Court Opinion

ID: 1042654
Source: CourtListenerOpinion
Date Created: 2013-10-01 19:46:00.840574+00
Date Added: 2024-06-11T15:22:31.458932
License: Public Domain

In the United States Court of Federal Claims
                                        No. 12-865
                                Filed: September 30, 2013

***************************************
                                      *
                                      *        Administrative Procedure Act, 5 U.S.C. § 706;
                                      *        Contract Disputes Act, 41 U.S.C. § 7103;
                                      *        Declaratory Relief Act, 28 U.S.C. § 2201;
SIGMA CONSTRUCTION, INC.,             *        Duty of Good Faith and Fair Dealing;
a/k/a SIGMA SERVICES, INC.,           *        Federal Acquisition Regulation,
                                      *          2.101 (contract modification);
        Plaintiff,                    *          43.103(a) (bilateral contract modification);
                                      *          49.001 (settlement agreement);
    v.                                *          49.107 (audit of settlement proposals);
                                      *          52.249-2(a) (termination for convenience of
THE UNITED STATES,                    *             the Government – fixed price);
                                      *        Small Business Act, 15 U.S.C. § 637(a)(1)(B);
        Defendant.                    *        Motion to Dismiss,
                                      *          RCFC 12(b)(1) (lack of subject matter
                                      *             jurisdiction);
                                      *          RCFC 12(b)(6) (failure to state a claim).
                                      *
***************************************

Robert A. Brunette, Law Offices of Robert A. Brunette, Glendale, California, Counsel for
Plaintiff.

Katy M. Bartelma, United States Department of Justice, Civil Division, Washington, D.C.,
Counsel for the Government.

                   MEMORANDUM OPINION AND FINAL ORDER

Braden, Judge.

I.     FACTUAL BACKGROUND. 1

       On April 22, 2008, SIGMA Construction, Inc. (“Sigma” or “Plaintiff”) submitted a
proposal in response to a Request For Proposals (“RFP”) No. GS-09P-07-NP-C-0005, issued by
the United States General Services Administration (“GSA” or the “Government”). Compl. ¶ 6.

       1
        The facts discussed herein were derived from the December 12, 2012 Complaint
(“Compl.”) and attachments thereto (“Pl.’s Attach. 1–8”).
The project was an 8(a) 2 sole source procurement for a design/build contract to install a roofing
system on the Hawthorne Federal Building in Lawndale, California. Compl. ¶ 6. Sigma and
GSA negotiated and agreed upon a final contract price of $979,588. Compl. ¶ 7. On May 30,
2008, Sigma was awarded GSA Contract No. GS-09P-08-NPC-0005 (“the Contract”).
Compl. ¶ 8. The initial schedule required approval for shop drawings within 30 days, with roof
construction to be completed 130 days thereafter. Compl. ¶ 7. On June 24, 2008, the initial
Contracting Officer (“CO”) issued a letter confirming the GSA’s receipt of Sigma’s Performance
and Payment Bonds and establishing November 6, 2008 completion date. Pl.’s Attach. 1.

       Numerous incidents, however, delayed the scheduled      construction. GSA did not timely
approve Sigma’s performance bonds and shop drawings.            Compl. ¶ 9. In addition, GSA
requested that Sigma change access authorization for           twenty-three workers, requiring
fingerprints and a background investigation for each worker.   Compl. ¶ 9. And, in May 2009, a
dispute about the warranty occurred. Compl. ¶ 9.

       On May 21, 2009, a new CO sent Sigma a Notice to Proceed for on-site work that stated:
“because of factors out of [Sigma’s] control,” the Contract needed to be modified to reflect a
new completion date of October 1, 2009. Pl.’s Attach. 1; see also Compl. ¶ 10.

       On September 24, 2009, the GSA disclosed that a 2003 “Asbestos-Containing Material
Field Survey Report” indicated that the roof contained toxic asbestos. Compl. ¶ 9. In response,
Sigma provided GSA with a cost proposal for asbestos abatement. Compl. ¶ 9.

      On October 5, 2009, Sigma requested from GSA compensation for the increased costs of
abatement and additional time required to complete the project. Compl. ¶ 11.

        On April 6, 2010, the GSA terminated the Contract, pursuant to Federal Acquisition
Regulation (“FAR”) 52.249-2(a) “Termination for Convenience of the Government—Fixed
Price.” Compl. at ¶ 12.

        On November 12, 2010, Sigma submitted a Request For Equitable Adjustment (“REA”)
to the GSA for delay-related cost increases in the amount of $823,904. Compl. ¶ 13.

       On February 18, 2011, the CO directed Sigma to submit a document combining the REA
with a Termination Settlement Proposal. Compl. ¶ 14

       On March 21, 2011, Sigma submitted a consolidated proposal requesting $86,106 as a
Termination Settlement Proposal, together with the previously submitted REA for $823,904, for
the combined amount of $1,116,220. Compl. ¶ 15. At the CO’s direction, Sigma included, in
the combined amount, two prior GSA progress payments in the amount of $206,010.
Compl. ¶ 15.

      On September 19, 2011, Sigma submitted a separate certification of the March 21, 2011
Termination Settlement Proposal for $86,106. Compl. ¶ 16. Thereafter, the CO advised Sigma’s
       2
          The 8(a) program is established by the Small Business Act to arrange for and assist
socially and economically disadvantaged small businesses in the performance of procurement
contracts for construction work and other services. See 15 U.S.C. § 637(a)(1)(B).

