Court Opinion

ID: 4456918
Source: CourtListenerOpinion
Date Created: 2019-11-19 17:01:29.032688+00
Date Added: 2024-06-11T14:51:14.674093
License: Public Domain

In the United States Court of Federal Claims
                                No. 19-498C
                        (Filed: November 19, 2019)

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CONSTRUCTORA GUZMAN, S.A.,                            Contracts; payment bonds;
                                                      40 U.S.C. § 3131 (2018);
                    Plaintiff,                        48 C.F.R. § 28.204 (2018);
                                                      third-party     beneficiary;
v.                                                    retainage; implied-in-fact
                                                      contract; motion to dismiss;
THE UNITED STATES,                                    failure to state a claim;
                                                      subject-matter jurisdiction.
                    Defendant.

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       Joseph A. McManus, Jr., Washington, DC, with whom was David J.
Butzer, for plaintiff.

       Joseph A. Pixley, Trial Attorney, United States Department of Justice,
Civil Division, Commercial Litigation Branch, Washington, DC, with whom
were Joseph H. Hunt, Assistant Attorney General, Robert E. Kirschman, Jr.,
Director, Steven J. Gillingham, Assistant Director, for defendant. Jeffrey A.
Regner, Attorney-Advisor, U.S. Department of State, of counsel.

                                 OPINION

BRUGGINK, Judge.

        The United States, acting through the Department of State, entered
into a contract with Enviro-Management & Research, Inc. (“EMR”) for
renovation of an embassy in Georgetown, Guyana. EMR subcontracted some
construction services to plaintiff, Constructora Guzman, but failed to pay it
for a portion of its work. Plaintiff seeks payment from the State Department,
alleging that it is a third-party beneficiary to a breached provision of the
contract between the State Department and EMR or, alternatively, that
plaintiff itself had an implied-in-fact contract with the State Department.

       Pending is defendant’s motion to dismiss the complaint for failure to
state a claim on which relief can be granted in the first count and for lack of
subject-matter jurisdiction over the second count. The motion is fully briefed,
and we held oral argument on November 15, 2019. Because plaintiff pled
sufficient facts to overcome a motion to dismiss on count one, we deny the
government’s motion on that count. We grant the government’s motion as to
count two, however, because plaintiff did not plead a non-frivolous
allegation of an implied-in-fact contract with the United States.

                             BACKGROUND 1

       The State Department entered into a contract with EMR in September
2013 for a $39 million renovation of an embassy in Georgetown, Guyana,
South America. The contract stated that payments would be remitted to the
contractor’s address as provided on the cover page of the contract. Before the
State Department paid EMR, the contractor was required to certify that it had
made all payments due to subcontractors and suppliers. EMR was also
required to satisfy lawful claims from subcontractors regarding labor and
materials furnished. The contract did not include a process by which the State
Department could directly pay subcontractors.

        To guarantee, among other things, the payment of wages to
subcontractors, the contract award stated that the contractor must furnish
payment and performance bonds. The contract required EMR to furnish
either performance and payment bonds in the amount of 100% of the contract
price for both bonds or comparable alternative security approved by the
government and consistent with Federal Acquisition Regulation (“FAR”)
Section 28.204.

       Instead of requiring payment and performance bonds, about five
months after entering the contract, the State Department issued a
modification, which stated, “1. Deobligate CLIN 001 in the amount of
($697,867.00), in lieu of Performance and Payment Bonds stated in
Cost/Price proposal. 2. Retain 10% per invoice in lieu of bonds and
additional 10% if the contractor is not performing. All other terms and
conditions remain unchanged.” Def.’s Suppl. to Mot. to Dismiss.

       One month later the State Department modified the contract again,
stating, “1. Add $682,867 back to CLIN 001 for overages taken when de-

1
 The background recounts the facts alleged in plaintiff’s complaint with the
context provided by exhibits attached to the complaint and the State
Department-EMR contract that defendant filed on September 16, 2019.
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obligating funds for Performance and Payment bonds not received. Initially
$697,867 was mistakenly removed in lieu of Bonding; the correct de-
obligation cost is $15,000 from the contract award. All other terms and
conditions remain unchanged.” Id. Modification two did not amend the
retainage in lieu of bonds provision stated in modification one.

        EMR later entered into a subcontract with Constructora Guzman “to
provide multiple construction-related services for $8.3 million.” Compl. ¶
15. Plaintiff was “[u]naware that the State Department had waived” the
requirement to secure performance and payment bonds and had modified the
contract to provide for alternative security. Id. at ¶¶ 6, 21. Constructora
Guzman completed its work on February 3, 2017, and the State Department
sent it a letter of commendation. Constructora Guzman sent EMR an invoice
for approximately $1.4 million, which EMR has not paid.

