Court Opinion

ID: 5132212
Source: CourtListenerOpinion
Date Created: 2021-12-07 00:01:32.586249+00
Date Added: 2024-06-11T08:23:28.828196
License: Public Domain

Case: 21-1257    Document: 35    Page: 1   Filed: 11/17/2021

   United States Court of Appeals
       for the Federal Circuit
                  ______________________

       JKB SOLUTIONS AND SERVICES, LLC,
                Plaintiff-Appellant

                            v.

                    UNITED STATES,
                    Defendant-Appellee
                  ______________________

                        2021-1257
                  ______________________

     Appeal from the United States Court of Federal Claims
 in No. 1:19-cv-01390-TCW, Judge Thomas C. Wheeler.
                  ______________________

                Decided: November 17, 2021
                  ______________________

    WILLIAM A. LASCARA, Pender & Coward, PC, Virginia
 Beach, VA, argued for plaintiff-appellant.

     AMANDA TANTUM, Commercial Litigation Branch, Civil
 Division, United States Department of Justice, Washing-
 ton, DC, argued for defendant-appellee. Also represented
 by BRIAN M. BOYNTON, STEVEN JOHN GILLINGHAM, MARTIN
 F. HOCKEY, JR.
                  ______________________

   Before MOORE, Chief Judge, NEWMAN and O’MALLEY,
                    Circuit Judges.
Case: 21-1257    Document: 35     Page: 2    Filed: 11/17/2021

 2                          JKB SOLUTIONS AND SERVICES   v. US

 O’MALLEY, Circuit Judge.
     JKB Solutions & Services, LLC appeals a decision of
 the Court of Federal Claims (“Claims Court”) granting the
 government’s motion for summary judgment on JKB Solu-
 tions’ breach of contract claim. JKB Sol’ns & Servs., LLC
 v. United States (JKB Sol’ns II), 150 Fed. Cl. 252 (2020).
 The Claims Court held that the United States Army con-
 structively invoked the termination for convenience clause
 incorporated in JKB Solutions’ contract, such that JKB So-
 lutions could not recover the damages it sought. Because
 that clause does not apply to JKB Solutions’ service con-
 tract, we vacate and remand for further proceedings.
                        BACKGROUND
     In September 2015, JKB Solutions and the Army en-
 tered into a three-year indefinite-delivery/indefinite-quan-
 tity contract for instructor services for the Operational
 Contract Support course. Military personnel enroll in the
 course to learn, inter alia, “contractor management” and
 the “development of acquisition-ready requirements pack-
 ages.” J.A. 121. Under the contract, JKB Solutions agreed
 to provide instructional services to support a maximum of
 fourteen classes per year.
      The contract incorporates Federal Acquisition Regula-
 tion (“FAR”) 52.212-4, entitled “Contract Terms and Con-
 ditions—Commercial Items.” Among the terms in FAR
 52.212-4 is a termination for convenience clause, by which
 “[t]he Government reserves the right to terminate this con-
 tract, or any part hereof, for its sole convenience.” FAR
 52.212-4(l) (2015). The contract also incorporates Defense
 Federal Acquisition Regulation Supplement (“DFARS”)
 252.216-7006, which requires all supplies and services fur-
 nished under the contract to be ordered by issuance of de-
 livery or task orders. DFARS 252.216-7006(a) (2015).
 These task orders are subject to the terms and conditions
 of the contract. DFARS 252.216-7006(b).
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 JKB SOLUTIONS AND SERVICES   v. US                           3