                                                2
CEO that a GSA review and analysis of Sigma’s proposals was underway. Compl. ¶ 17. On
November 22, 2011 the GSA sent via e-mail an attached signed letter offering “final settlement
amount of $235,842, all items considered.” Compl. ¶ 17. Sigma rejected the offer. Compl. ¶
17.

       On December 1, 2011, the CO and Sigma’s CEO negotiated a $485,000 settlement in a
telephone conference, in addition to the $206,210 GSA previously paid as progress payments.
Compl. ¶¶ 18–19. The CO advised Sigma’s CEO that a written confirmation of this amount
would be forthcoming. Compl. ¶ 19.

        On December 6, 2011, the CO e-mailed Sigma a letter confirming that the December 1,
2011 agreement would be issued as a “final supplemental modification to the [C]ontract.” Pl.’s
Attach. 3; see also Compl. ¶ 20. The letter also stated that “[t]he supplemental modification
finalizing the settlement agreement under the [C]ontract will be transmitted to you for your
signature prior to final execution by the Government.” Pl.’s Attach. 3.

       But, on January 30, 2012, the CO sent an e-mail letter to Sigma stating that “the final
modification requires a review by the GSA’s Regional office.” Compl. ¶ 23.

        On April 20, 2012, the CO sent another e-mail. The CO advised Sigma that, pursuant to
GSA’s internal review, the GSA concluded that the “[December 1, 2011] negotiated settlement
has not been deemed acceptable and w[ould] not be approved without a complete third party
audit.” Pl.’s Attach. 4; see also Compl. ¶ 24. The CO also stated that the GSA would like to re-
open negotiations to avoid an audit. Pl.’s Attach. 4; Compl. ¶ 24.

        On April 24, 2012, Sigma responded by e-mail that it considered the December 1, 2011
agreement final and declined to renegotiate. Compl. ¶ 25. On May 30, 2012, Sigma’s counsel
sent a letter to GSA stating that the settlement contract modification required GSA to pay Sigma
$485,000. Compl. ¶ 26. On June 22, 2012, the CO reaffirmed GSA’s position and informed
Sigma that the GSA had initiated an audit. Compl. ¶ 26.

        On August 13, 2012, Sigma’s CEO mailed the CO a certified claim requesting payment
of $485,000, plus interest. Compl. ¶ 29; Pl.’s Attach. 5. Sigma also requested that the CO “issue
a written final decision on this claim.” Compl. ¶ 29; Pl.’s Attach. 5.

        On September 13, 2012, GSA’s Office of the Inspector General (“OIG”) contacted Sigma
for information. Compl. ¶ 30. Sigma responded that an audit was unnecessary because Sigma
previously provided a REA and the Termination Settlement Proposal to the CO, as well as a
certified invoice for the negotiated amount. Compl. ¶ 30. On that same date, Sigma mailed a
second copy of the CDA claim to the CO via registered mail. Compl. ¶ 31.

       On September 20, 2012, the OIG advised Sigma by e-mail that the Termination
Settlement Proposal was not valid and requested additional information about Sigma’s delay
claim. Pl.’s Attach. 6; see also Compl. ¶ 32.

       On October 29, 2012, Sigma contacted the CO again, reasserting the August 13, 2012
claim for $485,000 and requesting a final written decision. Compl. ¶ 35.

                                               3
        On November 13, 2012, after receiving no reply from the CO, Sigma mailed a third
certified copy of Plaintiff’s August 13, 2012 claim. Pl.’s Attach. 8; see also Compl. ¶ 36. As of
December 12, 2012, the GSA did not respond. Compl. ¶ 37.

II.    PROCEDURAL HISTORY.

       On December 12, 2012, Sigma filed a Complaint in the United States Court of Federal
Claims seeking: (1) judgment under the Declaratory Relief Act, 28 U.S.C. § 2201
(Compl. ¶¶ 38–40); (2) mandamus under the Administrative Procedure Act, 5 U.S.C. § 706
(Compl. ¶¶ 41–44); and (3) $485,000 plus costs for GSA’s breach of the December 1, 2011
settlement agreement. Compl. ¶¶ 45–54.

       On April 19, 2013, the Government filed a Motion To Dismiss, pursuant to Rules of the
United States Court of Federal Claims (“RCFC”) 12(b)(1) and 12(b)(6).

       On April 26, 2013, Sigma filed a Motion For Summary Judgment. On April 30, 2013,
the Government filed a Motion To Stay Briefing On Plaintiff’s Motion For Summary Judgment.
On May 3, 2013, Plaintiff filed a Response. On May 7, 2013, the parties were informed that the
court would address any jurisdictional issues first and instructed the parties to finalize briefing on
the Government’s April 19, 2013 Motion To Dismiss.

        On May 10, 2013, Sigma filed a “Request For Leave To Amend The Complaint To Strike
[Plaintiff’s] First And Second Claims For Relief.” On May 21, 2013, the court granted that
request. As such, the Government’s April 19, 2013 Motion To Dismiss, insofar as it pertains to
Plaintiff’s First and Second Claims for relief—under the Declaratory Judgment Act and
Administrative Procedure Act, respectively—is moot.

