing and argument by the affected parties." Id. Here, there is no showing that approval was in fact required.
The Board noted that "Empire was indemnified under the contract" and concluded that the fact that "the Air Force had ordered Empire to continue work with knowledge of the RFI ... shifted any culpability to the Air Force."Empire Energy, 03-1 B.C.A. (CCH) at 158,558. The Board therefore held that " [t]he Air Force, not Empire, was ... responsible for any infraction of environmental regulations and the costs attendant thereto." Id. at 158,559. However, we are skeptical of the Board's conclusion. An interpretation of a contract requiring the contractor to engage in a material violation of law is disfavored, and such a blanket indemnity may be unlawful. See Abraham v. Rockwell Int'l Corp., 326 F.3d 1242, 1251-52 (Fed. Cir. 2003). We need not reach the propriety of the Board's conclusion, however.
The Board held that the Air Force was not required to provide a cure notice because Mod 7 did not require a cure notice for "failure to achieve" COD Id. at 158,562. Because we hold that the April 28, 1993, cure notice was sufficient, we need not determine whether the Board's alternative holding in this respect was proper.