       Plaintiff contacted the State Department a year after completing its
work to request a copy of “the bond and the contract.” Id. at Ex. 1. The
contracting officer responded that the contract “was not covered by bonds.
The agreement was to withhold 10% throughout the duration of the contract
as a result of EMR not being able to acquire performance and payment
bonds.” Id. The State Department did not provide Constructora Guzman with
a copy of the contract. Plaintiff alleges that the State Department has paid
EMR $982,134.14 from withheld payment, only retaining approximately
$25,000, despite Constructora Guzman going unpaid. Id. at ¶ 25.

        Plaintiff filed its complaint on April 4, 2019, without the benefit of
reviewing the contract on which it bases its first count. The government
subsequently moved to dismiss the complaint and attached a two-page
excerpt of the State Department-EMR contract to its motion. Plaintiff
responded that the excerpt the government filed was not representative of the
entire contract. The court directed the government to file the entire contract,
which it did on September 16, 2019. The government also attached a
declaration from the contracting officer to its reply in support of its motion.

                               DISCUSSION

       For nearly a century, subcontractors have been protected against
contractors failing to pay them by the general requirement that contractors
must furnish a payment bond to the United States. Miller Act, ch. 642, § 1,
49 Stat. 793 (1935) (current version at 40 U.S.C. §§ 3131-34 (2018)). The
State Department-EMR contract, despite being a contract performed in a
foreign country, see 40 U.S.C. § 3131(d), included that standard payment
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bond requirement. This case arises out of the State Department’s failure to
require bonding or to unambiguously waive the payment bond requirement.
Instead, the State Department muddied the water by substituting “[r]etain
10% per invoice in lieu of bonds” for a payment bond, leading Constructora
Guzman to seek payment from that retainage. Def.’s Suppl. to Mot. to
Dismiss.

   I.      Plaintiff Alleged Sufficient Facts to State a Claim on Count One.

        In its first count, plaintiff alleges that EMR’s contract with the
Department of State obligated EMR to furnish payment and performance
bonds to the United States and that, instead of requiring those bonds, the State
Department substituted a contract modification allowing it to “[r]etain 10%
per invoice in lieu of bonds.” Id. Plaintiff argues that these facts are sufficient
to plausibly show that the modification was for the benefit of EMR’s
subcontractors and that, by paying EMR from withheld funds when a
subcontractor had not been paid, the State Department breached the contract.
Defendant argues that these facts are insufficient to state a claim that plaintiff
was an intended beneficiary of the State Department’s right to retain payment
or that the State Department breached its contract with EMR.

       In deciding this motion to dismiss for failure to state a claim, the court
will not consider the contracting officer’s affidavit that the government
attached to its reply brief. On a Rule 12(b)(6) motion to dismiss, the court
will “consider the complaint in its entirety, as well as other sources courts
ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in
particular, documents incorporated into the complaint by reference, and
matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (citing 5B Wright & Miller
§ 1357 (3d ed. 2004 and Supp. 2007)). If, however, “matters outside the
pleadings are presented to and not excluded by the court, the motion must be
treated as one for summary judgment under [Rule] 56.” Rule 12(d) of the
Rules of the United States Court of Federal Claims (“RCFC”).

        Plaintiff put everything it had access to into its complaint, considering
it did not have the opportunity to review the contract on which it bases its
first claim and there has been no discovery. The complaint incorporates the
contract by reference, including quoting standard contract language
regarding bonding, and the terms of that contract are integral to plaintiff’s
claims. The court thus will consider the contract between EMR and the State
Department in addition to plaintiff’s complaint and complaint exhibits. It is
plainly inappropriate, however, to consider the contracting officer’s
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declaration on a motion under Rule 12(b)(6) because it reaches beyond the
allegations in the complaint and the terms of the underlying contract.

        Under Rule 8, plaintiff’s complaint must contain a “short and plain
statement of the claim showing that the pleader is entitled to relief.” RCFC
8(a)(2). Plaintiff is not required to plead “detailed factual allegations,” Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), but must plead “more
than an unadorned, the-defendant-unlawfully-harmed-me-accusation,”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). When considering a motion to
dismiss under Rule 12(b)(6), the court accepts as true the “well-pleaded
factual allegations” in the complaint and determines whether those
allegations “plausibly give rise to an entitlement to relief.” 556 U.S. at 679.
“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.” Id. at 678.