       On May 13, 2013, Sigma filed a Response To the Government’s Motion To Dismiss and
attached pages 19-38 of Sigma’s April 26, 2013 Motion For Summary Judgment, pursuant to
RCFC 5.4(b)(3). On June 5, 2013, the Government filed a Reply.

       On September 24, 2013, the court held a telephonic oral argument with the parties
concerning the Government’s Motion to Dismiss and Sigma’s Response. Following that
argument, the Government filed a Status Report on September 27, 2013. 3

       3
           In its September 27, 2013 Status Report, the Government estimated that, upon
submission by Sigma of its claims pursuant to the Contract Disputes Act and dismissal of this
litigation, the Contracting Officer would renew the audit request with the GSA within five
business days. Gov’t Status Rep. 1. GSA anticipates beginning the audit in January 2014 and
completing it within 90 days. Gov’t Status Rep. 1–2. At that point, the Contracting Officer will
issue a final decision within 60 days. Gov’t Status Rep. 2.

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III.   DISCUSSION.

       A.      Jurisdiction. 4

        The United States Court of Federal Claims has jurisdiction under the Tucker Act, 28
U.S.C. § 1491, “to render judgment upon any claim against the United States founded either
upon the Constitution, or any Act of Congress or any regulation of an executive department, or
upon any express or implied contract with the United States, or for liquidated or unliquidated
damages in cases not sounding in tort.” 28 U.S.C. § 1491(a)(1). The Tucker Act, however, is “a
jurisdictional statute; it does not create any substantive right enforceable against the United
States for money damages . . . the Act merely confers jurisdiction upon [the United States Court
of Federal Claims] whenever the substantive right exists.” United States v. Testan, 424 U.S.
392, 398 (1976) (citations omitted). Therefore, to pursue a substantive right under the Tucker
Act, a plaintiff must identify and plead an independent contractual relationship, Constitutional
provision, federal statute, and/or executive agency regulation that provides a substantive right to
money damages. Todd v. United States, 386 F.3d 1091, 1094 (Fed. Cir. 2004) (“[J]urisdiction
under the Tucker Act requires the litigant to identify a substantive right for money damages
against the United States separate from the Tucker Act itself.”); see also Fisher v. United States,
402 F.3d 1167, 1172 (Fed. Cir. 2005) (en banc) (“The Tucker Act . . . does not create a
substantive cause of action; in order to come within the jurisdictional reach and the waiver of the
Tucker Act, a plaintiff must identify a separate source of substantive law that creates the right to
money damages. In the parlance of Tucker Act cases, that source must be ‘money-
mandating.’”).

       B.      Relevant Standards Of Review.

        A challenge to the United States Court of Federal Claims’ “[ability] to exercise its
general power with regard to the facts peculiar to the specific claim . . . . is raised by a [Rule]
12(b)(6) motion . . . .” Palmer v. United States, 168 F.3d 1310, 1313 (Fed. Cir. 1999); see also
RCFC 12(b)(6) (allowing a party to assert, by motion, “failure to state a claim upon which relief
can be granted”). When considering whether to dismiss an action for failure to state a claim, the
court must assess whether the complaint states “allegations plausibly suggesting (not merely
consistent with)” behavior by defendant that, if proven, would entitle the plaintiff to judicial
relief. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007); see also Ashcroft v. Iqbal, 556
U.S. 662, 679 (2009) (“[O]nly a complaint that states a plausible claim for relief survives a
motion to dismiss.”). In other words, “[a] claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Iqbal, 556 U.S. at 678. “Factual allegations must be enough to
raise a right to relief above the speculative level, on the assumption that all the allegations in the

       4
         The December 12, 2012 Complaint is captioned as a suit against the Government, as
well as “Does 1 through 5, inclusive” who allegedly “participated in, conspired, and contributed
to the damages suffered” by Plaintiff. Compl. ¶ 4. The only proper defendant in the United
States Court of Federal Claims, however, is the United States. See 28 U.S.C. § 1491(a); see also
RCFC 10. Therefore, the court does not have jurisdiction to adjudicate the claims against Does 1
through 5.

                                                  5
complaint are true (even if doubtful in fact).” Bell Atl. Corp., 550 U.S. at 555 (internal citations
omitted). But see Iqbal, 556 U.S. at 678 (“[T]he tenet that a court must accept as true all the
allegations contained in a complaint is inapplicable to legal conclusions.”).

       C.       Issues Raised In The Government’s April 19, 2013 Motion To Dismiss.

                1.     Whether The December 12, 2012 Complaint Alleged Sufficient Facts
                       To Conclude That The Government Entered Into An Enforceable
                       Oral Settlement.

                       a.     The Government’s Argument.

       The Government argues that the December 12, 2012 Complaint fails to allege sufficient
plausible facts to establish the existence of a separate, enforceable contract arising out of the
December 1, 2011 oral negotiations concluded. Gov’t Mot. 8–15. Any oral or written settlement
agreement purporting to arise out of the original GSA contract is invalid because, as a matter of
law, an agency-level resolution of a settlement request only can be made by a written
modification. Gov’t Mot. 8 (citing FAR 49.001 (defining “settlement agreement” as a “written
agreement”) and FAR 49.109-1 5 (requiring Standard Form 30 for settlement agreements)). In
addition, a contracting officer cannot resolve a payment request under to a GSA contract by
entering into a separate agreement purporting to govern the same terms as the original. Gov’t
Mot. 9 (citing Schism v. United States, 316 F.3d 1259, 1278 (Fed. Cir. 2002) (holding that an
express contract precludes the existence of an implied-in-fact contract purporting to govern the
same subject matter)). Although the Government concedes that Schism’s holding concerned an
implied-in-fact contract, in this case Sigma “has not explained why an express contract
purporting to govern the same subject matter as another express contract is any more acceptable
than an [implied-in-fact] contract purporting to do the same.” Gov’t Reply 4–5. In addition, “in
the event that the parties could not agree on a modification and a contractor’s subsequent claim is
denied, then the contractor’s sole remedy is a suit brought pursuant to the Contract Disputes Act
(CDA).” Gov’t Mot. 9.