     The Army issued three yearlong task orders over the
 term of the contract. Each task order listed one lot of train-
 ing-instructor services, the price per class, and a total price
 corresponding to the price of fourteen classes. Each year,
 the Army used JKB Solutions’ services for fewer than four-
 teen classes and used its own personnel to teach the re-
 mainder of the classes. The Army paid JKB Solutions for
 each class the contractor actually taught and refused to pay
 the total price listed in the task orders.
      In September 2019, JKB Solutions sued the govern-
 ment for breach of contract. The government moved to dis-
 miss the complaint for failure to state a claim or, in the
 alternative, for summary judgment. It argued that (a) the
 contract and task orders required the government to pay
 only for services that JKB Solutions actually provided and
 (b) if the contract and task orders were ambiguous, JKB
 Solutions could not recover because the ambiguities were
 patent. The Claims Court denied the government’s motion
 to dismiss, determining that there were latent ambiguities
 about whether the Army must pay the total price listed in
 the task orders. JKB Sol’ns & Servs., LLC v. United States
 (JKB Sol’ns I), 148 Fed. Cl. 93, 96–98 (2020). The Claims
 Court also denied the government summary judgment be-
 cause there were genuine issues of material fact that pre-
 cluded summary judgment. Id. at 98–99.
     In a joint preliminary status report after the Claims
 Court’s decision, the government raised the issues of
 (a) whether the Christian doctrine—established in G. L.
 Christian & Associates v. United States, 312 F.2d 418
 (Ct. Cl. 1963)—applied, such that the contract and task or-
 ders included a termination for convenience clause by op-
 eration of law, and (b) whether JKB Solutions’ recovery is
 limited to termination for convenience costs under the doc-
 trine of constructive termination for convenience. At the
 request of the Claims Court, the parties agreed to brief the
 applicability of the Christian doctrine in a motion for sum-
 mary judgment. Before filing the motion for summary
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 4                          JKB SOLUTIONS AND SERVICES   v. US

 judgment, the government notified the court and JKB So-
 lutions that the contract’s incorporation of FAR 52.212-4
 made briefing on the Christian doctrine unnecessary. Over
 JKB Solutions’ objections, the Claims Court permitted the
 government to move for summary judgment based on FAR
 52.212-4 and the doctrine of constructive termination for
 convenience. The government’s motion raised the applica-
 bility of the Christian doctrine only in a footnote.
      The Claims Court granted the government’s motion for
 summary judgment. JKB Sol’ns II, 150 Fed. Cl. at 257.
 First, the court found that JKB Solutions’ contract con-
 tained a termination for convenience clause by its incorpo-
 ration of FAR 52.212-4. Id. at 256. The court agreed with
 the government that nothing in the FAR limited the ap-
 plicability of the termination for convenience clause in FAR
 52.212-4 to commercial item contracts only. Id. Second,
 the court found no indication that the Army terminated the
 task orders in bad faith or abused its discretion by doing
 so. Id. The court explained that there could not be bad
 faith or an abuse of discretion because the Army never ac-
 tually terminated the contract for convenience. Id. Even
 if the Army had terminated the contract for convenience,
 the Claims Court found that there would have been no bad
 faith or abuse of discretion in that termination. Id. at
 256–57. Third, the court invoked the doctrine of construc-
 tive termination for convenience because the contracting
 officer could have terminated for convenience when it be-
 came clear that, for each task order, the Army required
 fewer classes than originally anticipated. Id. at 257. Fi-
 nally, applying the doctrine of constructive termination for
 convenience, the court determined that JKB Solutions
 could only recover termination for convenience costs, which
 it did not seek in its complaint. Id.
     JKB Solutions timely appealed to this court. We have
 jurisdiction under 28 U.S.C. § 1295(a)(3).
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 JKB SOLUTIONS AND SERVICES   v. US                           5