        Constructora Guzman alleges that it has standing to sue the United
States as a third-party beneficiary to the State Department’s contract with
EMR. See Sullivan v. United Sates, 625 F.3d 1378, 1380 (Fed. Cir. 2010). A
plaintiff is a third-party beneficiary if the contract reflects the express or
implied intent to directly benefit plaintiff or a class that plaintiff falls within.
Glass v. United States, 258 F.3d 1349, 1353-54 (Fed. Cir. 2001); Montana v.
United States, 124 F.3d 1269, 1273 (Fed. Cir. 1997). “The intent of the
parties to the contract is therefore the cornerstone of a claim for third-party
beneficiary status.” Flexfab, L.L.C. v. United States, 424 F.3d 1254, 1259
(Fed. Cir. 2005). The court looks first for “clear guidance from the contract
language,” but the government’s intent “can [also] be inferred from the
actions of the contracting officer and circumstances providing the contracting
officer with appropriate notice that the contract provision at issue was
intended to benefit the third party.” Id. at 1262-63.

         Plaintiff’s theory is that it falls within a class, EMR’s subcontractors,
that the contract modification was intended to benefit. Supporting this theory
are the facts that the contract required a payment bond, which is “for the
protection of all persons supplying labor and material in carrying out the
work provided for in the contract,” 40 U.S.C. § 3131, and that the State
Department substituted “[r]etain “10% per invoice in lieu of bonds,” Def.’s
Suppl. to Mot. to Dismiss. According to plaintiff, the State Department put
itself in the position of protecting subcontractors by retaining payment to pay
subcontractors if EMR did not. Plaintiff also notes that the State Department
could have waived the payment bond requirement for this contract or chosen
an alternative set out in the FAR, but instead it chose to take on the
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responsibility of retaining payment. See 40 U.S.C. §§ 3131(d), 3132(b); FAR
§§ 28.204–1, –2, –3. When the State Department failed to retain money to
compensate unpaid subcontractors, according to plaintiff, it breached the
contract.

       Defendant responds that the modification was not intended to put the
United States in the position of a surety, because the contract, read as a
whole, unambiguously places responsibility on the contractor to pay
subcontractors. The government argues that the modification stated that it
did not change the terms and conditions in the contract beyond deobligating
a certain sum and allowing the State Department to retain 10% per invoice.
The contract obligates the contractor to certify, as a part of invoicing, that it
has paid its subcontractors, and there is no explicit mechanism for the State
Department to directly pay subcontractors such as Constructora Guzman. For
instance, Constructora Guzman was not a joint payee on the contract and
there does not appear to be a payment arrangement for the United States to
pay plaintiff. E.g., J.G.B. Enterps. v. United States, 497 F.3d 1259, 1261 n.1
(Fed. Cir. 2007); D & H Distrib. Co. v. United States, 102 F.3d 542, 547
(Fed. Cir. 1996). The government, thus, concludes that Constructora Guzman
is at most an incidental beneficiary of the State Department’s right to retain
10% per invoice in lieu of bonds.

       Additionally, the government argues that, even if plaintiff could show
it was a third-party beneficiary, plaintiff has not alleged any facts showing
that the State Department breached the contract. The government contends
that, while the modification permitted the State Department to retain
payment, “fail[ing] to enforce a contract provision that it was entitled to
enforce . . . is not a breach of contract by the Government.” Sullivan, 625
F.3d at 1381.

        Applying the notice pleading standard, we find that plaintiff has
alleged sufficient facts to “nudge[] [its] claim[] across the line from
conceivable to plausible.” Bell Atlantic Corp., 550 U.S. at 570. Plaintiff has
pled enough to plausibly suggest that the State Department intended to put
itself in the position of retaining payment for the protection of
subcontractors. It is unclear why the State Department chose to modify its
contract with EMR to allow the government to retain payment rather than
adopting an alternative to a payment bond endorsed by the FAR. It is likewise
unclear whether the State Department waived the bonding requirement. We
are left with a contract that requires bonding and a contracting officer that
chose a substitute for those bonds. At a minimum, the State Department’s
modification allows an inference that plaintiff is part of class intended to
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benefit directly from that modification.