       The cause of action in this case, however, is not premised on a contract. Gov’t Mot. 9
n.3. But, even if Sigma is allowed to amend the Complaint to allege a breach of contract, this
claim also must be dismissed, because Sigma has identified no provision or clause, contract
modification, or any other obligation sufficient to establish, above a speculative level, the
existence of an obligation to pay $485,000. Gov’t Mot. 15. Sigma has not contested these facts,
nor the arguments relating to the requirements of the FAR, and therefore has conceded these
arguments. Gov’t Reply 5, 12.

        Even if a separate agreement could be reached outside of the Contract, the parties did not
meet all of the requisite elements of contract formation, because Sigma’s “allegations reveal the
parties contemplated the execution of a written contract modification and the [CO] possessed
only the authority to resolve [Sigma’s] requests by means of a written contract modification” on
Standard Form 30. Gov’t Mot. 10–11 (citing FAR 43.103(a) (describing a “bilateral
modification” as a modification signed by both parties used to “[m]ake negotiated equitable

       5
           The Government mistakenly cites to FAR 49.109-2, but quotes FAR 49.109-1.

                                                 6
adjustments [that r]eflect other agreements of the parties modifying the terms of [the]
contract[]”); FAR 43.301(a)(1) (providing that SF 30 “shall . . . be used for . . . (v)
[s]upplemental agreements”)). In addition, opinions hold that “oral negotiations, even if
confirmed, do not give rise to a binding contract where . . . the parties anticipate the execution of
a formal written agreement.” Gov’t Mot. 11–12 (citing SCM Corp. v. United States, 595 F.2d
595, 598 (Ct. Cl. 1979) (holding that an oral agreement to settle an REA was not a binding
contract, where, in light of the regulations and the parties’ understanding, the commitments in
the oral understanding were not to be consummated until the execution of a written supplemental
agreement as reflected on a Form SF 30); see also Mil-Spec Contractors, Inc. v. United States,
835 F.2d 865, 867 (Fed. Cir. 1987) (“Unless and until there was a binding modification to which
both [plaintiff] and the contracting officer had agreed in writing, there could not be a binding
modification of the contract.”)).

        In this case, the parties agreed in principle to an amount to settle their dispute, but
contemplated a written document to finalize that agreement. Gov’t Reply 10. The CO is
presumed to act in accordance with the law, which is evidenced by references to the need for a
supplemental modification. Gov’t Reply 10 (citing Compl. ¶¶ 20, 23). In any case, the CO did
not have the authority to waive any legal requirements or alter her authority. Gov’t Mot. 14;
Gov’t Reply 10–11. Further, as a government contractor, Sigma “is charged with knowledge of
the regulatory requirements,” and the facts alleged in the Complaint raise a plausible inference
that Sigma indeed understood the need for a written modification. Gov’t Reply 11. Therefore,
whether the CO made any assurances or statements of authority, they are not dispositive of the
CO’s actual authority or the existence of a contract. Gov’t Reply 11–12. Sigma “requests the
Court to review the applicability of the common law” (Pl.’s Resp. 6–7), but “general principles
do not challenge [the Government’s] specific demonstration of the applicable regulatory
requirements.” Gov’t Reply 6. Nor do non-binding decisions of the Boards of Contract Appeals
outweigh the Government’s demonstration that the oral negotiations could not have given rise to
a binding contract. Gov’t Reply 6–7.

          As the May 13, 2013 Response clarifies, the sole basis of Sigma’s claim is that the
December 1, 2011 oral settlement agreement has the effect of a contract. Gov’t Reply 3 (citing
Compl. ¶ 48–49 and Pl.’s Resp. 4–5). Sigma specifically disclaimed that the settlement was
implied-in-fact and arose out of anything other than the parties’ verbal agreement. Gov’t Reply
3 (citing Pl.’s Resp. 5 (“This case concerns an express oral contractual settlement arising from
Sigma’s claims in the express written GSA construction contract.”)). Reliance on an oral
agreement with the Government invokes 31 U.S.C. § 1501(a) (“An amount shall be recorded as
an obligation of the United States Government only when supported by documentary evidence
of . . . a binding agreement between an agency and another person . . . that is . . . in writing . . .
and executed . . . .”). Gov’t Reply 3. Plaintiff’s reliance on an express oral contract does not
meet this statutory requirement. Gov’t Reply 3–4; see also Daly Construction, Inc. v. Garret, 5
F.3d 520, 521 (Fed. Cir. 1993) (“To recover on an express agreement with a Government
agency, the agreement must be in writing and signed by an authorized person.”).

                       b.      The Plaintiff’s Response.

