Opinion ID: 772401
Heading Depth: 3
Heading Rank: 2

Heading: The Government's Counterclaims

Text: 21
22 The government argues that the court erred by not analyzing all four contracts at issue in the same manner. The government correctly notes that it paid more than the fair market value, as determined by the court, for three of the four contracts at issue. Arguing from this, the government asserts that it has a claim for these differentials or, in the alternative, that they should be used to offset the deficiency in the fourth contract. 23 In its reply brief, the government appears to recognize that it has no claim under the theory of quantum valebant. That doctrine is an equitable one for the recovery of the value of goods or services provided. Urban Data, 699 F.2d at 1154; United States v. Amdahl Corp., 786 F.2d 387, 392 (Fed. Cir. 1986); see also AT&T, 177 F.3d at 1384 (Plager, J., dissenting-in-part and concurring-in-part); Black's Law Dictionary 1243-44 (6th ed. 1990). Accordingly, only the provider of the goods or services has such a claim. See Urban Data, 699 F.2d at 1154 (explaining that the contractor is entitled to reimbursement on a quantum valebant basis for the reasonable value in the market place of the supplies and concomitant services (underlining added)); Amdahl, 786 F.2d at 392 (stating that the goods provider is entitled to recover on a quantum valebant basis for the reasonable value in the market place of the use that respondent has so far made of the equipment (underlining added)). Therefore, if the government is to recover, or offset, any money from the other three contracts, it needs to find another theory of recovery. 24 The only other theory offered by the government is its authority to recover unauthorized payments. 3 The government's payments were at least partially unauthorized. The unauthorized portion presumably being the entire amount of the price escalation(s), because it was this amount that was calculated according to an illegal method. MAPCO, 27 Fed. Cl. at 408, 416. The government does, of course, recognize Barrett's claim for fair market value. Accordingly, no award to the government could be so large that it reduced Barrett's recovery below fair market value. 25 The government cites numerous cases for the proposition that it can recover unauthorized payments. E.g., Wisc. Cent. R.R. Co. v. United States, 164 U.S. 190, 210, 212, 41 L. Ed. 399, 17 S. Ct. 45 (1896). Such a claim relies on equitable principles, and is presumably based on an implied-in-law contract theory. See Royal Indemnity Co. v. United States, 313 U.S. 289, 296, 85 L. Ed. 1361, 61 S. Ct. 995 (1941) (stating that equitable rules relate to recovery on quasi contractual obligations arising from payment of money by mistake); Wisc. Cent., 164 U.S. at 212 (parties receiving moneys illegally paid by a public officer are liable ex aequo et bono to refund them (underlining added)); Sanborn v. United States, 135 U.S. 271, 281, 34 L. Ed. 112, 10 S. Ct. 812 (1890) (stating that the contractual payment made by the government was based on mistake and misrepresentation and that amount ought, in equity and good conscience, to be returned to the United States); City of Cincinnati, 153 F.3d at 1377 (stating that implied-in-law contracts impose duties that are deemed to arise by operation of law, whereas implied-in-fact contracts require that the parties' conduct indicates mutual assent); see also Mo. Utilities Co. v. City of California, Mo., 8 F. Supp. 454, 468 (W.D. Mo. 1934) (stating that [a] suit by the United States to recover money illegally paid by some government official is an action upon the implied contract of the recipient to pay it back and that an action for money had and received, although a law action, is governed by equitable principles); Black's Law Dictionary 557 (6th ed. 1990) (defining ex aequo et bono as: in justice and fairness; according to what is just and good; according to equity and conscience). The government concedes as much, identifying the basis of its claim as the equitable theory of ex aequo et bono and stating that it arises in this case because of a mistake of law. 26 As explained earlier, the Court of Federal Claims' Tucker Act jurisdiction does not extend to claims based on an implied-in-law contract. However, 28 U.S.C. 1503 and 2508 provide the court with jurisdiction if the government brings such a claim as a counterclaim. 28 U.S.C. 1503, 2508 (1994); Cont'l Mgmt., Inc. v. United States, 527 F.2d 613, 616 n.2 (Ct. Cl. 1975) (stating that under 1503 the Government may set up a counterclaim even though . . . it states a claim of a type (e.g. tort) of which [the Court of Claims] would not have jurisdiction if sought to be maintained by a plaintiff) (citing Cherry Cotton Mills, Inc. v. United States, 327 U.S. 536, 90 L. Ed. 835, 66 S. Ct. 729 (1946)); Cherry Cotton Mills, 327 U.S. at 539 (stating that the purpose of the predecessor to 1503 was to permit the government, when sued in the Court of Claims, to have determined in a single suit all questions which involved mutual obligations between the government and a claimant against it); Daff v. United States, 78 F.3d 1566, 1570 & n.5 (Fed. Cir. 1996) (allowing the government to counterclaim under 1503 and 2508 for unliquidated progress payments); see also BLH, Inc. v. United States, 13 Cl. Ct. 265, 275 (1987) (Although [the Claims Court] does not generally have jurisdiction over implied-in-law contracts, an exception exists for counterclaims for money damages asserted by the government. (citing 1503 and Cherry Cotton Mills) (internal citation omitted)). Thus, the Court of Federal Claims did have jurisdiction to hear the government's counterclaims. 27