       This motion to dismiss is not the proper place to resolve the issue of
the contracting officer’s intent in issuing the modifications to the EMR
contract or whether the State Department had a duty to hold retained payment
for the benefit of subcontractors. Discovery will develop the facts
surrounding the modification, such as what facts the contracting officer had
notice of, whether the contracting officer intended to waive the bonding
requirement, and how the State Department approached withholding and
releasing payment to EMR. Notably, both parties cite cases in which plaintiff
had the opportunity to discover facts that would support its third-party
beneficiary claim. See, e.g., G4S Tech. LLC v. United States, 779 F.3d 1337,
1340 (Fed. Cir. 2015); Sullivan, 625 F.3d at 1379; Flexfab, 424 F.3d at 1257-
59; Fox Logistics & Constr. Co. v. United States, No. 18-1395C, 2019 WL
4668069 (Sept. 25, 2019). Such fact discovery is likewise appropriate for
Constructora Guzman’s claim. We therefore deny the government’s motion
to dismiss count one.

   II.    Plaintiff did not Allege a Non-Frivolous Allegation of an Implied-
          in-Fact Contract with the United States.

      In its second count, Constructora Guzman alleges that “there is an
implied-in-fact contract between the State Department and [Constructora
Guzman], which the State Department breached by its failure to withhold
adequate funds to pay [Constructora Guzman’s] claim . . . .” Compl. ¶ 35.
Defendant argues that the court lacks subject-matter jurisdiction over this
claim because Constructora Guzman failed to allege the elements of an
implied-in-fact contract.

       This court has jurisdiction over claims against the United States
founded on “any express or implied contract with the United States.” 28
U.S.C. § 1491(a)(1) (2018). When defendant moves to dismiss for lack of
subject-matter jurisdiction, the court assumes the undisputed facts in the
complaint are true and draws reasonable inferences in plaintiff’s favor.
Acevedo v. United States, 824 F.3d 1365, 1368 (Fed. Cir. 2016). Plaintiff
must plead facts sufficient to invoke this court’s jurisdiction. Reynolds v.
Army & Air Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988).

        For the court to have jurisdiction over a plaintiff’s contract claim,
plaintiff must allege “a non-frivolous allegation of a contract with the
government.” Engage Learning, Inc. v. Salazar, 660 F.3d 1346, 1353 (Fed.
Cir. 2011) (emphasis omitted). “The elements of an implied-in-fact contract
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are: ‘(1) mutuality of intent to contract; (2) consideration; (3) an
unambiguous offer and acceptance[;] and (4) ‘actual authority’ on the part of
the government’s representative to bind the government.’” Biltmore Forest
Broad. FM, Inc. v. United States, 555 F.3d 1375, 1380 (Fed. Cir. 2009)
(quoting Schism v. United States, 316 F.3d 1259, 1278 (Fed. Cir. 2002) (en
banc)). “‘An implied-in-fact contract is one founded upon a meeting of minds
and is inferred, as a fact, from the conduct of the parties showing, in the light
of the surrounding circumstances, their tacit understanding.’” Turping v.
United States, 913 F.3d 1060, 1065 (Fed. Cir. 2019) (quoting Hanlin v.
United States, 316 F.3d 1325, 1328 (Fed. Cir. 2003)).

        Constructora Guzman has not stated a non-frivolous allegation of an
implied-in-fact contract with the State Department. Plaintiff argues that the
State Department’s modification of its contract with EMR indicated a tacit
understanding that plaintiff would not work on the embassy renovation
without guaranteed payment. At oral argument, plaintiff also argued that the
email exchange between Constructora Guzman and the State Department
could be the basis for an implied-in-fact contract, despite conceding that
plaintiff’s work on the contract had ended more than a year prior. These
arguments are unpersuasive. The State Department modified the EMR
contract prior to Constructora Guzman’s subcontract with EMR, and plaintiff
twice states in its complaint that it completed its work without knowing about
the arrangement between EMR and the United States. The complaint does
not allege any other facts that suggest Constructora Guzman interacted with
the State Department in a way that would indicate a meeting of the minds
regarding the State Department paying Constructora Guzman. Because
plaintiff has not made a non-frivolous allegation of an implied-in-fact
contract, we grant the government’s motion to dismiss plaintiff’s count two.

                               CONCLUSION

       The government’s motion to dismiss is granted as to count two of the
complaint and denied as to count one. Count two is dismissed for lack of
subject-matter jurisdiction. Defendant shall file its answer on or before
December 3, 2019. The parties shall file the Joint Preliminary Status Report
two weeks later, on or before December 17, 2019, setting out a proposed
discovery schedule as discussed at oral argument.

                                                   s/Eric G. Bruggink
                                                   Eric G. Bruggink
                                                   Senior Judge
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