        Sigma responds that the December 12, 2012 Complaint alleged substantial and sufficient
facts to evidence the plausible existence of a binding express oral agreement with the GSA. Pl.’s

                                                  7
Resp. 2–3. The allegations therein are sufficient to meet the RCFC 12(b)(6) standard, as they
“state plausible grounds for the [c]ourt to infer that a binding settlement agreement was intended
by both [p]arties to be negotiated and finalized on December 1, 2011—meeting the four basic
contract formation requirements.” Pl.’s Resp. 4 (quoting from Anderson v. United States, 344
F.3d 1343, 1353 (Fed. Cir. 2003) (“To form an agreement binding upon the government, four
basic requirements must be met: (1) mutuality of intent to contract; (2) lack of ambiguity in offer
and acceptance; (3) consideration; and (4) a government representative having actual authority to
bind the United States in contract.”)).

        The GSA, as an agency of the United States, is bound by common law contract rules
when it acts in its contracting capacity. Pl.’s Resp. App. 19–21 (citing United States v. Winstar
Corp., 518 U.S. 839, 895 (1996) (“An even more serious objection is that allowing the
Government to avoid contractual liability merely by passing any ‘regulatory statute’ would flout
the general principle that, ‘[w]hen the United States enters into contract relations, its rights and
duties therein are governed generally by the law applicable to contracts between private
individuals.’” (quoting Lynch v. United States, 292 U.S. 571, 579 (1934))). As such, the
common law contract formation requirements apply to the December 1, 2011 settlement
agreement. Pl.’s Resp. 4; Pl.’s Resp. App. 21–23. In addition, the GSA is bound by the conduct
of its CO, as an authorized agent, under the rule of finality. Pl.’s Resp. 4; Pl.’s Resp. App. 23–
25. For this reason, the Armed Services Board of Contract Appeals has held that an enforceable
oral agreement can be formed when the Government accepts an offer, without the necessity of
any formal modification of the contract. Pl.’s Resp. 4; Pl.’s Resp. App. 25–27 (citing In re MPR
Assocs., Inc., ASBCA No. 54689, 05-2 B.C.A. (CCH) ¶ 33115 (Oct. 27, 2005) (“[T]he
government may enter into an enforceable oral agreement with respect to resolution of rights
under a contract without formal modification of the contract itself.”)).

        In addition, the December 1, 2011 oral agreement was not executory and did not
contemplate a formal contract modification or use of a SF 30 Form. Pl.’s Resp. App. 27–33.
Contrary to the Government’s argument, the CO never mentioned the need for any written
contract modification or SF 30 Form during the negotiations leading up to the December 1, 2011
final settlement. Pl.’s Resp. 7. The CO only unilaterally raised this requirement for the first time
in her December 6, 2011 letter. Pl.’s Resp. 7. In addition, contrary to the Government’s reliance
on SCM Corporation, a number of decisions of the United States Court of Claims and various
Boards of Contract Appeals decided after SCM and Mil-Spec support the proposition that the
absence of an SF 30 Form is not dispositive. Pl.’s Resp. 7–8 (citing Robinson Contracting Co.
Inc. v. United States, 16 Cl. Ct. 676, 681, 688 (1989) (describing the execution of a SF 30 Form
as a “mere formality” in the specific circumstances of that case); see also Adams Constr. Co.,
VABCA No. 4669, 97-1 B.C.A. (CCH) ¶ 28801 (Feb. 13, 1997) (“Thus, Mil-Spec does not
establish a rigid, formalistic standard that would permit an enforceable, bilateral agreement
modifying a contract to arise only upon a talismanic execution of the SF-30 by both
parties . . . .”)); Pl.’s Resp. App. 27–33.

       Finally, the Government’s April 19, 2013 Motion To Dismiss misstates the facts and
misapplies case law. Pl.’s Resp. 5–6. First, contrary to the Government’s argument, the
December 12, 2012 Complaint contains plausible allegations that the parties intended and
reached “a binding lump-sum settlement agreement” to satisfy the claims set forth in Sigma’s
combined REA and Termination Settlement Proposal. Pl.’s Resp. 5. In addition, the

                                                 8
Government’s reliance on Schism is misplaced because the rule established therein precludes
only the existence of an implied-in-fact contract that purports to cover the same subject matter as
an express contract. Pl.’s Resp. 5–6. That is not the situation here. Third, Sigma has satisfied
the elements of contract formation: Sigma’s offer and the CO’s acceptance were unambiguous
and specific; Sigma’s $425,010 reduction in its consolidated proposal from the $910,000 amount
claimed was more than adequate consideration; the CO was warranted on July 9, 2009 and
authorized to bind the Government up to amounts well in excess of the $485,000 offered and was
the assigned Government representative with actual authority to finalize the agreement
(Compl. ¶ 18; Pl.’s Attach. 2); and there is $773,378 still obligated and available under the
Contract to pay Sigma the agreed-to amount, so that there is no need for a supplemental
modification to increase funding to pay that amount. Pl.’s Resp. 3, 6; Pl.’s Resp. App. 22–23.

                       c.     The Court’s Resolution.

        The first issue before the court is whether the December 12, 2012 Complaint has alleged
sufficient plausible facts to state a claim for breach of the alleged December 1, 2011 oral
settlement agreement reached between Sigma and the GSA.

       In general, an agreement must meet four basic elements in order to bind the government:

       (1)   mutuality of intent to contract;
       (2)   lack of ambiguity in offer and acceptance;
       (3)   consideration; and
       (4)   a government representative having actual authority to bind the United States in
             contract.