28 We turn now to whether those counterclaims stated a claim upon which relief could be granted. The Court of Federal Claims determined that the cases cited by the government, for the proposition that it could recover unauthorized payments, were all factually distinguishable. We, however, are of the opinion that even if the relevant cases can be distinguished, those distinctions do not circumvent the fact in this case that part of the government's payments were unauthorized. 29 The relevant cases stand for the proposition that the government can recover unauthorized payments. United States v. Wurts, 303 U.S. 414, 415, 82 L. Ed. 932, 58 S. Ct. 637 (1938) (The Government . . . can recover funds which its agents have wrongfully, erroneously, or illegally paid.); Wisc. Cent., 164 U.S. at 210 (As a general rule, and on grounds of public policy, the government cannot be bound by the action of its officers, who must be held to the performance of their duties within the strict limits of their legal authority, where, by misconstruction of the law under which they have assumed to act, unauthorized payments are made.); Fansteel Metallurgical Corp. v. United States, 145 Ct. Cl. 496, 172 F. Supp. 268, 270 (Ct. Cl. 1959) (It seems clear that no officer or agent of the Government is clothed with authority to disburse money belonging in the public treasury without authority so to do. Nor can an officer or agent act beyond the limits of his authority. . . . When a payment is erroneously or illegally made it is in direct violation of . . . the Constitution.). 30 The Court of Federal Claims determined, and Barrett argues, that the facts of this case are distinguishable from all of the cases articulating the above proposition. Indeed, in the present case the government is attempting, through its counterclaims, to recover amounts that it was obligated to pay under a contract that has not been declared void. However, Grand Trunk Western Railway Co. v. United States, 252 U.S. 112, 64 L. Ed. 484, 40 S. Ct. 309 (1920), contains analogous facts. In that case, the government recovered unauthorized payments made for the transportation of mail. Id. Despite contracts covering the price term, the government recovered payments that were in excess of a statutory maximum rate. Id. at 121, 124. Although it is not clear what the price terms in the contracts in Grand Trunk specified, there is no indication that the government felt it had paid more than the contractual amount. Id. at 121. The only significant distinction from the present case is that Grand Trunk involved a statute specifying the maximum rate, rather than a regulation only authorizing certain methods of computing the price. 31 Although these distinctions may be compelling in another case, they are not compelling in the present one. This is because they do not undermine the rationale for allowing the government to recover unauthorized payments. As the Supreme Court stated in Wisconsin Central: 32 The question is not presented as between the government and its officer, or between the officer and the recipient of such payments, but as between the government and the recipient, and is then a question whether the latter can be allowed to retain the fruits of action not authorized by law, resulting from an erroneous conclusion by the agent of the government as to the legal effect of the particular statutory law under or in reference to which he is proceeding. 33 164 U.S. at 210. Barrett's arguments, discussed below, present no compelling argument, equitable or otherwise, for allowing it to retain the fruits of action not authorized by law. Id. 34 Barrett's brief presents five arguments in support of the Court of Federal Claims' dismissal of the government's counterclaims. These are: (1) the government's payments were not overpayments because, first, they were in the amount called for by the contract and, second, the illegality was in the method of computing the payments, not in the amounts that were paid; (2) only the price escalation clause was illegal and unenforceable, not the entire contract; (3) Barrett made no implied promise to pay back the unauthorized payments; (4) the government is not entitled to quantum valebant equitable relief; and (5) the government is prohibited by Federal Circuit case law from benefiting from its own illegal clause. 35 Given our analysis of the controlling cases above, the first two arguments have no merit. The third argument is irrelevant because it cannot remove the lack of authorization. We also take note, as did the Supreme Court in Wisconsin Central, of the principle that parties receiving moneys illegally paid by a public officer are liable ex aequo et bono to refund them. 164 U.S. at 212. Regarding Barrett's fourth argument, we noted earlier that the government is not seeking quantum valebant relief. 36 Barrett's last argument hinges on a statement that this court made in Beta Systems, Inc. v. United States, 838 F.2d 1179 (Fed. Cir. 1988). In Beta Systems, the government had, similarly, insisted on using a price escalation clause that was found to be inconsistent with a relevant regulation, and the contractor had acquiesced. Id. at 1185. Considering the equities in that case, the Beta Systems court concluded that if the clause violated the [law], the government can not, by law, benefit from it. Id. However, in Beta Systems the government based its price escalation clause on an index that failed to track the cost of the principal construction material of the contract. Id. This failure violated the relevant regulations and resulted in the government paying less than what was contemplated by the parties and the law. See id. at 1185-86. Thus, in contrast with the present case, Beta Systems did not involve any unauthorized payments. Further, in the present case the government is not trying to enforce the illegal clause, as it was in Beta Systems. 37 In sum, the government has stated a claim upon which relief can be granted. Moreover, the evidence shows that the payments made by the government were based on an illegal price escalation clause and, thus, were unauthorized. As a consequence, and in the absence of any compelling equitable arguments to the contrary, the government has a right to seek and recover the unauthorized payments it made. See Wurts, 303 U.S. at 415; Wisc. Cent., 164 U.S. at 210; Fansteel, 172 F. Supp. at 270. 38 Accordingly, we vacate the Court of Federal Claims' dismissal of the government's counterclaims and remand for further consideration consistent with this opinion. On remand the court must determine the amount of the payments made under the unauthorized price escalation clause and order Barrett to refund that to the government, subject to Barrett's claim for fair market value. In that process, the court should make findings regarding the base price that the government agreed to in each of the contracts in question. If the base price exceeded the fair market value, then the Court of Federal Claims should only order Barrett to refund payments made in excess of the base price.