                         DISCUSSION
      Summary judgment is appropriate when there is no
 genuine issue of material fact and the moving party is en-
 titled to judgment as a matter of law. Fed. Cl. R. 56(a). We
 review a grant of summary judgment de novo. City Line
 Joint Venture v. United States, 503 F.3d 1319, 1322
 (Fed. Cir. 2007). We also review contract interpretation de
 novo. Nw. Title Agency, Inc. v. United States, 855 F.3d
 1344, 1347 (Fed. Cir. 2017).
     On appeal, JKB Solutions principally argues that the
 termination for convenience clause of FAR 52.212-4 does
 not apply to its service contract. JKB Solutions also argues
 that there are genuine disputes of material fact that render
 summary judgment inappropriate. We agree with JKB So-
 lutions that the termination for convenience clause of FAR
 52.212-4 does not apply, and we therefore do not reach its
 other arguments.
     Generally, absent specific legislation to the contrary,
 common-law contract doctrines limit the government’s
 power to contract just as they limit the power of any private
 person. Torncello v. United States, 681 F.2d 756, 762–63
 (Ct. Cl. 1982) (en banc) (plurality opinion). Consequently,
 a contracting officer may only terminate a contract for the
 convenience of the government—i.e., where there has been
 no fault or breach by the non-governmental party—if the
 contract has an applicable termination for convenience
 clause. 1 Id. at 763; see Maxima Corp. v. United States,
 847 F.2d 1549, 1552 (Fed. Cir. 1988).

     1   The Christian doctrine permits courts to insert a
 clause into a government contract by operation of law if ap-
 plicable federal administrative regulations require it. Gen.
 Eng’g & Mach. Works v. O’Keefe, 991 F.2d 775, 779
 (Fed. Cir. 1993). To insert the clause, a court must find
 that the clause (1) is mandatory and (2) expresses a
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 6                          JKB SOLUTIONS AND SERVICES   v. US

     Where a contracting officer does not actually exercise a
 contract’s termination for convenience clause but stops or
 curtails a contractor’s performance for ultimately question-
 able or invalid reasons, the contract’s termination for con-
 venience clause may constructively justify the
 government’s actions, avoid breach, and limit liability. See
 Torncello, 681 F.2d at 759. The doctrine of constructive
 termination for convenience stems from College Point Boat
 Corp. v. United States, 267 U.S. 12 (1925), where the Su-
 preme Court observed:
     A party to a contract who is sued for breach may
     ordinarily defend on the ground that there existed,
     at the time, a legal excuse of nonperformance by
     him, although he was then ignorant of the fact. He
     may, likewise, justify an asserted termination, re-
     scission, or repudiation, of a contract by proving
     that there was, at the time, an adequate cause, alt-
     hough it did not become known to him until later.
 Id. at 15–16 (footnotes omitted).
     A contract’s termination for convenience clause “is not
 an open license to dishonor contractual obligations.” Max-
 ima, 847 F.2d at 1553. A contracting officer’s decision to
 terminate for convenience is only conclusive in the absence
 of bad faith or clear abuse of discretion. See Caldwell &
 Santmyer, Inc. v. Glickman, 55 F.3d 1578, 1581 (Fed. Cir.
 1995). We presume that the government acts in good faith
 when contracting. Id. To overcome that presumption, a
 contractor must show through “well-nigh irrefragable
 proof” that the government had a specific intent to injure
 it. Id. (quotation marks omitted) (finding no bad faith or
 abuse of discretion where the contracting officer termi-
 nated a contract for convenience after determining that an

 significant or deeply ingrained strand of public procure-
 ment policy. Id.
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 JKB SOLUTIONS AND SERVICES   v. US                           7