Anderson, 344 F.3d at 1353. The court is mindful that in some contexts, oral agreements can be
binding. See, e.g., Tiburzi v. Dep’t of Justice, 269 F.3d 1346 (Fed. Cir. 2001) (finding an oral
settlement agreement between a Drug Enforcement Agency employee and the Agency to be
binding).

        The Federal Acquisition Regulation (“FAR”), however, imposes additional requirements.
FAR Part 49 states that the settlement of a contract terminated for convenience requires a written
contract modification, executed by both the contractor and the terminating contract officer, on a
Form SF 30. FAR 49.001 defines a “settlement agreement” as a “written agreement in the form
of a contract modification settling all or a severable portion of a settlement proposal.” FAR
49.109-1 provides that “[w]hen a termination settlement has been negotiated and all required
reviews have been obtained, the contractor and [terminating contracting officer] shall execute a
settlement agreement on Standard Form 30.” 48 C.F.R. § 49.001; 48 C.F.R. § 49.109-1. In
addition, FAR 2.101 defines a contract modification as “any written change in the terms of a
contract.” 48 C.F.R. § 2.101. FAR 43.103 defines a “bilateral modification” or “supplemental
agreement” as a “contract modification that is signed by the contractor and the contracting
officer” and used to, among other things, “reflect . . . agreements of the parties modifying the
terms of contracts.” 48 C.F.R. § 43.103. And, FAR 43.301 provides that the SF 30 “shall . . . be
used for . . . supplemental agreements.” 48 C.F.R. § 43.301(a)(1)(v).

                                                9
        The United States Court of Appeals for the Federal Circuit has recognized that these
provisions of the FAR “require that a modification of a contract be in writing and executed by
both parties.” Mil-Spec, 835 F.2d at 867–68. Moreover, these provisions support “the basic
principle . . . that an oral modification of a written contract, which may be modified only by
bilateral written agreement, is ineffective.” Id. at 869; cf. SCM Corp., 595 F.2d at 597–98
(holding that an oral agreement reached by the parties—where the Armed Services Procurement
Regulations, which, like the FAR, “view a settlement as a separate written contract altering the
rights and liabilities of the parties”—“was not a contract and [could not] sustain a breach of
contract action”).

        While Sigma cites several cases for the proposition that the absence of an executed SF 30
Form is not dispositive, these cases are either inapposite or not binding. For example, Sigma
characterizes Robinson Contracting as “finding that the use of a[n] SF-30 was a ‘mere formality’
(after an oral agreement was in fact created).” Pl.’s Resp. 7. Although Robinson did determine
that the absence of a SF 30 Form was not dispositive, the accord that the appellate court
determined was enforceable “was not solely oral . . . . [and b]oth parties signed a written
agreement” that was complete and unambiguous. 16 Cl. Ct. at 688–89. Likewise, Sigma’s
reliance on Texas Instruments Inc. v. United States, 922 F.2d 810 (Fed. Cir. 1990), is misplaced.
In that case the United States Court of Appeals for the Federal Circuit held that a binding
agreement was reached in the absence of a written agreement, after also finding that the
“agreement was not a ‘bilateral modification of a contract’ but rather a fulfillment of an express
contractual term,” and that “[t]he regulations governing Mil-Spec and SCM simply [were]
inapplicable to the facts.” Id. at 814. In any event, regardless of whether an SF 30 Form is an
absolute prerequisite to a binding settlement agreement or a mere formality, the FAR is clear that
an agreement settling a termination for convenience, as with any other bilateral contract
modification, must be in a written agreement and executed by both the contractor and the
contracting officer. See Mil-Spec, 835 F.2d at 867 (“Unless and until there was a binding
modification to which both Mil-Spec and the contracting officer had agreed in writing, there
could not be a binding modification of the contract. The oral agreement . . . could not and did
not constitute a valid accord and satisfaction.”). That did not occur in this case.

        Instead, the CO and Sigma’s CEO participated in a telephone negotiation on December 1,
2011, during which the parties reached an oral agreement on a settlement amount.
Compl. ¶¶ 18–19. On December 6, 2011, the CO e-mailed Sigma a signed and dated letter that
confirmed the December 1, 2011 negotiated settlement amount “determined to be acceptable
under a final settlement agreement, to be issued as a final supplemental modification to the
[C]ontract.” Compl. ¶ 20; Pl.’s Attach. 3. The letter further stated, “[t]he supplemental
modification finalizing the settlement agreement under the contract will be transmitted to you for
signature prior to final execution by the Government.” Pl.’s Attach. 3. The CO’s e-mail thus
made clear to Sigma that the signed December 6, 2011 letter confirmed the agreed-upon
settlement amount, but that a formal contract modification, as required by the FAR, would be
forthcoming. Therefore, pursuant to the FAR provisions cited above, the December 1, 2011 oral
agreement alone did not create a binding final settlement agreement between the parties. Instead,
the parties were required to execute a written contract modification. The December 12, 2012
Complaint contains no allegations that the parties did so.

