Opinion ID: 2357566
Heading Depth: 2
Heading Rank: 2

Heading: The Sole Control Argument

Text: INA next argues that the agreement was not truly open-ended because the District could have capped its liability at any time by changing its conduct-for example, by abandoning its litigating position and reinstating K & W. We are not persuaded as a factual matter that the District had such complete control over the costs, fees and expenses covered by the indemnification provision. More importantly, this argument ignores a principal purpose of the ADA. One goal of the ADA surely is, as INA suggests, to allow the government to maintain control over its liability. However, another fundamental underlying principle is to respect the appropriation powers of the legislature. See, e.g., Schism v. United States, 316 F.3d 1259, 1288 (Fed. Cir.2002) (To say that the Executive Branch could promise future funds for activities that Congress itself had not authorized would also violate both the Anti-Deficiency Act, 31 U.S.C. § 1341(a)(1)(B) . . . and the Separation of Powers doctrine, for it would allow the Executive Branch to commandeer the power of the Legislative Branch.); Public Works-Contracts, 21 Op. Atty. Gen. 244, 248 (1895) (The object of these provisions of the statute was . . . to prevent executive officers from involving the Government in expenditures or liabilities beyond those contemplated and authorized by the lawmaking power.); In re Architect of the Capitol-Payment of Fringe Benefits to Temporary Employees, B-303961, 2004 WL 2793171,  (Comp. Gen. Dec.6, 2004) (The Antideficiency Act is one of the fundamental statutes by which Congress exercises its constitutional control of the public purse.). We are not surprised, then, that INA has cited only one decision that even arguably supports its assertion that the Repayment Agreement cannot be said to have imposed any `open-ended' obligations . . . [b]ecause the District controlled its own exposure. . . . See In re Inquiry of Hon. Howard M. Metzenbaum, 63 Comp. Gen. 145, 150 (1984). That opinion addressed unusual circumstances, and we conclude that it did not announce a generally-applicable exception to the prohibition against open-ended indemnification agreements. The fact that the Comptroller General has cited the opinion only once in the ensuing twenty-four years is evidence of its limited impact. Metzenbaum addressed concerns about a ship chartering program that passed tax benefits ordinarily available to private ship owners on to the Navy in the form of reduced charter rates. Id. at 146. The opinion concluded that certain indemnification provisions did not pose an indefinite or unlimited contingent liability in violation of the Antideficiency Act. Id. at 145. Importantly, however, [t]hese indemnification provisions . . . only c[a]me into play if vessels [were] accepted for delivery . . ., and the Navy had the right to terminate the agreement before accepting delivery of a vessel. Id. at 147-48. The Comptroller General opined that a tax indemnification provision did not violate the ADA because the contingency is solely in the hands of the Navy. Id. at 149. [T]he Navy may choose to forego or delay ordering vessel improvements or additions until sufficient funding authority is obtained to cover both additional rental and tax reimbursement payments under the contract. Id. The Navy could also require a ship-owning partner to contest any disallowance of tax benefit by the Internal Revenue Service, provided the Navy agree[d] to pay the partner's costs and expenses (including attorney's fees) for so doing. Id. at 146. This indemnification was permissible because the Navy itself determines whether the owner will incur any such expenses. Id. at 150. INA argues that the District similarly controlled its liability because [i]f it had chosen to rescind its decision [to terminate K & W], and to allow K & W to continue as general contractor, INA would have incurred no costs at all. We find this argument strained and unconvincing. The indemnification provisions affecting the Navy were forward-looking. Before taking actions that would trigger indemnification obligations, the Navy could (and the Comptroller General suggested it was obliged to) assess whether it had sufficient funding to cover additional rental and tax reimbursement payments. It knew in advance whether it was exposing itself to liability. Here, however, the District did not control its own liability  that depended on whether a third-party (the CAB or a court) determined that the termination of K & W was not justified. Moreover, that termination occurred five months before the District signed the Repayment Agreement. Even if the District subsequently rescinded the termination, INA likely would have already incurred expenses in connection with the termination of K & W. And those expenses were not limited to the costs of litigation, which admittedly were affected by the District's litigating strategy. It is impossible to know whether a prompt change of heart by the District would have avoided the costs described in note 2, supra. In sum, the District's conduct might have affected the amount of the costs incurred by INA, but that does not change the fact that this was an open-ended indemnification agreement.