 amendment could not remedy an error arising out of a
 poorly drafted, critical contract provision).
     Similarly, the government may not resort to the doc-
 trine of constructive termination for convenience if it
 “evinced bad faith or a clear abuse of discretion in its ac-
 tions.” See Kalvar Corp. v. United States, 543 F.2d 1298,
 1300–01 (Ct. Cl. 1976). The government may also not use
 the doctrine of constructive termination for convenience to
 terminate a contract retroactively so as to change its obli-
 gations under a fully performed contract.           Maxima,
 847 F.2d at 1553–54, 1557 (holding that the government
 could not recover its payment of the unused contractual
 minimum a year after contract completion under the the-
 ory that its failure to order the contractual minimum con-
 stituted a constructive termination for convenience); see
 also, e.g., Ace-Federal Reps., Inc. v. Barram, 226 F.3d 1329,
 1333 (Fed. Cir. 2000); Krygoski Constr. Co. v. United
 States, 94 F.3d 1537, 1542 n.2 (Fed. Cir. 1996).
     The government acts in bad faith when, for example, it
 “contracts with a party knowing full well that it will not
 honor the contract.” Caldwell, 55 F.3d at 1582; accord
 Salsbury Indus. v. United States, 905 F.2d 1518, 1521
 (Fed. Cir. 1990). In Torncello v. United States, 681 F.2d
 756 (Ct. Cl. 1982) (en banc), the government entered into a
 requirements contract with Torncello, knowing that there
 was a cheaper bidder, and proceeded to use the cheaper
 bidder’s services for items covered by its contract with
 Torncello. See id. at 758 (plurality opinion); Salsbury,
 905 F.2d at 1521 (discussing Torncello). The Court of
 Claims held that there cannot be a constructive termina-
 tion for convenience in these circumstances. See id. at 773
 (Friedman, J., concurring); Salsbury, 905 F.2d at 1521
 (“The [Torncello] court, not surprisingly, held that the gov-
 ernment could not avoid the consequences of ignoring its
 promise to that contractor by hiding behind the conven-
 ience termination clause.”); Krygoski, 94 F.3d at 1541–42
 (“The Navy [in Torncello] used the termination for
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 8                           JKB SOLUTIONS AND SERVICES    v. US

 convenience clause to escape a promise it never had an in-
 tention to keep.”). The government, therefore, acts in bad
 faith by terminating a contract for convenience “simply to
 acquire a better bargain from another source.” Krygoski,
 94 F.3d at 1541 (citing Torncello, 681 F.2d at 772).
     Here, the Claims Court erred by holding that JKB So-
 lutions’ contract contained an applicable termination for
 convenience clause. The Claims Court relied solely on the
 contract’s incorporation of FAR 52.212-4 by reference. JKB
 Sol’ns II, 150 Fed. Cl. at 256. But, as explained below, FAR
 52.212-4 governs the termination of commercial item con-
 tracts for the government’s convenience, and it does not ap-
 ply to service contracts, such as the contract at issue in this
 case. 2
     FAR 52.212-4 provides for the insertion of numerous
 contract terms and conditions “[a]s prescribed in [FAR]
 12.301(b)(3).” FAR 52.212-4. FAR 12.301 implements
 41 U.S.C. § 3307, which provides that the FAR “shall con-
 tain a list of contract clauses to be included in contracts for
 the acquisition of commercial end items.” 41 U.S.C.
 § 3307(e)(2)(B) (2012) (amended 2018) (emphasis added);
 see FAR 12.301 (2015). The statute constrains the list of
 contract clauses:
     To the maximum extent practicable, the list shall
     include only those contract clauses that are—
     (i) required to implement provisions of law or ex-
         ecutive orders applicable to acquisitions of

     2    For purposes of its summary judgment motion, the
 government did not dispute JKB Solutions’ characteriza-
 tion of the contract as a service contract (and not a com-
 mercial item contract).        Oral Arg. at 23:20–25:28,
 https://oralarguments.cafc.uscourts.gov/default.aspx?fl=21
 -1257_09022021.mp3.
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         commercial items or commercial components;
         or
     (ii) determined to be consistent with standard
          commercial practice.
 41 U.S.C. § 3307(e)(2)(B). FAR 12.301 contains substan-
 tially similar language limiting the list of contract clauses.
 See FAR 12.301(a). The regulation prescribes the insertion
 of “clauses,” like FAR 52.212-4, “in solicitations and con-
 tracts for the acquisition of commercial items.” FAR
 12.301(b) (emphasis added). Because FAR 52.212-4 applies
 only to commercial item contracts and because, for pur-
 poses of this summary judgment motion, JKB Solutions’
 contract is not a commercial item contract, the Claims
 Court erred in relying on FAR 52.212-4 to supply an appli-
 cable termination for convenience clause.
      The Claims Court rationalized its holding, finding that
 “nothing in the FAR limits the applicability of Section
 52.212-4(l) to commercial item contracts.” JKB Sol’ns II,
 150 Fed. Cl. at 255–56. The government reiterates this
 reasoning on appeal. As previously noted, the text of FAR
 52.212-4 and FAR 12.301 limit the applicability of the in-
 corporated termination for convenience clause to commer-
 cial item contracts. The existence of other termination for
 convenience clauses in the FAR further supports our con-
 clusion. For example, Part 52 of the FAR provides for the
 insertion of several termination for convenience clauses
 “[a]s prescribed” in FAR 49.502. See FAR 52.249-1 to
 52.249-5 (2015). FAR 49.502 prescribes the insertion of
 FAR 52.249-4’s “Termination for Convenience of the Gov-
 ernment (Services) (Short Form)” clause in certain “con-
 tracts for services.” FAR 49.502(c) (2015). Moreover, the
 FAR provides that the part to which FAR 49.502 belongs
 “does not apply to commercial item contracts awarded us-
 ing part 12 procedures.” FAR 49.002(a)(2) (2015). A differ-
 ent FAR provision, which references FAR 52.212-4,
 governs the termination policies of those contracts for the
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 10                          JKB SOLUTIONS AND SERVICES    v. US