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        Assuming, arguendo, the validity of Sigma’s allegations that the CO indicated the
intention to finalize a settlement agreement during the December 1, 2011 telephone conference,
and never provided notice of the need for a written modification or any upper-level review at that
time, these facts are not dispositive. After the December 1, 2011 telephone conference, the
parties did not take the steps necessary to execute a binding contract. Moreover, Sigma is
“‘charged with notice of all statutory and regulatory limitations,’” including the limits of the
CO’s authority. CACI, Inc. v. Stone, 990 F.2d 1233, 1236 (Fed. Cir. 1993) (quoting Prestex, Inc.
v. United States, 320 F.2d 365, 371 (Ct. Cl. 1963)); see also SCM Corp., 595 F.2d at 598
(“Parties are presumed to know and required to be cognizant of the governing regulations.”). As
a matter of law, the CO does not have the authority to waive statutory or regulatory
requirements. See United States v. Amdahl Corp., 786 F.2d 387, 392 (Fed. Cir. 1986) (“Failure
to follow the applicable rules negates the agent’s authority to enter into a contract binding on the
government. To permit otherwise would be to nullify those very statutes, regulations, and
determinations—a result clearly contrary to the public interest.” (quoting Brous, Termination for
Convenience: A Remedy for the Erroneous Award, 5 Pub. Cont. L.J. 221, 222–23 (1972)). Nor
is the Government “bound by its agents acting beyond their authority and contrary to regulation.”
CACI, 990 F.2d at 1236 (quoting Urban Data Sys., Inc. v. United States, 699 F.2d 1147, 1153
(Fed. Cir. 1983)).

        Therefore, the court has determined, as it must, that because the alleged oral settlement
did not comply with FAR provisions 49.001 and 49.109-1 requiring a written modification for a
settlement of a termination for convenience, and because the CO did not have authority to enter
into an oral settlement, the December 12, 2012 Complaint fails to allege facts sufficient to
establish the existence of a contractual obligation binding on the Government.

               2.      Whether The December 12, 2012 Complaint States A Claim For
                       Breach Of The Duty Of Good Faith And Fair Dealing.

                       a.      The Government’s Argument.

        The Government argues that the December 12, 2012 Complaint’s claim that the GSA
breached the duty of good faith and fair dealing also must be dismissed. Gov’t Mot. 15 (citing
Compl. ¶ 52 (“Said contract entered into between Plaintiff and the Government contains said
implied-in-law covenant [of good faith and fair dealing] by which the GSA assumed this duty,
and promised to promptly transmit to Plaintiff a written contract modification . . . .”)). The
implied duty of good faith and fair dealing does not exist in the absence of an underlying
contract, so Sigma has no claim for the breach of the implied duty in this case. Gov’t Mot. 16
(citing Scott Timber Co. v. United States, 692 F.3d 1365, 1372 (Fed. Cir. 2012) (“[B]ecause the
existence of the covenant of good faith and fair dealing depends on the existence of an
underlying contractual relationship, there is no claim for a breach of this covenant where a valid
contract has not yet been formed.” (alterations omitted)). In addition, the Government is liable
for a breach of the duty of good faith and fair dealing “only where the Government’s purpose in
acting ‘was to specifically target the plaintiff and reappropriate a benefit guaranteed by a contract
with the plaintiff.’” Gov’t Mot. 16 (quoting Scott Timber, 692 F.3d at 1375). Even assuming the
settlement was a contract, Sigma has not alleged any action by the GSA to specifically target
Sigma and re-appropriate a benefit guaranteed by the contract, since the GSA simply followed
applicable regulations. Gov’t Mot. 16–17. In addition, the December 12, 2012 Complaint failed

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to set forth plausible facts that identify the elements necessary for a breach of the duty of good
faith and fair dealing or to evidence specifically targeted actions by the GSA. Gov’t Reply 12–
13.

                       b.      The Plaintiff’s Response.

        Sigma responds that the simple showing required to claim a breach of the duty of good
faith and fair dealing is an allegation that the “party’s contracting partner deprived it of the fruits
of the contract.” Pl.’s Resp. 8–9 (quoting Riviera Agredano v. United States, 70 Fed. Cl. 564,
574 n.8 (2006)). A breach of this duty can be established by showing, inter alia, “lack of
diligence, negligence or failure to cooperate or through subterfuges and evasions . . . even though
the actor believes his/her conduct to be justified, or by failing to communicate with plaintiff for a
long period, or by refusing to respond to many requests, or a lack of honesty in fact in the
conduct or transaction concerned.” Pl.’s Resp. 9 (emphasis and footnotes omitted).

        In this case, the December 12, 2012 Complaint alleges that the CO repeatedly assured
Sigma that a thorough GSA review and analysis of Sigma’s proposals was ongoing. Compl. ¶ 7.
The CO represented that she had the legal authority to finalize and accept Sigma’s offer. Pl.’s
Resp. 9. Nevertheless, on January 30, 2012, the CO advised Sigma for the first time that the
December 1, 2011 settlement agreement required review by the GSA. Pl.’s Resp. 9 (citing
Compl. ¶¶ 17–20, 23). And, on April 20, 2012, June 22, 2012, and October 16, 2012, the CO
stated that she would demand a third party audit, unless Sigma agreed to re-open negotiations.
Pl.’s Resp. 9 (citing Compl. ¶¶ 24, 26–28, 33). Moreover, the CO never responded to or
acknowledged Plaintiff’s repeated CDA claims. Pl.’s Resp. 9–10 (citing Compl. ¶¶ 29, 31, 33,
35–37). Finally, the Government tries to narrow the scope of Sigma’s good faith and fair dealing
claim only to GSA’s conduct regarding the December 1, 2011 settlement, but the covenant also
attaches to the underlying Contract, as well. Pl.’s Resp. 10.

                       c.       The Court’s Resolution.

        As both parties recognize, government contracts, like contracts between private
individuals, include an implied duty of good faith and fair dealing that requires each party not to
interfere with the other party’s rights under the contract. See Precision Pine & Timber,
Inc. v. United States, 596 F.3d 817, 828 (Fed. Cir. 2010) (“The duty of good faith and fair
dealing is inherent in every contract. . . . In essence, this duty requires a party to not interfere
with another party's rights under the contract.” (internal citations omitted)); see also Centex
Corp. v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005) (same). Because the implied duty
protects contractual rights, what it “entails depends in part on what [a given] contract promises.”
Precision Pine, 596 F.3d at 830. But, the implied duty of good faith and fair dealing “cannot
expand a party’s contractual duties beyond those in the express contract or create duties
inconsistent with the contract’s provisions.” Id. at 831; see also Bradley v. Chiron Corp., 136
F.3d 1317, 1326 (Fed. Cir. 1998) (citing Racine & Laramie, Ltd. v. Cal. Dep't of Parks &
Recreation, 11 Cal. App. 4th 1026 (1992) for the proposition that “implied covenants of good
faith and fair dealing are limited to assuring compliance with the express terms of the contract
and [cannot] be extended to create obligations not contemplated in the contract”). In addition,
the duty of good faith and fair dealing “‘does not deal with good faith in the formation of a
contract.’”     Scott Timber, 692 F.3d at 1372 (quoting RESTATEMENT (SECOND) OF

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CONTRACTS § 205 cmt. c. (1981)); id. (“[B]ecause the existence of the covenant of good faith
and fair dealing depends on the existence of an underlying contractual relationship, there is no
breach of this covenant where a valid contract has not yet been formed.” (quoting Mountain
Highlands, LLC v. Hendricks, 616 F.3d 1167, 1171 (10th Cir. 2010) (alterations omitted)).

        To prevail on a claim for breach of the implied duty of good faith and fair dealing, a
plaintiff must show that the government acted in a way “specifically designed to reappropriate
the benefits the other party expected to obtain from the transaction, thereby abrogating the
government’s obligations under the contract.” Precision Pine, 596 F.3d at 829 (citing Centex,
395 F.3d at 1311). In other words, “liability only attaches if the government action ‘specifically
targeted’ a benefit” of the government contract at issue, Precision Pine, 596 F.3d at 830, “so as
to destroy the reasonable expectations of the other party regarding the fruits of the contract.”
Centex, 395 F.3d at 1304.

        In this case, Sigma cannot premise a claim for breach of the implied duty of good faith
and fair dealing on the alleged December 1, 2011 oral settlement agreement, since, unless and
until a written modification had been mutually executed “a valid contract ha[d] not yet been
formed.” Scott Timber, 692 F.3d at 1372. To the extent that the CO made representations about
her authority to finalize a settlement, assured Sigma that GSA review of Sigma’s proposals had
been ongoing, and later insisted on a third party audit of the proposals and requested that Sigma
re-open negotiations, these facts are not relevant to a claim for breach of the implied duty of
good faith and fair dealing, because the GSA had the right to verify the expenses Sigma claims
and a binding settlement never materialized.

         In addition, while it is true that the “[c]ovenant [of good faith and fair dealing] attaches to
the underlying construction contract” (Pl.’s Resp. 10 (citing Compl. ¶¶ 50-53)), the duty “cannot
expand a party’s contractual duties beyond those in the express contract.” Precision Pine, 596
F.3d at 830–31. Sigma has failed to identify any provision or term in the Contract requiring the
GSA to pay $485,000, to waive a written contract modification, or settle the termination of the
contract under the specific terms asserted in the December 12, 2012 Complaint. As discussed
above, the FAR governs how the CO must proceed with the negotiation and settlement of a
termination for convenience. Specifically, FAR 49.107(a) provides that the terminating CO must
“refer each prime contractor settlement proposal of $100,000 or more to the appropriate audit
agency for review and recommendations” and “may submit settlement proposals of less than
$100,000 to the audit agency.” 48 C.F.R. § 49.107(a) (emphasis added). After the GSA’s
internal review deemed Sigma’s settlement proposals unacceptable, the CO’s decision to submit
this matter to a GSA auditor, even if inconsistent with prior statements regarding the necessity of
review and even if the audit report would be “advisory only” (FAR 49.107(d)), was well within
the CO’s discretion. This action, like the CO’s rationale for reopening negotiations and the
GSA’s requirement of a written contract modification to effectuate a valid settlement, in
compliance with the FAR, does not amount to “specifically targeted” actions by GSA “designed
to reappropriate the benefits the other party expected to obtain from the transaction, thereby
abrogating the government’s obligations under the contract.” Precision Pine, 596 F.3d at 829–
30. Therefore, the court has determined that the December 1, 2012 Complaint failed to plausibly
state a claim for breach of the implied duty of good faith and fair dealing.

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IV.   CONCLUSION.

       For the foregoing reasons, the Government’s April 19, 2013 Motion To Dismiss is
granted. The Clerk of the Court is directed to dismiss the December 12, 2012 Complaint,
without prejudice.

      IT IS SO ORDERED.

                                               s/ Susan G. Braden
                                               SUSAN G. BRADEN
                                               Judge

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