 acquisition of commercial items. Id. (citing FAR 12.403
 (2015)). The FAR’s own distinction between termination
 for convenience clauses based on types of contracts con-
 firms that FAR 52.212-4’s termination for convenience
 clause does not apply to JKB Solutions’ service contract.
     We are unpersuaded by the government’s remaining
 arguments as to the applicability of FAR 52.212-4. First,
 the government argues that JKB Solutions did not pre-
 serve its arguments that FAR 52.212-4 only applies to com-
 mercial item contracts. We disagree. In JKB Solutions’
 opposition to the government’s motion for summary judg-
 ment, JKB Solutions argued that FAR 52.212-4’s termina-
 tion for convenience clause “is inapplicable here because it
 concerns only Commercial Item contracts whereas the pre-
 sent dispute concerns a Service Contract.” J.A. 557–58.
 JKB Solutions’ argument referenced other FAR provisions,
 including FAR 12.301, FAR 49.502, and FAR 52.249-4. Id.
     Second, the government argues that FAR 52.212-4’s
 termination for convenience clause necessarily applies to
 JKB Solutions’ contract because, through incorporation by
 reference, it is a binding term on the parties. This argu-
 ment conflates two separate concepts: (1) whether JKB So-
 lutions manifested its acceptance of the terms of the
 contract, such that it is bound by them, and (2) whether the
 termination for convenience clause that the contract incor-
 porates by reference applies to the contract, i.e., has effect.
 As noted, FAR 52.212-4 applies only to contracts for the ac-
 quisition of commercial items; it has no effect on the service
 contract between JKB Solutions and the government. See
 Torncello, 681 F.2d at 763 (plurality opinion) (“Therefore,
 this court will read the termination for convenience clause
 in the contract in this case as it would read any contract
 term and give effect to it or deny effect to it as dictated by
 the general law.”). Giving the incorporated termination for
 convenience clause no effect does not “deny the Govern-
 ment the benefit of its bargain,” as the Claims Court found.
 JKB Sol’ns II, 150 Fed. Cl. at 256. In drafting the contract,
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 JKB SOLUTIONS AND SERVICES   v. US                          11

 the government simply incorporated a FAR provision that,
 on its face, applies only to commercial item contracts.
                        CONCLUSION
     For the reasons discussed above, the Claims Court
 erred in holding that FAR 52.212-4 supplied an applicable
 termination for convenience clause. We therefore vacate
 the Claims Court’s decision and remand for further pro-
 ceedings consistent with this decision. On remand, the
 Claims Court may consider whether the Christian doctrine
 applies to incorporate a termination for convenience clause
 and whether, in light of our case law, the doctrine of con-
 structive termination for convenience applies in these cir-
 cumstances.
                VACATED AND REMANDED
                           COSTS
 Costs to JKB Solutions.